Bailout Package for Sugarcane Farmers

Why in news?

The Cabinet has recently approved a Rs 7,000-crore bailout package for sugarcane farmers.

What is the need?

• There has been an excess production in the current sugar season.
• This has depressed the market price of sugarcane.
• It has dropped from an average of Rs.37 a kg in the previous season to Rs.26 now.
• This in turn has adversely affected the liquidity position of sugar mills.
• It has led to the accumulation of Rs 22,000-crore of cane price arrears by the sugar mills.
• Sugar mills share 70 to 75% of the revenue generated from the sale of sugar and its by-products, with cane suppliers.
• This is as per the revenue-sharing formula of C Rangarajan committee on sugar deregulation.

What are the measures in this regard?

• The Cabinet Committee on Economic Affairs (CCEA) has decided for a bail out package for the cane farmers.
• It has also set the minimum selling price for sugar at Rs 29 per kg.
• The government will procure sugar from mills at this fixed minimum price.
• This is to remove the problem of liquidity of sugar mills and help them clear their dues.
• The package comprises shares for creating a 30 lakh MT buffer stock.
• Besides this, a portion would go as soft loan for mill owners.
• This is to increase molasses and ethanol production capacity to divert surplus sugarcane.
• Additionally, another share would be towards interest subvention for the loan.

What are the concerns?

• The plan promises an assured minimum pricing of Rs.29 a kg.
• It may dissipate the sugar mills' immediate liquidity problems to an extent.
• However, sugar mills say this is below their production cost of Rs.35 a kg.

• It could help mitigate only about 40% of the outstanding arrears to sugarcane farmers.
• The production will rise again in the coming season and the extent of arrears would also rise.
• Besides, the loans and interest subsidies component will take time to materialise.
• It will not be soon enough to address the present crisis.
• The recent decision, thus, sticks to the old-style pricing and stock-holding interventions.
• It does little to address the structural flaws in the sugar sector.
• The sops-driven solution could distort the agriculture sector further.

What is the way forward?

• Continuing the complex web of state controls in a politically-sensitive sector is no solution.
• The best way is to address the problem of excess supply in the long run.
• Ensuring some linkage, between the price paid for sugarcane and the end-products it is used for, would help.
• Also, a shift to market-driven cropping decisions should seriously be considered.

Source: Business Standard, The Hindu