DEBATE : IS THIS THE RIGHT TIME TO DECONTROL THE SUGAR INDUSTRY?
Decontrol will benefit industry not farmers
KRISHAN BIR CHAUDHARY
Posted online: Monday , June 23, 2008 at 2305 hrs IST
http://www.financialexpress.com/news/Decontrol-will-benefit-industry-not-farmers/326168/0
Before finalising any decision on decontrol or deregulation of the sugar sector, policymakers should ensure that the desired benefits flow directly to farmers. Cane growers are pivots of the sugar sector, which cannot grow and progress if their concerns are not properly addressed. Industry is urging the government to decontrol the sugar sector so that they can reap more profits. It is a common belief among economists and bureaucrats that if the industry prospers, the benefits ultimately trickle down to the stakeholders. But unfortunately, past experience shows that this has not always been the case.
The pricing of sugarcane still remains a contentious issue. The central government announces a statutory minimum price (SMP) for cane based on the recommendations of the Commission for Agricultural Costs & Prices. The SMPs are fixed low, and do not allow farmers to even recover their cost of production. The present UPA government has done farmers great injustice by increasing the cane basic recovery rate from 8.5% to 9%. But, as there aren't many high-yielding varieties of cane available in the country, the increase in basic recovery rate will not benefit many growers. Therefore, the basic recovery rate should be reduced from 9% to 8.5%.
As SMPs are low, many state governments fix their own state advised prices to help farmers. The state governments have a right to step in, as agriculture is a state subject under the Constitution. Some criticise the decision of these state governments as politically motivated. In this context, I would like to ask: what do we do when the assessments of economists fail to recognise reality? What is wrong if the political Economy can solve the problem in the right way? The industry, in most cases, fails to make payments to cane growers within two weeks as required by law and the government remains a mute spectator. If the industry wants to make a deferred payment, they should pay the farmers with accumulated interest.
I was chairman of the Indian Sugarcane Development Council under the Union agriculture ministry from November 1991 to February 1995. We deliberated a number of issues confronting the sugar sector. We suggested that the total profits of the industry generated not only from sugar, but also from by-products like jaggery, molasses, ethanol, press mud and power cogeneration should be shared with cane growers. Unfortunately, the government's cane pricing policy does not take into consideration profits from these by-products.
The industry says that the cane price should be fixed on the basis of a percentage of sugar sales realisations. This is absolutely ridiculous! Yes, I am for a common cane pricing policy for the country. Cane prices should not only be remunerative but should also be fixed in such a way to ensure sharing of benefits from the sale of sugar and all by-products.
In Uttar Pradesh, sugar mills collect cane from farmers through cooperatives. The cane cooperatives cause problems in payments to farmers. We suggested computerisation of cane stock received and payments made to make the process transparent. We also detected fraud in weighing centres for cane and suggested its remedy.
We also suggested that the sugar development fund not only be deployed to rescue the industry, but also used for farmers. The fund should be used to develop new varieties of high-yielding cane and to promote nurseries. The fund can be use to clear dues owed to farmers, particularly when the industry fails to make payments in time. The industry can later replenish the amount to the fund with interest.
(The writer is the president of Bharatiya Krishak Samaj, India's oldest and largest farmer organisation)
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DEBATE : IS THIS THE RIGHT TIME TO DECONTROL THE SUGAR INDUSTRY?
Levy, supply regime not in larger interest
SHANTI LAL JAIN
Posted online: Monday , June 23, 2008 at 2302 hrs IST
http://www.financialexpress.com/news/Levy-supply-regime-not-in-larger-interest/326166/0
Recent media reports suggest that the central government is likely to soon consider decontrol of sugar, encompassing two vital issues: first, dismantling the mechanism to procure levy sugar at prices below the cost of production; and, secondly, dismantling the monthly/quarterly release mechanism.
The levy mechanism involves procurement of sugar from mills at notified prices, at substantially lower than the prevailing market price, thereby making the industry subsidise such supplies. In the considered view of the sugar industry, there is hardly any rationale for continuing the levy mechanism, in light of the fact that it has not been functional for quite some time now.
Many state governments have disbanded the supply of levy sugar through the public distribution system. Reports have also been received of malpractices, particularly in cases where private parties were appointed by state governments to procure sugar at the fixed price. Instead of channelling it into the levy stream, which, as stated, is not functional, such sugar has been surreptitiously diverted to the open market, thereby adversely impacting the price of free-sale sugar. The sugar industry had, therefore, urged the government to dismantle the levy mechanism, which does not seem to serve any larger objective.
Should the government wish to continue the levy mechanism, however, it should provide the subsidy element directly. In other words, the government should purchase sugar from the open market and supply it to targeted sections of the population at the desired lower price. By doing so, procurement of sugar and its distribution would be in consonance with the practice in other essential products. There appears to be no justification in making the industry subside the levy mechanism.
The second suggestion that the government is likely to consider soon is the proposal to dismantle the regulated release mechanism for free-sale sugar to the market as this system hardly serves any purpose while creating avoidable problems. Firstly, the monthly/quarterly quotas fixed by the government are based on an assessment of demand made by the bureaucracy, which may or may not be consistent with the actual requirement of sugar during the period. Secondly, and more importantly, the courts have liberally authorised sugar mills to make additional sales of such free-sale sugar to liquidate cane price dues. Thus, it is evident that the release mechanism is virtually non functional as well.
Dismantling the levy and release mechanisms will help streamline the sugar industry's operations. Naturally, it will serve the larger interests of sugarcane growers and all concerned with the sector. Sugar cooperatives represented by the National Federation of Cooperative Sugar Factories Ltd also share this view, and both the Indian Sugar Mills' Association (ISMA) and National Federation of Cooperative Sugar Factories have jointly urged the government to dismantle the mechanisms.
While decontrolling sugar, the practice of fixing a statutory minimum price of sugarcane by the government can be continued in the larger interests of not only sugarcane farmers but also to ensure orderly functioning of the sugar industry. An important point to be noted in this connection is that state governments have equal authority to enforce both the mechanisms. Perhaps, this factor has forced the central government to defer these issues for the time being.
A discussion on this subject, however, would not be complete without a reference to recent press reports that the government is also likely to consider withdrawal of the distance norm between two sugar mills and the reservation of cane area for sugar factories—an age-old practice that has worked satisfactorily. This subject was discussed in detail at a recent ISMA meeting.
An overwhelming majority of members felt that a withdrawal of the distance norm and reservation of cane area may lead to serious problems to all concerned with the sugar sector, including sugarcane farmers. Also, cane developmental activities would suffer, as support from the concerned sugar mills will virtually vanish.
(The writer is executive director, Indian Sugar Mills' Association)
