This will take care of excess stocks, with positive balance of payments effects
In order to help sugar mills deal with the 145 lakh tonnes of sugar inventory — 95 lakh tonnes more than the normal requirement of 50 lakh tonnes — the Centre has announced export subsidies as well as compensation for the carrying cost of sugar mills. The move is aimed at placating the sugar cooperative sector in Maharashtra which will go to polls soon. That said, there is a real issue of excess. With the new crop arrivals expected to pick up next month, the problem of excess will only worsen. This is despite the fact that the cane crop for the 2019-20 season is expected to be 47 lakh tonnes less than last year’s production of 329 lakh tonnes. With domestic consumption estimated at 260 lakh tonnes, the surplus is here to stay, threatening to depress prices. In order to hold up cane prices and clear farmers’ dues, buffer stocks have become an inexorable necessity. Meanwhile, a global glut in sugar makes it difficult to export viably. Hence, the Centre has, in the time-honoured tradition of placating this politically powerful sugar sector, resorted to a short-term fix. There can be no getting away from increases in the support price, or ‘fair and remunerative price’. Despite various efforts to reform the sector, the sugar mills are able to extract concessions from the State on some pretext or the other — typically, it is of the FRP being too high for them to meet their costs and pay farmers. Cane arrears are now close to ₹16,000 crore, principally due to farmers in Uttar Pradesh. But in Maharashtra, where the arrears are far lower, there’s a larger social cost of keeping the cooperative sector going — it intensifies the impact of drought, particularly in arid regions such as Marathwada. There is certainly a case for this region moving away from growing cane. This calls for a well-thought-out plan, given the number of sugarcane farmers and industry workers involved. For Maharashtra as a whole, sugarcane is a source of livelihood to 2.5 crore people in rural regions. About 1.6 lakh workers are directly employed by the industry, while eight lakh workers are engaged in harvesting and transport operations every year.
One option, as has been promoted by the Centre, is to actively encourage the conversion of cane to ethanol by offering a high price for the latter. At present, ethanol is prepared from C-grade molasses, whereas efforts should be made to prepare the same from sugarcane juice and B-grade molasses as well. This will take care of excess stocks, with positive balance of payments effects. Subsidies for sugar should be directed towards building ethanol capacities.
However, sugar cooperatives are often run on less than commercial lines. Researchers have established how cooperatives are often milked to fund election campaigns of cooperative chiefs. The system needs a clean-up.
September 10, 2019
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