The Hindu Business Line : Cane price conundrum

THE SUPREME COURT's ruling that State governments have the right to announce an `advised' price (popularly known as State Advised Price) over and above the Centre's Statutory Minimum Price for sugarcane has added another dimension to the complexities of the sugar sector. The ruling obviously comes much to the consternation of the mills, and surely to the delight of cane growers and committed politicians. Why politicians? The highly politicised nature of the sugar sector is well known, with controlling interests in numerous mills resting, directly or indirectly, with politicians. Also, growers and agricultural workers — estimated at over five crores — involved in cane cultivation, harvesting and ancillary activities are a solid vote bank. No wonder, governments — both at the Centre and in important cane-producing States — are only too eager to keep cane growers pleased by announcing ever higher cane prices, without much regard to either sugar industry economics or to input management and quality improvement. Often, State governments play the game of one-upmanship by advising prices even higher than the already-high SMP. In an act nothing short of highway extortion, mills are virtually coerced to cough up the SAP.

Different prices paid by mills in different States distort production costs and thereby the market itself. The ruling of the highest court has now lent legitimacy to the SAP. It also sends for a toss efforts to rationalise cane prices across the country. Although there is nothing to suggest any immediate negative impact of the court ruling, there is no denying that mills face a pincer — forced payment of high price for raw material, on the one hand, and restrictions on marketing of output, on the other. Whether the order, delivered by a majority of 3:2, would be reviewed remains to be seen. But, clearly, the decision is seen constricting the commercial freedom of the sugar industry. As the industry faces a double jeopardy — an irrational disconnect between input costs and output prices — policymakers have to step in. Options before them are clear. The possibility of legally barring State governments from hiking cane prices (over and above the SMP) should be explored; and in the alternative, State governments must be made to absorb the difference between the SMP and the SAP.

A more sensible solution appropriate to the climate of liberalisation would of course be the complete decontrol of the sugar industry by withdrawing the levy obligation and removing marketing restrictions. Output prices when freed would be able to absorb the higher input costs. The second largest amongst agro-processing industries and the largest rural-based, the sugar industry has made significant contribution to rural development by mobilising resources as well as generating employment and incomes. Aberrations in the sugar sector as a result of outdated policies need to be ironed out. There is too much at stake for all those concerned with the sugar sector. The new government must quickly design a long-term policy package with the overall objective of making the sugar sector globally competitive.

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