Overproduction underlines need to diversify

Sher Singh Sangwan

LIKE the Minimum Support Price (MSP) for 23 kinds of cereals, pulses and oilseed crops, the Government of India has been announcing a guaranteed price for sugarcane, which was called the Statutory Minimum Price (SMP) till 2008-09. Since 2009-10, it is termed Fair and Remunerative Price (FRP) as per the recommendation of the Rangarajan Committee which took into account the cost of production of sugarcane as well as the sugar price realised by mills. Despite FRP, some state governments announce state-advised price (SAP) for sugarcane which is higher than FRP. The SAP is binding on sugar mills as the Supreme Court has validated the states’ power in this regard, first in 2004 and then in 2019.

Sugarcane farming

Since 2004, there has been a chronic problem of outstanding sugarcane arrears owed to farmers as the mills reported their inability to pay. After every 3-4 years, state and Central governments are allocating budgets and arrange soft bank loans for sugar mills to clear payments to farmers. The ex-mill price of sugar has almost been stagnant, whereas the SAP of sugarcane has been spurring higher production of cane and sugar. Thus, mills have been accumulating stock of sugar as they are unable to sell despite moderation of the Sugar Control Order, 1966, from time to time due to their higher cost of production. The Central Government introduced the minimum selling price of sugar in 2018 for viability, on the one hand, and states are announcing higher SAP on the other.

Genesis of the problem

In the absence of government intervention in sugarcane prices, its acreage was broadly following a four-year cyclical trend in response to the prices of sugar, gur and khandsari in the previous year. Potato is another crop whose acreage still follows the four-year cycle. It is as per the well-established Nerlovian model of acreage supply response with lagged adjustments for prices, yield, etc. After the onset of FRP for sugarcane since 2009-10, Tamil Nadu and Karnataka have stopped regular increases in SAP, but Punjab, Haryana, Uttar Pradesh and Uttarakhand are more frequent in announcing SAP as per farmers’ demand. With the continuous hike in SAP of sugarcane by some states, the cyclical nature of their sugarcane acreage has been flattened with an upward trend in the last 15 years or so. Further, due to higher SAP from mills, about 80 per cent of sugarcane was used for sugar production in 2017-18; it was about 30 per cent in 1975-76. Payments as per SAP are legally protected too as the Allahabad High Court had once ordered the UP Government to recover farmers’ arrears as government revenue from the mills. Now, farmers are also awakened and organised like the unions of government employees.

In October 2009, the Sugarcane (Control) Order, 1966, was amended; SMP was replaced by FRP. In this regard, the Rangarajan Committee was set up; it submitted its report in October 2012. As per its recommendation, 70 per cent of last year’s price should be paid to farmers and 30 per cent retained by the millers. The FRP is linked to the cost of sugarcane production, recovery of sugar, price of sugar and its by-products. Farmers can increase their profits by reducing the cost of production of sugarcane, whereas millers may reduce the cost of sugar processing by co-generation of electricity from bagasse. However, states have not implemented FRP; SAP is still announced under the pressure exerted by farmers’ unions.

The way out

The higher SAP and increase in yield per hectare in recent years have resulted in higher sugar production than the domestic demand. The cost of production of our sugar is generally higher than international prices. The Centre has to give subsidies to mills for the export of sugar. Hence, some major sugar-producing countries such as Brazil, Australia and Guatemala have filed cases under World Trade Organisation (WTO) agreements against the higher support farmers in India. The Centre is inducing mills to use a part of sugarcane for ethanol production by fixing its higher blending in petrol (20 per cent by 2025). Some states are also resisting pressure from farmers’ unions to annually revise the SAP. As an alternative to SAP, states may direct sugar mills to distribute a portion of their overall profits from sugar, ethanol and other byproducts. Moreover, sugarcane acreage may be diverted to competing crops such as maize, arhar and oilseeds to reorient land use as per the demand. The producers of oilseeds and pulses are mostly from less irrigated areas and they deserve more focus than others to reduce the import burden of the country. With higher and assured prices for oilseeds, some sugarcane acreage can be diverted; this will also help in arresting the depletion of groundwater.

The author is Professor, SBI Chair, CRRID, Chandigarh
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#Agriculture #Minimum Support Price MSP