The sugar crisis in Uttar Pradesh is a clear product of the politics of brinkmanship for vote bank considerations. Sugar mills have said they cannot pay the state-fixed minimum price to cane-growers and have suspended operation. The mills, which are struggling with losses and arrears to farmers, say they would rather shut down than buy sugarcane at a price that is unviable. The key to the whole imbroglio is the state-advised price (SAP) of sugarcane. Unfortunately, what ought to be purely administrative work has become a political decision. While farmers demand a high price for cane, the industry wants low price to make the mills viable.
In April, the Centre freed sugar mills from the obligation to supply part of their output at below market rates to the public distribution system, besides allowing them to decide the quantum and timing of their sales. This decontrol in sugar was, however, not extended to cane, where state governments continued to retain the power to fix prices payable to farmers. It is time to take decontrol of sugar to its next step by extending it to cane.
The government should link cane prices to sugar realisations as the Rangarajan Committee has recommended. A system under which farmers enter into supply agreements with mills of their choice will help the mills secure assured cane supplies and the growers reasonable price certainty for growing a one-year crop. The higher the price of sugar, the more the farmers will get and vice-versa. The state’s role should be limited to ensuring enforcement of such contracts. Karnataka in May legally adopted this revenue-sharing formula. Maharashtra, the largest sugar-producing state, has started the process to adopt it. The Centre should engage with other cane growing states to move towards total decontrol of the sugar sector and let the market determine the prices of both cane and sugar.