The Rangarajan panel’s call for linking cane prices to gross factory realisations is better than leaving it to the vagaries of the electoral cycle.

Wheat and sugarcane fields have long been grounds for games of political football. They are grown by relatively better-off farmers whose organisation and greater awareness lend political sensitivity to their pricing compared to groundnut or bajra. Partly, this is to do with their being cultivated in irrigated conditions – a situation associated with such lands being owned by large influential farmers. The irrigation coverage – whether through canals or tubewells – is almost 100 per cent in the case of sugarcane, while being so for wheat as well, barring small pockets in parts of Madhya Pradesh and Maharashtra. And that is reflected in the current uncertainty over the minimum support price (MSP) of this year’s wheat crop and the so-called State Advised Price (SAP) for sugarcane in Uttar Pradesh (UP), the country’s largest grower. Neither has been fixed so far. Apparently, it all depends on this week’s parliamentary debate over foreign direct investment in retail: If the signals from it point to impending general elections in the next six months, both the Congress at the Centre and the Samajwadi Party in UP may go in for hefty price hikes.

All this is unfortunate because the real victims of uncertainty are the farmers themselves. The idea of declaring MSPs is to enable them make informed planting choices. Going by purely economic logic, with public stocks more than thrice the required buffer and strategic reserve, there is simply no case to raise the wheat MSP this year. A firm announcement to freeze it should have been made at least by October 15, to persuade farmers to plant more pulses and oilseeds rather than wheat. But with no such clear message emanating, farmers have sown hardly 3 per cent less area compared to last year’s unprecedented coverage, while not increasing it under oilseeds and actually reducing pulses acreage by 6.5 per cent. For a nation that imported $ 11.5 billion worth of edible oils and pulses in 2011-12, this just doesn’t make sense.

As regards cane SAP, the concept itself is at fault, for it has no link either to sugar recovery or with the capacity of mills to pay. The UP Government typically fixes (‘advises’) high prices, leading to piling up of cane arrears and, in turn, discouraging farmers to plant the next time. It, then, causes a flaring up of sugar prices. This is the infamous ‘sugar cycle’, which is purely an outcome of politicised pricing of cane. It is time to expedite the implementation of the Rangarajan panel’s recommendation to fix minimum cane prices at 70 per cent of what factories gross from sale of sugar and primary by-products like molasses and bagasse. If nothing, there is at least an economic basis to such a formula. It is definitely better than leaving crop pricing to the vagaries of the electoral cycle.

(This article was published on December 3, 2012)
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