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Kairana’s bitter pill: Sugarcane economy needs reform not a Rs 8,000 crore bandage

Kairana’s bitter pill: Sugarcane economy needs reform not a Rs 8,000 crore bandage

Wednesday, June 6, 2018 IST

In yet another illustration of how agricultural policy in India is dominated by politics, the Centre looks set to respond to the Kairana bypoll setback with a Rs 8,000 crore package to help mills pay sugarcane farmers. It will reportedly include creating buffer stock and setting a minimum price of sugar at the factory rate. This is on the heels of the worrying proposal of a cess on sugar, over and above the GST rate, again aimed at making payments to sugarcane farmers.

But more government interventionism will hardly solve the problems that have been created by counterproductive government intervention in the first place. In a surplus year like this one it tends to be too late in lifting export restrictions, while in shortage years it bans exports to mollify domestic consumers. Overall, release restrictions and subsidies have distorted price discovery, so that sugarcane harvesting and sugar production cannot tune into market demand freely.

Even as new sugarcane varieties pump up output, farmers remain shackled by the ‘cane area’ that determines the mill to which they can sell. But in freer conditions, farmers could enter into a contract with mills of their choice, including forward contracts where they would sell the sugarcane in advance without worrying about price volatility at harvest time. India’s sugar economy is crying for reforms, not political patchwork and further market distortions.