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UNILATERAL GOI POLICIES THROWN SUGARCANE FARMERS AND SUGAR CONSUMERS INTO ACUTE CRISIS
-By P.V. Subbaiah Choudary, Advisor, CIFA

India was a sugar exporting Country. Now it is turned into sugar importing Country. The prices of sugar are abnormally increased in the past few months, despite declining trend in the general rate of inflation in the economy. Unchecked cyclical behavior of sugar sector,
ad-hoc policy response of the Government of India (GOI), lack of transparency in collection of data regarding cost of cultivation, un-remunerative sugarcane support prices, fixation of unscientific recovery percentage, non payment of sugarcane dues by sugar mills in time, violation of farmer friendly provisions of Sugarcane Control Order 1966 and non implementation of recommendations of various Committees for development of sugarcane & sugar sector thrown the farmers and sugar consumers into acute crisis. This Article analyses genesis of the muddle and suggestions for rehabilitating sugarcane farmers and sugar consumers.

GENESIS OF THE MUDDLE

The following unilateral GOI policies thrown Sugarcane farmers and Sugar Consumers into acute crisis :

A) There was encouraging production of 18.9 Million tonnes (Mlt) sugar in 2005-06 coupled with a carry over stock of 4.825 Mlt (Total 23.73 Mlt), while the demand was only 18.5 Mlt. The production from the following season i.e. 2006-07 was expected about 24 Mlt. On the prices front there was no major concern. The domestic retail prices were around Rs.20/- a Kg. During that period the global prices were ruling high at around $ 418 a tonne on FOB basis. At that stage, abruptly, the Government imposed ban on export of sugar. The ban resulted accumulation of stocks with sugar mills. In view of pilling of sugar stocks the sugar mills could not issue cutting orders to the sugarcane growers and start sugarcane crushing operations. Short sighted policy of imposition of ban on sugar exports, sugarcane farmers were thrown into acute crisis and resorted for burning their sugarcane crop in their fields itself. It is not out of place to mention that sugarcane farmers resorted for committing suicides, first time in the history. Gravity of situation forced the GOI to lift the ban imposed on sugar export, at a later date, by that time sugar prices in the International Market were crashed and fell to $ 250 a tonne.

B) The GOI increased Minimum Support Prices (MSPs) of various agriculture commodities from 20% to 45%, whereas Statutory Minimum Price (SMP) of sugarcane was retained at Rs.81.18 per qt for the years 2007-08 and 2008-09. The Commission for Agricultural Costs and Prices (CACP) had alerted the Government as early as in March 2008 that sugarcane and sugar production would decline substantially, unless price parity between sugarcane and other crops was restored. Under the above circumstances the sugarcane farmers switched over to other crops. Consequently sugarcane area has been drastically declined from 5.04 million hectares in 2007-08 to 4.38 million hectares in 2008-09 and 4.26 million hectares in 2009-10. Steep fall in sugarcane cultivated area resulted declining production of sugar from 26.4 million tonnes in 2007-08 to 14.2 million tonnes in 2008-09.

C) During the past five years, the whole sale price index (WPI) of sugar (base 1993.94 = 100) initially rose from 140.5 in 2004 to 161.7 in 2005 and 169.5 in 2006 and then dropped to 144.6 in 2007. The whole of 2007 and first half of 2008 were really bad for the sugar industry as well as the sugarcane growers, as prices of both sugar and sugar cane remained low. But the WPI of sugar rose sharply from 162.3 in the third week of December, 2008 to 233.6 in the second week of October, 2009. In the past few weeks, the wholesale price of sugar increased from Rs.2,310/- per quintal on March 31, 2008 to Rs.3,330/- per quintal on October 27, 2009. Inspite of the fact of advance signal about crop size and short fall in the production, the GOI and its commercial intelligent miserably failed to initiate corrective measures in time and sugar consumers are now required to pay Rs.38/- per kg.

D) The GOI instead of initiating steps for rehabilitating sugarcane farmers and sugar consumers, implemented relief measures to Sugar Mills by re-scheduling sugar mill loans, offered 12% interest subvention and soft term loans from Sugar Development Fund. The sugar mills were also permitted to import raw / fine sugar. The import duty also has been waived.

