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THE WOES OF the country's sugar sector seem to be never ending. The industry is besieged with problems of supply glut, falling prices and enervated finances, while payment to farmers is in arrears (nearly Rs 600 crore) with no immediate prospect of settlement. And now, a pricing disagreement between cane growers and sugar mills in Uttar Pradesh — the largest sugarcane growing State, accounting for 35 per cent of supplies — is threatening to explode into a major controversy. Apart from the cane growers, sugar mills and politicians, the players in this drama include the Central and State governments too. Ironically, the principal political party in the ruling coalition at the Centre is an ally of the party in power in Uttar Pradesh, lending an unmistakable political hue to a situation that is rendered more complex with every politician throwing his weight around, wanting to be seen as a champion of farmers, especially in this year of drought.

Among the States growing sugarcane, Uttar Pradesh is notorious for announcing State Advised Price (SAP) — typically 30 per cent or even higher — above the Statutory Minimum Price (SMP) fixed by the Centre. Even though the SAP is not statutorily binding, mills nevertheless end up paying the cane price as advised by the State government for fear of reprisal. A SAP of Rs 95 per quintal this season is seen by mills in UP as extortion. Based on the Centre's SMP of Rs 69.50 per quintal at 8.5 per cent basic recovery of sugar from cane, mills in UP are already paying Rs 83 per quintal. To break the impasse, the Centre has now stepped in with a bailout package of Rs 500 crore. The package may help ease the deadlock between growers and mills for the time being, and offer a politically convenient escape route for the Government; but the dangerous implications of this avoidable precedent cannot be wished away. If it is UP this season, it could be Maharashtra or some other State the next. Such a political game is best avoided.

There is no alternative to rationalisation of sugarcane prices. Years of control and restrictions on the industry and fixing artificially high prices for cane year after year (unrelated to market conditions) have infused a false sense of security among producers. With the protective insulation gradually thinning with liberalisation, both cane growers and mills have to learn to survive in a competitive environment. Cane pricing has to be linked to sugar prices in domestic and world markets. Ideally, the SAP should be abolished, if need be with appropriate legislation; alternatively, the difference between the SMP and the SAP should be absorbed by the State government as subsidy. A rational and market-driven relationship between input (sugarcane) costs and output (sugar) prices has to be established. In the absence of rationalised cane prices across the country and without complete decontrol of the sector through removal of levy and free-sale release system, there is little scope for the sugar industry to become competitive. For the same reason, sugar futures trading — on which policy-makers seem to have placed immense faith — may not succeed. The problems of the physical market have got to be addressed boldly.

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