Sugarcane Pricing

Business Standard     19th February 2021     Save    
QEP Pocket Notes

Context: Proposed reforms in sugarcane pricing need to be launched simultaneously as counselled by the NITI Aayog for its effective implementation.

Proposed Reforms in Sugarcane Pricing 

  • Revenues splitting arrangement: would replace the present system of setting sugarcane prices. (tilting in favour of cane farmers)
  • Price stabilisation fund (PSF): to provide a shield against price risks to cane growers and sugar producers.

    Key Concerns with sugar industry:

    • Low profits for sugar industry: due to increase in the share of cane farmers share in earning.
      • Hike in their quota by 5% is above Rangarajan panel´s recommendation (75% of proceeds from the sale of sugar, or 70% from those of sugar and its by-products put together)
      • It is higher than the global average of 62 to 66%.
    • Expansion in area of water-consuming crops: it would make sugarcane cultivation which is a water-intensive crop, more attractive for the farmers.
    • Political issues: displayed through the government’s piecemeal approach for fear of displeasing the politically powerful cane and sugar producers’ lobby.

          Way Forward:

          • Implement the revenue-sharing mechanism: as mooted by Rangarajan panel having the following advantages:
            • Connect input and output prices: It ties cane farmers earnings to level of sugar recovery from the cane produced by them will have following benefits-
              • Ensure that prices are determined by market forces
              • Incentivise farmers to grow better sugarcane varieties.
              • Restrain recurring financial crises.
            • Ensure demand and supply match: Reduce chances of overproduction of sugarcane and a consequent price slump and liquidity crunch.
          • Putting a cap on sugarcane production: NITI Aayog has suggested a Cap on farmers´ land use for sugarcane at 85% of their holdings and offers cash incentives for less water consuming crops.
            QEP Pocket Notes