MAINSTREAM, VOL XLVIII, NO 8, FEBRUARY 13, 2010

The following article on the present rise in prices of sugar has been written by Kobad Ghandy, the CPI (Maoist) leader now lodged in Ward No. 8 of Tihar Jail No. 3. Though suffering from prostrate cancer and incarcerated in prison he retains an alert mind as is reflected in the following article sent specially for publication in this journal (Mainstream).

At Rs 50 per kg sugar prices have never been so high. With sugar prices soaring, prices of all sugar linked products—sweets, mithais, tea etc.—have also sky-rocketed. Not only will festivals for most become a drab affair, children’s wailing for the little sweet or toffee will get louder. At the rate at which sugar prices have been rising it will be out of reach of many a poor and middle-class life.

One would have thought, given the free-market mantra of the rulers, that high sugar prices would at least convert into higher prices for the producers—the fifty million sugarcane farmers. But that was not to be; the so-called free market functions only to benefit big business, traders and politicians. In this case both the producers and consumers are being crushed by the cane and sugar pricing policies of the government dictated by the millers and international sugar cartels.

It is indeed a policy that has resulted in windfall profits for a few at the cost of millions of farmers and crores of consumers. And the solution being suggested—huge duty free imports—will help no one except the importers, the foreign traders and the bureaucrats/politicians who will get their commissions on each order. The entire people of our country are made to suffer so that a few may make fortunes. This is indeed tragic.

And while the entire people suffer the politics of sugar is diverting the entire issue with the Central and UP governments throwing the blame on each other.

Farmers being Crushed

In October last year the Ministry of Consumer Affairs (Food and Public Distribution) changed the pricing regime for sugarcane and introduced a Fair and Remunerative Price (FRP) mechanism, replacing the Statutory Minimum Price (SMP) system that was prevailing till then. Soon after passing the ordinance the Central Government declared an FRP to the millers to purchase sugarcane at Rs 130 per quintal, when, according to the NAFA (National Alliance of Farmers’ Association), the input cost of one quintal of sugarcane is roughly Rs 233.5 per quintal. This FRP therefore amounts to a massive loss to the farmer.

Immediately after the announcement, farmers (from UP) took to the streets stopping rail and road traffic. They marched to Parliament. They seized trains that sought to bring imported raw sugar and prevented them from reaching the mills. Some took the extreme step of self-immolation. Others burnt their crop. With the rabi season approaching many resorted to distress sales, selling their crop to local gur manufacturers at Rs 155 per quintal. Under pressure from the farmers the UP Government banned the import of raw sugar.

According to the new order, the FRP shall be fixed by the Central Government from time to time. It also specified that any other authority fixing a price for the crop above the FRP would have to bear the difference. (The latter point was retracted after the farmers’ march to Parliament.) The practice so far was for States such as UP, Tamil Nadu, Punjab and Haryana to declare the State Advised Price (SAP) that mills are required to pay farmers. This was usually higher than the SMP which was announced by the Central Government on the basis of the cost of cultivation estimated by the Commission for Agricultural Costs and Prices (CACP).

As it is, for a number of years, sugarcane growers have been squeezed by the low prices paid by the millers and the spiralling input costs. This has led even to many suicides of sugarcane farmers who had at one time earned a good amount for the crop. In fact in the four years from 2004-05 to 2008-09 the SMP for sugarcane barely rose from Rs 79 per quintal to Rs 81 per quintal while input costs increased phenomenally. In addition, the millers cheat the farmers in varied ways—weighing, recovery rate etc. So it is not surprising that sugar production dropped drastically from 27.8 million tonnes in 2007-08 to 16 million tonnes last year. In the coming year production is not likely to be more than 15 million tonnes.

The government did not create a buffer stock in 2006-07 and 2007-08 when production was at its peak. In 2006 when international prices were high (Rs 20,680 per tonne) and local prices were low (Rs 13,000 per tonne) the government banned exports. At that time due to large stocks and ban of exports the millers harassed the farmers paying them late. In 2007-08 when international prices crashed to Rs 13,000 per tonne the government exported 68 lakh tonnes of sugar even though sugar production was dropping. Later when there was shortage the government imported sugar at Rs 10-35 per kg.

It is these shortsighted policies of the government which have played havoc with the lives of the sugarcane farmers. In its report for 2008-09 the CACP warned the government that unless it raised the SMP for sugarcane the net area under the crop would continue to fall. But the government could not be bothered. They expect the millers will import raw sugar and continue to make money. The area under sugarcane cultivation dropped from 4.38 million hectares last year to 4.21 million hectares—that is, a drop of about 1.5 lakh hectares in just one year. Farmers are shifting away from sugarcane cultivation.

