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Bailout for sugarcane farmers

Kashmir Times. Dated: 6/18/2018 9:31:58 AM

The package announced by the central government for the sugarcane farmers does not help unless structural flaws are fixed in the sector

The special package announced by the central government last week to the extent of Rs 7000 crore for alleviation of the sugarcane farmers is too little to bring them out of the distress. This has been fixed after the centre proposed special cess under the Goods and Services Tax (GST) to provide some succour to the distressed farmers across the country. This has also come with an assurance from the centre with minimum pricing and special incentives for increasing molasses and ethanol to gainfully mop up the glut of sugar in the country. This package also comes independent of the cess proposal that was expected to raise Rs 6700 crore. To put this in perspective, it is important to note that the sugar mills' dues to farmers stand at Rs 22,000 crore at end of the last season. Under the proposed bailout scheme, the government will procure sugar from mills at a fixed minimum price to help them clear dues to farmers, and also offer them other financial assistance. Out of this amount, only about Rs 1,175 crore will be used towards procurement of refined sugar from mills to create a buffer stock of 30 lakh tonnes. This is a fraction of the 63.5 million tonnes output expected in the two sugar seasons from October 2017 to September 2019. With the record output, sugar prices have dropped from an average of Rs 37 a kg in the previous season to Rs 26 in the current season. The bailout plan promises to pay Rs 29 a kg. Sugar mills say this is below their production cost of Rs 35 a kg, though it may dissipate their immediate liquidity problems to an extent. But it is a difficult situation when the farmers are facing the distress and are unable to recover their dues from the sugar mills and other customers who procure their crop for different purpose. The attempt on the part of the centre does not fix the structural flaws in the entire process as a result of which, the farmers are not benefitted to the extent they should be. In fact, the recent decision of the central government to allow procurement and import of sugar from outside the country has also added to the distress of the farmers as the prices of sugarcane fell more than expected during the current season. The government also needs to take into consideration providing minimum support price to the farmers so that the market does not crash on account of bumper crop during the previous and current seasons.
The rating agency Crisil estimates that the fixed price for sugar at mill gates and the buffer stock will at best help mitigate about 40 percent of the outstanding arrears to sugarcane farmers. Besides this, increase in production of sugar again in the coming season, the extent of arrears to the farmers will also increase. The rest of the package will take time to materialise, with Rs 4,440 crore of loans and Rs 1,332 crore of interest subsidies for greenfield and brownfield distillery capacities. Over time, this could help to use excess sugar for the manufacture of alcohol or ethanol, but it will not be soon enough to address the present crisis. All said and done, the centre's sweetener for the sector does little to address structural problems and sticks to old-style pricing and stock-holding interventions instead of signalling a shift to market-driven cropping decisions. The political compulsions driving the bailout are obvious, given that the sugarcane crisis was a rallying cry in the by-elections in Kairana in Uttar Pradesh, which the BJP lost. But that is no excuse for not thinking the package through. Perpetuating the complex web of state controls in a politically-sensitive sector is no solution. The best way to address the problem of excess supply in the long run is to ensure some linkage between the price paid for sugarcane and the end-products it is used for; and encouraging the feedback from market prices to inform farmers' future cropping decisions. The current sops-driven solution could distort the agriculture sector further. It is in the best interests of both the government as well as the farmers to have long-term policy in place to mitigate the sufferings of the farmers not only in sugarcane sector but also other crops.