Revenue-sharing mechanism can provide a lasting solution
The government has minced no words in telling the sugar industry to stop relying on subsidies and other support measures for its survival. It should go in for alternative business models, diversifying product profiles, and efficiency enhancement to become economically viable. While giving this sane counsel at the 86th annual general meeting of the Indian Sugar Mills Association (ISMA), Union Food Minister Piyush Goyal also turned down the industry’s plea for reducing the floor price, called “fair and remunerative price” (FRP), for purchasing sugarcane from farmers. But the minister’s most consequential proclamation was to rule out the introduction of a revenue-sharing mechanism mooted by the Rangarajan committee as a replacement of the FRP. This precludes one of the key options for this sector to become self-reliant.
The Rangarajan formula involves sharing 70 per cent of the mills’ revenue from sugar and by-products, or 75 per cent of the revenue from sugar alone, with cane farmers. This is a logical way of linking input (sugarcane) prices with those of output (sugar), on the one hand, and sugar production with market demand, on the other. The objective is to forestall situations of oversupply, which often depresses sugar prices and causes a liquidity crisis in the industry. More importantly, almost all stakeholders in this sector, including sugar manufacturers and cane growers, seem comfortable with it. The government’s predicament, which inhibits it from tinkering with the present cane pricing system at this juncture, is not hard to imagine. The FRP, for all practical purposes, is the minimum support price (MSP) for sugarcane. Any change in it, even if for the better, can be misinterpreted by the farmers who are currently agitating at the Delhi borders for the perpetuation of MSP, besides other demands. But the government should keep the option open and wait for a more favourable environment for introducing the revenue-sharing mechanism as a lasting solution for the sugar sector’s woes.
Fortunately, several other ways and means are available for the sugar industry to survive without official succour. Diversification and value-addition of its produce, better use of by-products, and higher production of alcohol for industrial use and admixing with vehicular fuels are the few that can help raise sugar mills’ revenues. The government, too, is taking measures to support the industry in this endeavour. It has committed to raising ethanol-admixing with petrol to 20 per cent or more, from the present level of below 10 per cent. It has also stipulated remunerative prices for the ethanol purchased by oil-marketing companies from sugar factories. Besides, it has gone out of the way to permit sugar mills to make ethanol from a variety of materials other than the by-products of sugar production. These include sugar, sugarcane juice, sugar syrup, and B-heavy molasses. This has been done regardless of the fact that it could incentivise expanding the area under sugarcane, a water-guzzling crop that is already causing a rapid depletion of groundwater. Going a step further, the government has allowed the use of surplus foodgrains, including broken and spoiled grains, for conversion into ethanol — a luxury which so far only the rich countries could afford. It is now for the sugar industry to take advantage of these concessions.