1. Sugar problem: Create a cane-farmers welfare fund

Sugar problem: Create a cane-farmers welfare fund

It would bridge the gap between what the government wants the farmers to get and what the millers are able to afford as per their revenue realisation.

By: | Published: January 24, 2018 5:06 AM
Mumbai Airport, navi mumbai airport, saturation, mumbai airport saturation It would bridge the gap between what the government wants the farmers to get and what the millers are able to afford as per their revenue realisation.

In the first part of this series (goo.gl/Fot1HW), I had mentioned the Commission for Agricultural Costs and Prices (CACP) has, for the last four years, continuously recommended creation of a fund for the welfare of cane farmers. That will help in making the Indian sugar sector healthy, strong and globally competitive. However, the government is yet to approve such a fund. The CACP recommends that sugar mills will pay cane price as per a revenue sharing formula (RSF), at 75% of revenue from sugar and the balance, if any, up to the level of fair and remunerative price (FRP), will be met from the fund. The fund would then bridge the gap between what the government wants the farmers to get and what the millers are able to afford as per their revenue realisation. Millers and farmers surely deserve such help from a fund of this kind, as on the one hand the millers have to buy all the sugarcane grown in their area even if there is a surplus and a loss on every kilo of sugar produce, but on the other hand, the FRP is fully payable even though it is not adequately covered by the “depressed” price of sugar. It’s no sin to produce sugarcane in response to the FRP decided by the government. Farmers should not be made to suffer because the sugar prices fell below remunerative levels. Nevertheless, such situations of surpluses and depressing sugar prices below remunerative levels don’t happen every year. The fund would, therefore, be required to be delved into in difficult years only. An analysis was accordingly carried out for the last eight years, from 2009-10 sugar season, when the FRP was introduced, till the last season 2016-17. The detailed analysis of state-wise average ex-mill sugar prices, average sugar recovery, RSF and FRP, shows that in five out of the eight years, the cane price as per RSF was higher to the FRP.

In these five years, the farmers in such FRP states would have got a second instalment above the FRP, which under the current system was denied. Also, that only in the other three years would there have been the need to use the fund (had there been one) to pay to the farmers. One would recall that when the sugar prices had fallen quite steeply in 2015-16 season, the government paid Rs 4.50 per quintal of sugarcane as part of FRP, to ensure farmers do not suffer. The payment was made directly into the bank accounts of farmers. To fund the same, the government had then increased the cess on sugar by Rs 100 per quintal of sugar, to collect around Rs 2,500 crore in that year. In other words, there is a precedence, and a successful one too, which had ensured payment directly to farmers, by charging an additional cess from the consumers of sugar. The consumers did not feel the burden of the additional cess of one rupee per kilo, because one, it was nominal, and two, and quite importantly, it was levied when the ex-mill or wholesale sugar prices were substantially lower than usual.

Therefore, the obvious way to collect funds in such times of distress, would be to levy an additional cess again, whenever the need arises. The problem, however, now is that cess on sugar has been subsumed into GST. Can the government now levy any tax or cess on sugar in addition to GST, or charge the consumers any additional amount for the fund for cane farmers. Legally, the government still has powers under the Indian Constitution to levy a special cess/tax for such direct payments to farmers. To understand the implications of such a system, let’s see who gains and who loses. The farmers and millers would be the beneficiary and the consumers will have to pay the tax or cess, etc.

There is absolutely no doubt if the millers are to pay cane price as per their revenue realisation only, they become viable with a reasonable cost of production, making them globally competitive. The country will be able to dispose off its surplus sugar, as and when it comes up, and check any major fall in sugar prices. The farmers are the major beneficiaries, who get their FRP on time, either fully from the millers, or partly from them and partly from the fund. The farmers gain further when they get an additional payment when the sugar prices are good, which, as per above-mentioned analysis, would have been in five out of the eight past years.

Though on the face of it, consumers seem to get burdened with the additional tax/cess, it is not so, because the same would be levied or collected only in the years when the ex-mill and wholesale sugar prices are low. Even after the additional tax/cess, the total retail price of sugar may still be lower to usual, because it will be charged when the base itself is low. Like in 2015-16, consumers will not be burdened and will not complain because final retail price is still lower than normal. In fact, some large consumers would be happy to see a stable retail price of sugar.

The cess/tax could be lowered when the sugar prices improve and the FRP becomes affordable. The analysis also showed that if on an average, the extra cess/tax was around Rs 1 to Rs 1.50 per kilo, the gap would have got fully met in the required three years, which by any standard is hardly anything, especially if it ensures timely payment to our farmers. Even though the CACP calls it a price stabilisation fund, the purpose of the fund is to ensure that farmers get their cane price payments on time. Therefore, the more suitable name is cane-farmers welfare fund (CFWF). Hopefully, in the interest of farmers and to avoid cane price arrears in 2018 and 2019, the Centre would accept the CACP’s recommendations and create the CFWF.

Second of a two-part series

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