Dual Pricing Of Sugar – Economics

Table of Contents

CURRENT AFFAIR

The Commission for Agricultural Costs and Prices (CACP) has suggested for introducing dual pricing of sugar for commercial and domestic consumers.

Exports have turned feasible, because of the government subsidy and a spike in international prices.
Realisations from domestic sales of sugar and its by-products, notably ethanol, have also improved.
The burdensome inventories have shrunk with many mills having already got rid of their surplus stocks.
The government has offered a series of bailout measures and fiscal sops.
These include lucrative prices for ethanol; creation of sugar buffer stock; and soft loans to the industry with a hefty 7% interest subvention.

Sugar industry is broadly distributed over two major areas of production- Uttar Pradesh, Bihar, Haryana and Punjab in the north and Maharashtra, Karnataka, Tamil Nadu and Andhra Pradesh in the south.
South India has tropical climate which is suitable for higher sucrose content giving higher yield per unit area as compared to north India.

Multiple linkages: Sugar is a labour-intensive industry, up the entire value-chain from cane-growing to sugar and alcohol production.
Source of employment: A sugar industry is source of livelihood for 50 million farmers and their families.
It provides direct employment to over 5 lakh skilled laborers but also to semi-skilled laborers in sugar mills and allied industries across the nation.
Byproducts: The various byproducts of sugar industry also contribute to the economic growth and promote a number of allied industries.
Sugarcane has emerged as a multi-product crop used as a basic raw material for the production of sugar, ethanol, paper, electricity and besides a cogeneration of ancillary product.
For livestock feeding: Molasses from sugar cane is used for alcohol production and livestock feeding since it is highly nutritious.
Biofuel: In India, the vast majority of ethanol is produced from sugarcane molasses, a by-product of sugar.
Ethanol blended fuel can help in reducing crude oil imports.

The government has allowed the use of B grade molasses and sugarcane juice as feed stocks to increase availability of ethanol.
This recent policy modification is set to encourage the cultivation of sugarcane, a water-guzzling crop, exclusively for alcohol making.
India, a water-stressed country can ill-afford this.
The ecological damage from increased cane farming may be higher than the benefits of using ethanol as transport fuel.

The proposed benefit sharing formula envisages assigning 70% of the revenue earned by sugar mills from the sale of sugar and its by-products to the cane growers.
The objective is to link the prices of sugarcane with those of sugar and its byproducts.
This would, in turn, allow the output of both sugarcane and sugar to be determined by market dynamics and stave off scarcities and gluts.
It would also safeguard the interests of all stakeholders – cane farmers, sugar industry, traders and consumers.

Abolition of the quantitative controls on export and import of sugar, these should be replaced by appropriate tariffs.
Committee recommended no more outright bans on sugar exports.
The central government has prescribed a minimum radial distance of 15 km between any two sugar mills, this criterion often causes virtual monopoly over a large area can give the mills power over farmers.
The Committee recommended that the distance norm be reviewed.
There should be no restrictions on sale of by-products and prices should be market determined.
States should also undertake policy reform to allow mills to harness power generated from bagasse.
Remove the regulations on release of nonlevy sugar.
Removal of these controls will improve the financial health of the sugar mills.
This, in turn, will lead to timely payments to farmers and a reduction in cane arrears.

FRP is the minimum price that the sugar mills have to pay to farmers.
It is determined on basis of recommendations of Commission for Agricultural Costs and Prices (CACP) and after consultation with State Governments and other stake-holders.