Consumers should be ready to pay more for sugar

Distressed at not getting an adequate price for his produce, a debt-ridden sugarcane farmer in Uttar Pradesh committed suicide. In order to repay his loans, he wanted to sell his produce for a minimum of Rs.270 per quintal.

After protests from the farmers and pressures from the opposition over sugar pricing which favored sugar mills, the government has made it clear that the difference between the fair and remunerative price (FRP) and state-advised price (SAP) would have to be paid by the mills and not by state governments.

The government had earlier announced the new sugar pricing policy which was rejected by the farmers. Instead of SMP (statutory minimum price), a Fair and Remunerative Price (FRP) of Rs.129.82 per quintal linked to 9.5 sugar recovery was announced for the current season (2009-10). The guidelines under the new policy also stated that anything above the FRP would be borne by the state government which often announced SAP higher by 30 to 40 per cent than SMP. As a result, SMP of Rs.107 per quintal became meaningless which was announced earlier (Last year SMP was Rs.82.25 per quintal). State Advised Price (SAP) in Uttar Pradesh varies from Rs.165 to Rs.170 per quintal, depending on the quality of sugarcane. In reality, sugar mills pay over SAP to the farmers.

As a result, farmers were not happy as the FRP announced was much below SAP at a time when sugar mills were making huge profits. The farmers protesting against government new move had two demands.

1. Withdraw the provision that makes state liable to pay the difference if it fixes an SAP higher than FRP.
2. Pay farmers a price of Rs.280 per quintal.

Farmers feared that as state would have to pay the differences, it will stop announcing its own SAP because it could not afford to pay the difference. Further, the SAP announced by the UP government was un-remunerative as farmers believed that anything below Rs.250 to Rs.280 per quintal was not fair.
Not happy with the sugar mills offer, sugarcane growers in some some parts of Uttar Pradesh have decided to set-up co-operative crushers and crush their cane themselves. Farmers at the moment are not ready to sell their produce till they are paid Rs.280 per quintal. The deadlock has resulted in slow progress of cane crushing and is likely to affect production.

Over the past few months, the scenario in Indian sugar sector has not been good for the farmers. Sugar prices touched peak often due to faulty government policies and inadequate actions on industry estimates which had been voicing their concerns to the government that production for the season 2008-09 is expected to fall drastically due to bad monsoon. There were also reports that farmers in Maharashtra were converting their standing crop into fodder to feed their cattle and sell the rest on remunerative prices. Further, farmers in Uttar Pradesh were more than eager to sell their produce to jaggery manufacturers who were paying higher prices than sugar mills and that too instantly. All these factors along with government not responding swiftly to minimize the differences in demand-supply allowed sugar mills to make handsome profits.

India’s sugar production is estimated at 16 million tonnes for 2009-10 against 14.7 million tonnes last year, while the estimated total annual consumption is pegged at 23.5 million tonnes. However, last season (2008-09), the government had a carryover stock of 9.5 million tonnes which provided some relief to the sector.

The Union government has taken numerous steps at different times to check the rising prices and though, it helped a bit, yet sugar is currently trading around Rs.40 per kg in the retail market. The government had earlier (this year) allowed the import of raw sugar for refined and domestic consumption against export of refined sugar. Further, to check hoardings, the port charges for storing sugar were raised sharply to force traders to vacate godowns (warehouse) immediately after custom clearance. Also, the Ministry of Consumer Affairs has directed that no bulk consumers whose consumption is more than ten quintals annually could store sugar beyond fifteen days’ requirements in its godowns.

In spite of all these steps, Indian consumers should be ready to pay more for sugar as the commodity is already trading at a peak at a time when prices should be lower. Delay in crushing in northern states should be a warning to the Central government to be more prudent in sugar sector policies.