The sugar industry is in a mess, yet again, and it is apparent that lessons from the past are never learnt. A little over a year after the Rangarajan Committee, which went into the regulatory and business aspects of the industry submitted its report, only a part of its sensible recommendations have been implemented. The crucial recommendation on revenue-sharing between sugarcane farmers and sugar mills has been ignored. The latest crisis could have been avoided if only the sugarcane producing States— especially Uttar Pradesh which accounts for the bulk of the sugarcane output — had implemented the recommendation and not gone ahead and announced their own prices for procurement by mills. The mills are in poor financial shape following a glut in the sugar market and the consequent slump in prices. The mills resisted the high State Advised Price, and the ensuing standoff with farmers forced the Prime Minister to constitute a Group of Ministers headed by Agriculture Minister Sharad Pawar which came out with a bailout package for them. The package includes interest-free loans adding up to Rs.7,500 crore with favourable repayment terms, restructuring of existing loans, incentives for the production of 4 million tonnes of raw sugar for exports, and doubling of ethanol blending in petrol to 10 per cent.
Banks are unlikely to take kindly to the idea of a restructuring of sugar mills’ loans. The proposed increase in ethanol blending is meaningless given that even the existing 5 per cent blending is not happening due to disagreements over pricing. The support to mills is only to ensure that the politically important constituency of sugarcane farmers is kept happy with higher procurement prices irrespective of the market price of sugar. At the core of the problem is the practice of State governments setting cane prices. The SAP has been a political tool to find favour with the strong community of sugarcane farmers. What the latest crisis proves is that the political element has to be taken out of cane pricing as the lobbies are strong on both sides — farmers and the mills. The Rangarajan Committee recommended a 70:30 revenue-sharing mechanism between farmers and mills, taking into account revenues from the sale of sugar and also by-products such as molasses and bagasse. The States should adopt the Committee’s formula, which is not only transparent but has been arrived at after a study of the cost structures of sugarcane farming and sugar mills.