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The Proposed Deregulation of India’s Sugar Sector
The deregulation of agricultural markets and its scope for benefits to farmers are examined using the system generalised method of moments to estimate India’s supply equations of sugar and sugarcane. An alternative theoretical framework is used to generate the supply equations—different from Nerlove’s Adaptive Expectations-based supply response function or the assumption of profit-maximising firms operating in a freely competitive market—which fits into the sugar sector’s regulatory system in India. The findings suggest that the proposed deregulations will not reduce the sugar sector’s cyclicality nor will it create a win-win situation for farmers and mills. Instead, the mills will benefit at the cost of farmers.
The views expressed here are strictly personal.
India witnessed an unprecedented farmers’ protest against three agricultural bills passed in Parliament in June 2020. These laws sought to deregulate the selling of agricultural produce across the country, allow farmers to sell their harvest outside the Agricultural Produce Market Committees (APMCs) without paying any fees or taxes to the state governments, ease contract farming, and liberalise the production, storage, movement, and sale of many major food items, including cereals, pulses, etc, from existing regulations. A major fear for farmers was that these changes would allow the government to dilute the current minimum support price (MSP) system that mainly benefits the country’s wheat and rice growers. The apprehension was that the government’s procurement of rice and wheat through APMC markets would come down, and that this space would be filled up by agro-based corporations who would then control prices. Thus, the farmers’ unions demanded not just the scrapping of the above-mentioned three bills but that non-government buyers also purchase at MSP. Following 14 months of protest, in late 2021, both these laws were repealed by the Indian Parliament.
This demand, of all agricultural procurement at MSP, already exists in the sugar sector. Sugar mills, irrespective of their ownership, are bound to purchase sugarcane at the MSP, or “fair and remunerative price” (FRP), as it is referred to in the sector. However, the Government of India (GoI) is trying to change this policy in the sugar sector too, which has gone largely unnoticed. They are proposing significant deregulation of the pricing and production decisions and the reduction of trade restrictions. This new deregulated policy framework has been articulated through the Rangarajan Committee (2012) report and the NITI Aayog’s (2020) Task Force on Sugar Sector. According to the Rangarajan Committee (2012), one of the major justifications behind these deregulation initiatives is to reduce volatility in the sugar sector, which arises out of the non-alignment between domestic prices of sugar and sugarcane. The reduction in volatility will purportedly benefit both farmers and sugar mills. Another justification is to increase the productivity of the sugar sector.
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