Beyond sugar decontrol

In April, the Centre freed sugar mills from the obligation to supply part of their output at below market rates to the public distribution system, besides allowing them to decide the quantum and timing of their sales. This decontrol in sugar was, however, not extended to cane, where State governments continued to retain the power to fix prices payable to farmers. For the 2012-13 sugar year ended September, the so-called State Advised Price (SAP) in Uttar Pradesh was set at Rs 280 a quintal, which mills couldn’t pay. While crushing for 2013-14 should have commenced by now, growers are still to receive about Rs 2,400 crore — over a tenth of SAP payments — for the previous season. The UP Government has kept the SAP for the new season at the same level as last year, though the temptation to raise it further would have existed with elections only months away.

But what could be a game-changer is the move by the UP sugar mills to serve notice of ‘suspension of operations’ — in effect, refusing to crush for this season unless the SAP is reduced to Rs 225/quintal in line with ex-factory sugar realisations. These have fallen to Rs 29 or so a kg now from an average of Rs 31.5 in 2012-13. It stands to reason that if last year’s higher sugar prices led to huge cane arrears, a lower SAP is the only viable solution for mills to start crushing now. They cannot, in any case, be forced to run at a loss. The real loser here is the farmer, who is neither able to sell cane nor vacate his field to sow wheat within the required window.

The face-off between the UP Government and mills should be viewed not so much as a crisis, but an opportunity to take sugar decontrol to its logical next step — by extending it to cane. That means not merely linking cane prices to sugar realisations, as the Rangarajan Committee has recommended. Decontrol has value for farmers only if they are given the parallel freedom to decide who to sell to. This freedom to get the best possible price is now limited by rules preventing factories from encroaching into the cane areas ‘reserved’ for others and those prohibiting a new mill from coming up within a prescribed distance of an existing one. A system under which farmers enter into supply agreements with mills of their choice will help the latter secure assured cane supplies and the former reasonable price certainty for growing a one-year crop. The State’s role should be limited to only ensuring the enforcement of such contracts.

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