From UPSC perspective, the following things are important :
Prelims level : Minimum Selling Price (MSP) for Sugar
Mains level : Not Much
The Indian Sugar Mills’ Association (ISMA) has asked for an increase in the Minimum Selling Price of Sugar.
Try this PYQ:
Q.The Fair and Remunerative Price (FRP) of sugarcane is approved by the:
(a) Cabinet Committee on Economic Affairs
(b) Commission for Agricultural Costs and Prices
(c) Directorate of Marketing and Inspection, Ministry of Agriculture
(d) Agricultural Produce Market Committee
Minimum Selling Price (MSP) for Sugar
- The price of sugar is market-driven & depends on the demand & supply of sugar.
- However, with a view to protecting the interests of farmers, the concept of MSP of sugar has been introduced since 2018.
- MSP of sugar has been fixed taking into account the components of Fair & Remunerative Price (FRP) of sugarcane and minimum conversion cost of the most efficient mills.
How is the pricing of Sugarcane done?
- With the amendment of the Sugarcane (Control) Order, 1966, the concept of Statutory Minimum Price (SMP) of sugarcane was replaced with the Fair and Remunerative Price (FRP)’ of sugarcane in 2009-10.
- The cane price announced by the Central Government is decided on the basis of the recommendations of the Commission for Agricultural Costs and Prices (CACP).
- This is done in consultation with the State Governments and after taking feedback from associations of the sugar industry.
From UPSC perspective, the following things are important :
Prelims level : HnT
Mains level : Sugar industry in India
- Maharashtra Sugar Commissioner has introduced two crucial changes during the crushing season of 2019-20, and both of them are expected to change the way the industry functions.
- While millers have expressed strong reservations about the changes, some of them feel the move will help streamline the payment system for farmers.
- Farmers can transport their own cane
- Mills have to make harvesting and transportation costs public
Harvesting and Transportation (HnT) charges
- Starting this season, officers of the Sugar Commissionerate will publish HnT charges of individual mills in an area.
- The list will have the Fair and Remunerative Price (FRP) net after deducting the HnT of individual mills, which is the real cane payment received by farmers after selling their produce to those mills.
- Farmers will also be allowed to harvest and transport their own cane. Seemingly simple, these changes have serious implications for both cane growers and millers.
- Unlike their counterparts in Uttar Pradesh, mills in Maharashtra arrange for harvesting and transportation of cane from the farmers’ fields till the mill gate.
- Based on the date of planting of cane, mills draw up their harvesting calendar to ensure the availability of cane across the season to maximise their operations.
- In lieu of this service, mills deduct the HnT charges from the final cane payment to the farmers.
Advantages of the new system
- The current system seems to be working out in favour of both millers and farmers.
- The farmer doesn’t have to bother about transporting the cane while the mills are ensured quality harvested material for their operations.
- The harvesting is done by migrant workers who travel to the mills at the beginning of the season and leave once it is over.
- In case the harvested cane is mixed with other non-sucrose items such as leaves, mills report a dip in the sugar recovery.
- One of the main reasons why Maharashtra’s sugar recovery is higher than that of Uttar Pradesh is because the mills arrange for harvesting and transportation of cane.
Disadvantages of the new system
- The decision of the mill to levy average HnT charges may be advantageous to some farmers, but it works out against other farmers.
- On an average, mills procure cane from within a radius of 50-60 km around them.
- For farmers whose fields are further away from the mills, the transportation of cane is an advantage, but not so much for farms closer to the mills, which can transport the cane and save the HnT charges.
- But HnT charges for mills in Solapur, Ahmednagar, Nashik and Marathwada, which account for around 40 per cent of the state’s total sugar production, have started charging HnT in the range of Rs 800-900 per tonne.
- This is a substantial amount of the total earnings of the farmers. These mills, meanwhile, cite the extra distance they have to cover to procure enough cane to justify higher HnT charges.
- But farmer have alleged that the millers are inflating the HnT charges and going out of their way to favour relatives, friends and supporters of the mill directors, whose fields are located further away.
What has the Sugar Commissioner done and why are mills apprehensive?
- The commissioner has decided to make the HnT charges of mills public and also allow farmers to harvest and transport their own cane.
- The commissioner is hopeful that making the HnT charges public will help farmers choose which mill to sell their cane to, and where their realization will be maximum as mills will not deduct the HnT charges in such cases.
- This move may also help build up pressure on mills to streamline their HnT charges and avoid procuring cane from financially unviable distances.
- But millers have said the process will have operational hurdles and expressed doubts about the farmers’ ability to arrange for harvesters and transportation of cane.
- They fear that this will eventually affect the sugar recovery of mills. Millers have also pointed out that the current system has been in place for a long time and cautioned that any bid to change it may backfire.
Mains Paper 3: Agriculture | Major crops cropping patterns in various parts of the country
From UPSC perspective, the following things are important:
Prelims level: Not much
Mains level: The crisis of delay in payment in sugar sector and how to deal with it.
Cane farmers everywhere are still awaiting full payments for their produce this season.
- There have been widespread protests.
- The sugar commissioner warned of stern action against defaulting mills.
- Sugar mills in Maharashtra have paid only Rs 14,881.01 crore out of the Rs 20,653.02 crore that they owe to farmers.
- The problem of arrears is even worse in Uttar Pradesh, where the unpaid cane dues of mills have crossed Rs 10,000 crore.
- Maharashtra’s sugar commissioner’s office had threatened
- To attach and auction properties of defaulting mills
- To register criminal cases against their chairmen and directors.
Reasons for delay in payment
- The inability to pay has to do with the economics of the industry.
- A mill in UP is to buy cane at the state government’s “advised” price of Rs 325 per quintal.
- The bare production cost of sugar at that rate is roughly Rs 34 per kg.
- As against this, the ex-factory price of sugar is now Rs 31 per kg.
- Many factories are actually selling below even this “minimum” price fixed by the Centre.
- If the industry is going to lose a minimum of Rs 3 on every kilo of sugar sold, the total loss of 31 million tonnes.
- That’s clearly not sustainable for mills.
Government’s Interventionist Policy
- Governments, both at the Centre and in the states, have only made things worse.
- It has done so by fixing cane prices out of sync with sugar realisations or setting monthly sale quotas
- For March, mills have been given a target to sell 24.5 lakh tonnes (lt) of sugar, which is way above the 21.09 lt and 19.52 lt of actual sales undertaken in the same month in 2018 and 2017, respectively.
- The underlying objective behind forcing mills to sell more sugar has been to generate more liquidity to enable them to make cane payments.
- But that has only ended up depressing prices further.
- Cane prices have to be linked to average realisations of mills, both from sugar and primary by-products (molasses and baggase).
- Farmers have the freedom to sell to any mill that may want to pay more.
- If the government wants cane farmers to be paid more, it should credit that amount directly to their bank accounts and not force losses on the industry.