To save the sugar industry from an impending collapse, Punjab is considering a unique proposal from a high-powered committee that suggests subsidising the sugar mills against the high cane price – state advised price (SAP) – that cane growers have been demanding. In simple words, sugar mills will get cane at a price they can afford while the farmers will also get a price they demand.
Surprised? Well, as per the new formula, pending before the Punjab cabinet, sugar mills will shell out Rs 250 per quintal as the cane price. But farmers will continue to get a higher cane price of Rs 295 per quintal with the state meeting the difference of Rs 45 in price. This subsidy will be given to the mills to pass it on to the farmers along with the due price.
This is probably the first time in India that producer subsidies are being cleverly shifted in the name of processor subsidies. While it appears to be a subsidy to the sugar mills, in reality it is a subsidy meant for sugarcane growers. This way both mills and farmers remain satisfied. It also reminds me of how the European Union had converted producer subsidies to processor subsidies some years back so as to escape the limitations of direct income support to its farmers under the World Trade Organisation (WTO).
Punjab’s pioneering initiative
At a time when quite a large number of sugarcane farmers in Karnataka, Maharashtra and Uttar Pradesh have committed suicide, Punjab may eventually show the way to address a continuing crisis emanating from the refusal by the private sugar mills to pay a higher cane price to farmers. While I don’t see any justification in why the sugar mills can’t pay a higher price, especially after the sugar industry was deregularised, the new pricing formula opens up a Pandora’s box for the way farm prices are administered in India.
Except for sugarcane, where SAP that farmers get is more or less a political decision, I see no reason why the minimum support price (MSP) the farmers get for wheat, paddy and cotton (to some extent) are linked with the market prices. Since the MSP is fixed keeping market prices for consumers in mind and also to ensure that the industry gets cheaper raw material, it is actually the farmers who continue to subsidise the consumers as well as the agri-business.
Cotton farmers, too, need attention
Take the case of cotton. It was in the early 1990s that a report of the kharif pricing policy of the Commission for Agricultural Costs and Prices (CACP) had clearly stated that cotton farmers were paid 20% less so as to keep the textile industry competitive.
In other words, cotton farmers have been subsidising the textile industry all these years. If only the CACP had worked out a mechanism by which the textile industry could pass on the price benefit to cotton farmers, I am sure there wouldn’t have been such a large number of suicides among cotton growers. Delinking the price the farmers get from selling their produce from the prices that prevail in the retail market is what I have been demanding for long. Just like sugar, the pricing structure of textiles therefore must be redesigned in a manner that the mills pass on the benefit to farmers.
This brings me to another burning issue. While the sweetener proposed in Punjab is basically to protect the commercial interests of the sugar mills, I fail to understand why the same principle cannot be applied to wheat and paddy growers.
Delink MSP from retail prices
For the past three years, farmers have received an increase of `50 per quintal in the MSP for wheat which translates to an increase of 3.6% in prices paid to farmers. As per an affidavit filed before the Supreme Court, the government has expressed its inability to provide a higher MSP to farmer on fears it will cause market distortions.
As if this is not enough, the food ministry has directed the state governments to refrain from providing any additional bonus over and above the MSP announced. Madhya Pradesh, Chhattisgarh and Rajasthan which provided a bonus of Rs 100-200 per quintal have been warned not to do so in future. In case they still provide bonus, the entire procurement operations will also need to be undertaken by them. This is simply to ensure that a higher price does not lead to any increase in food prices. The MSP a farmer gets therefore is linked with the retail food prices. My suggestion is to delink MSP from the retail prices. Procure wheat from farmers at the MSP which will eventually determine the retail price in the market. To the farmers provide 50 profits over the cost, as recommended by the Swaminathan Committee, directly to their Jan Dhan bank accounts Like in the case of sugarcane farmers, it is time to correct a historic mistake being perpetuated over the decades. This is exactly what Japan has been doing. It pays farmers an economic price, and at the same time subsidises food for the consumers.
The writer is a Mohali-based food policy analyst. Views expressed are personal