Consumers Robbed

Sugar prices have tripled in the last one year from Rs 17 per kg a year back to Rs 50 today. In just the last four months it has risen by over 40 per cent from Rs 32 per kg. Notwithstanding the claims of the Agriculture Minister, sugar prices are unlikely to drop. When production is estimated at a mere 15 million tonnes and consumption at 23 million tonnes without a single kg of buffer stock (compared to 10 MT at the beginning of last year), the price will be determined by the cost of imports. Given the shortfall, a minimum of eight million tonnes will have to be imported.

The raw sugar import cost to the miller will not be less than Rs 38 per kg. With such high costs, what the consumer has to pay is not likely to be below Rs 50 per kg. And with India entering the international market with huge purchases, the international prices are only likely to go up—expected to be up to Rs 70 per kg.

The question that arises is that when the millers are paying Rs 13 per kg to the farmer (FRP rate with recovery at 10 per cent) why should sugar be so expensive? Even if we calculate that for every kg of sugar produced the transportation and processing charges come to Rs 5, the cost of production would be a maximum of Rs 18 per kg. If we add another one-third as profit the selling price comes to Rs 24. Then if we count the wholesaler’s/ retailer’s profit sugar should not cross a maximum figure of Rs 30 per kg. Then why Rs 50? Even if they give the sugarcane grower the rate that is remunerative—say, Rs 23 per kg or Rs 230 per quintal for sugarcane—the maximum price to the consumer will come to Rs 40 per kg. This would be still less than the cost of imported sugar or raw sugar.

So there is no reason for sugar prices to sky-rocket as millers continue to pay a price lower than the remunerative price. Though this may vary from State to State the plight of the farmer in the two main sugarcane growing States—UP and Maharashtra—is pathetic. In Maharashtra, sugar mills are cooperatives dominated and controlled by powerful politicians like Sharad Pawar. In Maharashtra, every farmer is tied to a particular cooperative mill and is not free to sell it to any other. So they are at the mercy of the cooperative bosses who keep the prices of sugarcane low. In UP many mills are owned by big business houses like Birla, Bajaj etc.

Depending on imports is no solution to the sugar problem—whether shortage or high prices. The only solution must be to promote sugarcane production by investing in agriculture and subsidising the farmer. In this way not only would the farmer and rural economy flourish, the consumer too would get sugar at a reliable price.

Need for a Pro-active Agrarian Policy

With nine lakh tonnes of imported sugar stuck at the ports since the last month due to the UP Government’s ban on processing it, the Centre has been blaming the Mayawati Government for the high sugar prices. The Mayawati Government, on the other hand, instead of announcing a high SAP, has clamped cases on the millers under the Essential Commodities Act in order to share the booty made by them. The plight of the millions of sugarcane farmers and crores of consumers is not on the mind either of the Congress or the BSP. They are interested in only extracting their share of the windfall profits being made by the millers, cooperatives, big traders and hoarders.

The only policy that would benefit both the producer and consumer is for the government to invest heavily in agriculture and subsidise sugarcane production. Sugarcane production requires large quantities of water, so irrigation projects should be its first focus. Unfortunately the government has systematically been cutting investment in agriculture. Rural development expenditure of the government averaged 14.5 per cent of the GDP in the 1985-90 period. This dropped to eight per cent in the early 1990s and since 1998 it has dropped even further to a mere 5.6 per cent of the GDP. In real terms, there has been a reduction of about Rs 30,000 crores annually in development expenditures on average in the first five years of this century compared to the pre-reform period.

When investment in agriculture should be increasing as it is there that the bulk of our population live, the above figures indicate a massive reduction with disastrous consequences. Rather than become dependent on imports and thereby compromise the food security of the country, the government needs to invest heavily in agriculture (with focus on irrigation) to boost the production of sugarcane and other crops.

To solve the sugar/sugarcane problem the government needs to increase investment in irrigation, subsidise input cost (fertiliser, pesticide, electricity) and ensure a remunerative price is paid to the farmer. To maintain consumer prices it should put a halt on the profiteering, hoarding and illegal methods of the millers and subsidise sugar particularly for the poor. If the government can announce a massive bail-out to the three-to-four oil companies and Air India, why does it shy away from bailing-out 50 million farmers and a few crore masses? The amounts being suggested to the three-to-four oil companies and Air India run up to Rs 20,000 crores, a lesser amount would be needed for the millions of sugarcane farmers.