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THE CENTRE's DILEMMA over fixing Statutory Minimum Price (SMP) for sugarcane — arguably the most contentious in the pricing of agricultural crops — is palpable. At a time when elections to some States are round the corner, the Centre is straining every nerve to keep the politically powerful cane farmers' lobby happy. The SMP of Rs 73 per quintal for the 2003-04 season — recommended by the Ministry of Food and Consumer Affairs in the face of opposition from the Finance Ministry and, of course, the sugar industry itself — marks an upward revision from Rs 69.50 a quintal for last year. Indeed, last year, an additional Rs 5 a quintal was announced as a special `one-time' drought relief by the Prime Minister himself. But with no drought this year, there is no justification for a further hike in the SMP, the Finance Ministry has argued, and rightly so. In June, a special relief package of Rs 680 crore to be disbursed as soft loans to select State governments was announced; that there are no takers for the scheme is an entirely different, and indeed a sad story.

It seems State governments are keen to please cane growers but with Central funds. Then there is the question of the mills' capacity to pay a higher SMP. High levels of sugar stocks and depressed prices have eroded the financial position of many mills resulting in inordinate delays in payment to growers. Already, cane arrears are reported to have ballooned to around Rs 3,000 crore. The argument that higher open market sugar prices in recent months will enable mills clear cane arrears is inherently flawed because the industry has never been allowed to function in a free market environment — the government mandates raw material prices, and also regulates marketing, with little logical co-relation between costs and prices. That brings one to the vexatious issue of cane price rationalisation. The water-intensive nature of cane cultivation and forecasts of major water shortage in the coming years have to be borne in mind. Policy-makers do not as yet feel emboldened to link cane prices to market rates of sugar. Importantly, in tandem with rationalising cane prices, the extant controls on the industry — 10 per cent levy and free-sale quota system — must be removed.

The Agriculture Ministry's `first advance estimate' of kharif 2003 crops shows a further decline in sugarcane output to 261 million tonnes from last year's drought-reduced crop of 279 million tonnes. Assuming this estimate remains unchanged, cane supplies in the coming months are sure to tighten. Higher open market prices of sugar usually encourage greater diversion of cane for alternative sweeteners such as gur and khandsari which, in turn, will impact sugar production in 2003-04. The sugar industry must take advantage of the imminent surge in incomes across the country, following a double-digit growth in agriculture aided by a satisfactory monsoon. It is time the industry made the consumer household the focal point of its marketing activity and pared down stocks to reasonable levels. The year 2003-04 could provide the much-needed turning point for the beleaguered sugar sector. Will the industry, then, rise to the occasion?

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