Staggered pricing: On cane pricing

Synopsis: The Government should avoid populist measures in cane pricing.

Introduction

Recently, Commission for Agricultural Costs and Prices (CACP) suggested to pay sugarcane prices to farmers in tranches and stop reserving cane areas for sugar mills.

It has pros and cons that need to be weighed carefully.

What are the other key suggestions given by CACP?

The CACP’s other suggestion is the abolition of the system of reserving sugarcane catchment area for each factory and doing away with the mandatory minimum distance (mostly 25 km) between the two factories is equally contentious.

It binds the mills to buy all the canes on offer from that area and the farmers to sell to the designated mills only.

It leaves no room for the mills or the farmers to take their own business decisions. Even C Rangarajan committee have disfavoured this system.

Why is CACP favouring a staggered payment mechanism?

Burden on sugar factories: The main drawback in the existing system of payment within 14 days of delivery of the cane is that the cash-starved sugar factories are unable to adhere to the deadline.

Burden on the government: This results in accumulating unpaid arrears, forcing the government to come up with bailout packages.

Issue with the abolition of the system of reserving sugarcane: the argument in favour of this provision is that sugarcane has to be disposed of at the nearest factory because it starts losing its sucrose content soon after harvest.

How the proposed measures affect the interests of both the cane growers and the sugar industry?

Unnecessary interference: The proposed measures affect both but in a mutually conflicting manner. Their implementation at this stage would amount to needless meddling in a sector that is showing signs of becoming financially self-reliant and globally price-competitive.

No consensus: The concept of staggering the payment was floated in the past by various committees and expert panels, including the one set up by the NITI Aayog. The sugar industry welcomed this suggestion because it would ease its economic burden. However, most other stakeholders, including the cane growers, opposed it.

Gujarat, where cooperative sugar mills are predominant is the only state that has adopted this practice as a matter of state policy. In other states, the cane growers favour lump sum and prompt payment as ordained under the Sugarcane Control Order, 1966.

What is the way forward?

The government should address underlying issues rather than going for populist measures such as the UP government has announced a hike in sugarcane prices.

Source: This post is based on the article “Staggered pricing” published in Business Standard on 1st October 2021.