Making sense of the proposed decontrol of sugar sector

The debate is again on the wisdom of leaving everything to the market


Prasanna Mohanty | December 5, 2012

It isn’t only about the FDI in retail. The union government is facing strong opposition in virtually every attempt it is making to open up the economy to the market forces. The farmers’ agitation over the proposed decontrol of sugar industry is only the latest.

Led from the front by former army chief General (retired) VK Singh and convenor of the Rashtriya Kisan Mazdoor Sangathan (RKMS) VM Singh, hundreds of sugarcane farmers of northern states held a daylong demonstration at Jantar Mantar in New Delhi on December 4 and have threatened to intensify their agitation if the government went ahead and freed the sugar industry from all controls. Their fear is that this will leave them completely at the mercy of the sugar mills.

Also read: Farmers protest govt push for sugar sector deregulation

The government has indicated its inclination to do so as per the recommendations of the Rangarajan committee report on regulation of sugar sector, which was submitted in October this year. Some of the key elements of the report are: (a) retain fair and remunerative price (FRP) announced by the centre every year as the minimum price of sugarcane but dismantle the state advised price (SAP), which the states announce, fixing the minimum price of sugarcane at a much higher than FRP price; (b) in addition to FRP, the farmers to get 70 percent share of the revenue generated by the mills for sugar and sugar by-products (at ex-mill prices) to be announced by the state governments; (c) dismantle sugar mills’ obligation to supply a part of their sugar production to the PDS system at a lower price (levy sugar); (d) dismantle the mechanism of regulated release of non-levy sugar to the market; (e) allow free import and export of sugar (f) cane area reservation be phased out and (g) dismantle mandatory requirement of jute packing.

On the face of it, the recommendations seem quite logical and sound. A 70 percent revenue share (which would also mean a part of the profits) is as good a deal for the farmers as any. (It is based on the calculation of cost incurred by farmers and millers). But the devil lies in the detail. For one, the report hasn’t spelt out how this will be ensured except saying that the state governments will be announcing the ex-mill prices of sugar and its byproducts – molasses, bagasse (cane fibre) and press mud (used in paper industries) – once every six months. And that the revenue share is based on a recovery rate of 10.31 per cent (of sugar from the sugarcane).

Sompal, former union agriculture minister who has been fighting for the farmers’ rights, says, “If the government can enforce that the farmers get 70 per cent of revenue on realisation basis, this (decontrol of sugar sector) will be ideal. We have been advocating for this for more than 30 years”. The key, he says, lies in “ensuring” that the farmers get their dues, and not leaving it to the sugar mills which will not give the farmers their dues. His suggestion: enforce it through the Essential Commodities Act.

His only “difference of opinion” is regarding de-control of sugar byproducts which has been left to the state governments in the Rangarajan committee report. All reforms should be attempted at one go. Leaving a part of it to the state government may distort the entire process, he warns. More so, he says, since now the byproducts constitute the major chunk of revenue generation of the sugar mills.

But the farmers are not convinced. They want the government to reject the Rangarajan committee report.

VM Singh of the Rashtriya Kisan Mazdoor Sangathan says the new regime would mean substantially lower price of sugarcane to the farmers. For one, he says, SAP is always higher than FRP. Last year, UP had fixed SAP at Rs 240-250 per quintal while FRP was Rs 145-150 per quintal. Secondly, he says, since revenue calculation is based on a recovery rate of 10.31 per cent, it will mean a lower price for the farmers of the northern states where the recovery rate is 8 to 9.5 per cent. The new regime will benefit the southern states (with tropical climate) more as the recovery rate there is between 12 to 14 per cent (due to climatic factors and a longer harvesting period). Thirdly, what happens if the sugar prices drastically fall? Or the mills claim to be making loses? How will the farmers recover their investment? In fact, Singh reflects the main concern of the farmers when he says, “Why should farmers allow themselves to be in a situation where their interests are not protected?”

In fact, in a letter to the prime minister last month, Singh opposed the Rangarajan committee recommendations by saying that it would mean going back to the pre-1966 situation when the sugar sector was unfettered. In 1966, the government brought in the Sugarcane Control Order and started fixing FRP. He writes: “The mills will take advantage of its monopoly and the farmers who do not have any negotiating power will be discriminated against and paid different rates as compared to uniform rates in the present system…”

That is not all. He also fears that by not regulating release of the non-levy sugar the government will give the sugar mills an opportunity to hoard and make a killing at the cost of the consumers. Right now, the government decides when the mills should release sugar to the market for open sale.



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