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 aboveRangarajan 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.