Sugarcane Pricing

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.