The Hindu Business Line : Cane truths

When the government is entangled with fluctuating cane production, discontent among growers, escalating sugar prices in the open market and rising import dependence, what does it do? It changes the way cane is priced. Opinion may be divided over whether the Statutory Minimum Price (SMP) regime in vogue for long years was actually fair and remunerative to all stakeholders. Perhaps it was not; otherwise there was no need for the Union Cabinet to replace the long-practised SM P with a new coinage — Fair and Remunerative Price (FRP). For the 2009-10 season FRP payable by sugar mills for cane purchases has been fixed at Rs 129.84 a quintal, sharply up from the SMP of Rs 107.76 a quintal announced in June. It is an obvious attempt to rationalise cane prices across the country and nullify the legally-upheld State Advised Price (SAP) announced by some State governments over and above the SMP. While the State governments’ authority to declare SAP is intact, sugar mills cannot be forced to pay anything beyond FRP. States will have to absorb the difference between SAP and FRP, a move that curbs the clout of ‘uncooperative’ State governments.

Clearly, FRP cannot be a game changer for the sugar sector. While cane pricing is critical, it cannot by itself ensure a rebound in cane acreage or improvement in growers’ perception about the crop. The problems of cane growers surely go beyond cane prices. The FRP is far below the SAP announced by some State governments and is unlikely to boost cane planting significantly. Unlike grains and other field crops, the cane production cycle is 12 months and more. Growers are financially stretched during the long period between planting and harvest. It would help them if mills pay 40-50 per cent of the FRP say, six months after planting, and a substantial part of the balance at the time of procurement. Sugar mills will have to demonstrate they are ready to treat cane growers as partners, and share their burden and risks. How to break the cyclical fortunes in cane production is the key question all stakeholders will have to address.

There is a strong and urgent case for decontrolling the industry, especially at the output end. The levy system deserves to be scrapped. The government must buy sugar for the public distribution system from the open market or import it, if need be. The so-called free-sale quota is anything but free. The marketing restriction is outliving its utility, and deserves to be scrapped too. For the sugar industry to attract investment, enjoy scale economies and move towards modernisation, a freer policy environment is necessary. It is high time political and other interests currently opposed to forward-looking reforms realise that.

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