The Hindu Business Line
15th October, 2012
The Rangarajan panel has done well to extend the logic of sugar decontrol to sugarcane as well.
Numerous official panels have advocated freeing the sugar industry from such requirements as earmarking a fixed percentage of their output for keeping the public distribution system going (‘levy’) or having the Government dictate how much of the balance quantities they can sell every month in the open market (‘release mechanism’). By recommending the same, the Prime Minister-appointed committee under C Rangarajan looking into deregulation of the sugar sector has said nothing new. But where it has covered fresh ground is extending the logic of decontrol beyond sugar to sugarcane.
Currently, every sugar mill has an exclusive cane area assigned to it. All growers in that area are, then, bound to supply their crop to the particular mill. In addition to this is the stipulation of a minimum 15 km distance to be maintained between two factories. It also means that a new mill cannot come up within the vicinity of an existing one and nor can it ‘poach’ on the cane area ‘reserved’ for another factory. While this system benefits factories by ensuring assured flow of raw material, it denies growers the freedom to supply to the mill(s) of their choice. By proposing the scrapping of both cane area reservation as well as the minimum distance norm, the Rangarajan Committee has very rightly made a case for allowing farmers to participate in a competitive market giving the best price for their produce, just as much as mills deserve to be freed of levy or monthly release obligations on the sugar they manufacture. Sugarcane decontrol, in that sense, would force mills to not take their growers for granted and, instead, enter into mutually beneficial market-based contractual sourcing arrangements. It would also lead mills to work closely with farmers to boost cane yields and reduce cultivation costs, thereby earning their loyalty.
What is unfortunate, however, is the panel’s suggestion that the above sugarcane decontrol measures be implemented “over a period of time”. This, even as it has called for ending the powers of States to fix (‘advise’) cane prices and, instead, determining the same through a formula, wherein farmers get 70 per cent of the total ex-factory realisation from sale of sugar and primary by-products (molasses, bagasse and press mud). Dispensing with State Advised Prices (SAP) is necessary, no doubt. But it cannot be done so long as State Governments continue to reserve cane areas and enforce minimum distance norms for mills.
The fact that SAPs are complementary to the cane reservation orders issued by States has been upheld even by the Supreme Court. All this only reinforces the need for the Government to go the whole hog in decontrol, by extending it to both sugar and sugarcane. These controls are, in any case, unjustifiable, when they exist in no other industry, be it flour-milling, dairy and horticulture marketing or steel and cement.
15th October, 2012
The Rangarajan panel has done well to extend the logic of sugar decontrol to sugarcane as well.
Numerous official panels have advocated freeing the sugar industry from such requirements as earmarking a fixed percentage of their output for keeping the public distribution system going (‘levy’) or having the Government dictate how much of the balance quantities they can sell every month in the open market (‘release mechanism’). By recommending the same, the Prime Minister-appointed committee under C Rangarajan looking into deregulation of the sugar sector has said nothing new. But where it has covered fresh ground is extending the logic of decontrol beyond sugar to sugarcane.
Currently, every sugar mill has an exclusive cane area assigned to it. All growers in that area are, then, bound to supply their crop to the particular mill. In addition to this is the stipulation of a minimum 15 km distance to be maintained between two factories. It also means that a new mill cannot come up within the vicinity of an existing one and nor can it ‘poach’ on the cane area ‘reserved’ for another factory. While this system benefits factories by ensuring assured flow of raw material, it denies growers the freedom to supply to the mill(s) of their choice. By proposing the scrapping of both cane area reservation as well as the minimum distance norm, the Rangarajan Committee has very rightly made a case for allowing farmers to participate in a competitive market giving the best price for their produce, just as much as mills deserve to be freed of levy or monthly release obligations on the sugar they manufacture. Sugarcane decontrol, in that sense, would force mills to not take their growers for granted and, instead, enter into mutually beneficial market-based contractual sourcing arrangements. It would also lead mills to work closely with farmers to boost cane yields and reduce cultivation costs, thereby earning their loyalty.
What is unfortunate, however, is the panel’s suggestion that the above sugarcane decontrol measures be implemented “over a period of time”. This, even as it has called for ending the powers of States to fix (‘advise’) cane prices and, instead, determining the same through a formula, wherein farmers get 70 per cent of the total ex-factory realisation from sale of sugar and primary by-products (molasses, bagasse and press mud). Dispensing with State Advised Prices (SAP) is necessary, no doubt. But it cannot be done so long as State Governments continue to reserve cane areas and enforce minimum distance norms for mills.
The fact that SAPs are complementary to the cane reservation orders issued by States has been upheld even by the Supreme Court. All this only reinforces the need for the Government to go the whole hog in decontrol, by extending it to both sugar and sugarcane. These controls are, in any case, unjustifiable, when they exist in no other industry, be it flour-milling, dairy and horticulture marketing or steel and cement.
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