CM, C Rangarajan to deliberate on 'sweet' solution

LUCKNOW: The much debated issue of sugar decontrol is likely to be taken up for discussion between chief minister Akhilesh Yadav and the high-powered sugar deregulation panel headed by chairman of PM's economic advisory council, C Rangarajan.

The panel formed by prime minister Manmohan Singh is supposed to submit its report after taking the views of sugar-producing states.

The mandate of the discussion is to seek views of the state on de-reservation of sugar cane area, total decontrol of sugar sector, deregulation of export and import and doing away with the State Advised Price (SAP) of cane fixed every year and the mandatory monthly quota of levy sugar on sugar mills. After meeting the CM, the panel is slated to meet a group of around 25 farmers and then sugar mill owners.

When asked to comment on the issue, a senior official said, "We have to look into the financial implications and need to discuss the issues in details." As decontrol involves a large number of stake-holders - from farmers, the sugar mills, the state government to the consumers, a decision is needed to be taken in totality on the matter, the official said. However the move has evoked mixed feelings in the state with opinions ranging from "too early to a bold proposal and a step in right direction." The move brings smiles on the faces of mill owners, who describe it as a much-needed shift. However, the state government seems to be rather sceptical over it fearing its far reaching consequences to over three million cane producers, whose interest is largely protected by the State Advised Price (SAP).

The SAP announced every year is much more than the Fair and Remunerative Price (FRP) fixed by the Centre. For instance, the SAP fixed in UP was Rs 240 per quintal in 2011-12, while FRP in the same period was Rs 145. And if the trend is any indication, then the SAP is likely to be increased further this year. However, under deregulation, such a decision would be a difficult proposition for the government to take. And this is why the government is opposed to the deregulation.

While the immediate sufferers will be farmers, who will have no support of price mechanism under deregulation, its repercussion will be equally bad on small millers, who would not be able to compete with major mill owners, who would try to monopolise the trade due to their better purchasing capacity.

Such a situation, the government feels would not be good for the industry as a whole, as this is one of the main drivers of the state's rural economy supporting its agricultural growth. It provides sustenance not only to around 30 lakh cane growers, their families, but also workers and entrepreneurs, wholesalers and distributors. Being major industry with a total production exceeding around 50 lakh tonne annually, the sugar industry also supports diversified ancillary activities that support the local economy. The dependent population creates substantial demand for local goods and services.

In UP, the sugar sector is regulated by the UP Sugarcane (Regulation & Purchase) Act, 1953. Under it, a designated mill is obligated to purchase from cane growers within the cane reservation area, and conversely, cane growers are bound to sell to the mill. As a consequence of the area requirement (distance criteria), setting up of a new mill requires approvals under the Industries Development and Regulation Act. This is meant to avoid unnecessary competition and ensure that entire stock of that area is sold.

However, under deregulation, such a restriction would be undone and mills would be allowed to buy stock from anywhere. In such a situation, big mill owners would have an advantage to buy as much stock as they could and this would eventually lead to monopoly of trade in the hands of few. On the other hand, cane growers would become captive of few mill owners, who would ultimately dictate their terms on them. Likewise, the provision of the SAP would be scrapped and this would be counterproductive to the interest of the cane growers. The SAP was announced by the state government in order to ensure better remunerative prices to cane growers. This was in the interest of both cane growers as well as the mill owners, whose productivity was directly linked with the cane availability. So, the SAP is an incentive to cane growers, the government feels. However, the government is not averse to the idea of sugar export deregulation, as this is viewed necessary to increase the profitability of the industry.

Sudhir Panwar, president, Kisan Jagriti Manch feel that the deregulation of sugar sector should be done by keeping farmers' interest in the mind. "The cane price should be linked with the recovery of sugar cane and with the by-products manufactured by cane. This means that farmers should be given incentive by way of asking mill owners to share certain percentage of their profit with them," he said.Panwar was also critical of the sugar cane price fixation mechanism and said that the present mechanism is not consistent with the guidelines formed by the specialised body like the CACP. This was evident by the fact that FRP was not applied in any state. The difference between FRP and SAP was almost 58% in UP and Uttarakhand."

On the other hand, argument given in support of the deregulation of sugar sector is that it will give enough freedom to the industry to invest and grow. Farmers will also benefit if the industry is able to generate cash flow at the right time and give them timely and better payment. At present, sugar sector is highly regulated. There are regulations across the entire value chain, land demarcation, sugarcane price, sugarcane procurement, sugar production and the sale of sugar by mills in domestic and international markets.

The most debatable point is the mandatory condition for the sugar mills to contribute 10% of their total production towards 'levy sugar quota', which is bought by the government for distribution though the public distribution system at cheaper rate. The levy sugar is bought at Rs 1,800 per quintal as against that of open market price of Rs 3,000 per quintal. So, countrywide, the loss on account of levy obligations by millers is estimated to be around Rs 3,000 crore annually. The Indian Sugar Mills Association (ISMA) and other bodies have been clamouring for abolishing levy sugar quota and linking the prices of cane with the sugar.

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