E) Further on 21-10-2009, the GOI issued an Ordinance No.9 of 2009 amending certain provisions of Essential Commodities Act, 1955 and Sugarcane (Control) Order, 1966. This Ordinance has retrospectively come into force with effect from 01-10-1974. Provisions of the Ordinance protect Sugar Mills from paying amounts to sugarcane farmers under various Supreme Court Orders. The Ordinance provides relief to sugar mills from paying difference amount between Fair & Remunerative Price (FRP) and State Advisory Price (SAP) fixed by State Governments. The said ordinance also does away with clause 5-A of the Sugar Control Order 1966 regarding computation of sugarcane price taking into consideration of the profits earned through bi-products as suggested by Bhargava Committee.

F) In fact, the way the whole issue of sugarcane pricing has been approached by the Government, looks quite strange. How can the Government unilaterally announce FRP without consulting the farmers organizations, sugar mills and the State Government. This is especially so if the Central Government wants to either discourage or do away with State Advised Price (SAPs). Besides, the FRP announced is neither fair nor remunerative.

GOI SHOULD INITIATE THE FOLLOWING SUGGESTIONS FOR PROVIDING RELIEF TO SUGARCANE FARMERS AND SUGAR CONSUMERS

A) According of CACP, the All India weighted average C2 cost of production of sugarcane for 2008-09 was 101.32 per quintal (Including risk premium of 10%) and for 2009-10, it would be about Rs.111.45 per quintal. If transport costs of Rs.13.36/- are added it becomes Rs.124.81 per quintal. Based on Swaminathan Commission’s recommendations for fixing support price at C2 cost plus 50% margin, the estimated support price of sugarcane would be about Rs.187.23 per quintal. However in order to restore inter-crop price parity and to motivate the farmers to put adequate acreage under sugarcane next year, at the existing level of yields, the FRP should be no less than Rs.215 per quintal for the year 2009-10 and for 2010-11, it should be no less than Rs.236.50 per quintal. In fact the production costs estimated by farmers organizations to CACP, the FRP should be at Rs.300/- per qt, as data used by CACP are often unrealistic and do not include the actual market based rental value of land, marketing charges, depreciation, risk premium, managerial allowance for family labour etc.

B) Moreover, the price at which sugar produced from sugarcane is sold by producers of sugar is one of the important considerations in the determination of support price of sugarcane. It may be noted that during the past one year, the average wholesale price index (1993-94=100) of sugar in India increased from 160.6 on October 11, 2008 to 233.6 on October 10, 2009.

C) The data of cost of production of sugarcane should be collected by an independent State level agency and compiled locally in consultation with the farmers. The present system of collecting data through State Agriculture Universities (SAUs) and compiling them at the Central level by Director of Economic and Statistics (DES) is defective and lacks transparency and reliability. The Whole system of costs of cultivation scheme be reviewed, transparent procedures, methodology evolved for obtaining costs of cultivation data by Director of Economics and Statistics for computation by Commission for Agriculture Costs and Prices. The CACP be strengthened by inducting more Farmers representatives including women and granting autonomous status to it.

D) The FRP for sugarcane be fixed as recommended by National Commission on Farmers headed by Prof. M.S. Swaminathan i.e. C2 costs and add minimum 50% of C2 costs. All provisions of Sugarcane Control Order 1966 regarding fixation of FRP for sugarcane based on selling price of sugar in the market, timely sugarcane payments to farmers, fixing realistic recovery percentage, providing soft loans to farmers from Sugarcane Development Fund, introduction of modern and innovative implements from sowing to harvesting will facilitate farmers to again switch over to sugarcane cultivation and increase sugarcane production.

E) The GOI should withdraw Ordinance No.9 of 2009 or make amendments to the Bill facilitating computation of Fair and Remunerative Price (FRP) taking into consideration of profits earned through bi-products as originally suggested by Bhargava Committee and reiterated by Mahajan and Tuteja Committees.

F) Out of total Sugar consumption in the Country, 15% is consumed by individual consumers and 85% by business consumers (Sweet Shops, Soft Drinks, Biscuit and Chocolates manufactures). The stipulation of availability of Sugar to the consumer at a fair price under Sugarcane Control Order 1966 is misinterpreted and Sugar supplied to business consumers under levy scheme. Therefore Sugar required for individual consumers alone be procured under levy scheme. The business consumers can as well purchase sugar from open market so that sugar can be made available to individual Sugar Consumers at Fair Prices. The whole muddle appears to be “Crops are eaten away by fencing”. Let us wish that PM’s interference will change the mind set of Policy Makers, Bureaucrats and Sugar Lobby and work for the welfare of sugarcane farmer and sugar consumers.