Pricing of sugarcane and sugar

THE Agricultural Prices Commission (APCom) set up in 1981, was required to advice the government on the support price of about half a dozen important crops like wheat, rice, cotton, sugarcane and oilseeds. In doing so, the APCom had to consider about 15 different criteria.

These included the cost of production, export and import parity price, domestic and world demand, supply and stock position at the beginning of crop year, its effect on the raising of other competing crops, especially those which compete for water and land.
Amongst these criteria, working out the cost of production was found to be the most difficult, complicated and controversial one, because it differed from province to province, district to district, and village to village and farmer to farmer and field to field of the same farmer.
To find a scientific and agreeable solution, the APCom adopted a random sampling technique followed internationally.

In the case of sugarcane, the APCom, through this mode, selected about 1,165 farmers from the three cane-growing provinces. Through visits to these farmers, data on various expenditures the farmers incurred in raising the crop were collected. These expenditures included cost of seed, land preparation, fertilisers, irrigation, hoeing, harvesting etc.

Then data for each province was compiled and analysed. Based on this analysis, the cost of production was worked out as it was at farm level, including and excluding land revenue, including and excluding land rent, and at mill gate which included transport costs to mills and development cess.
The issue of cost of sugar production and other issues relating to the support price of cane were discussed at the APCom standing committee on sugarcane. This committee had representation of all stakeholders including growers, mill owners and federal and provincial governments’ representatives. The committee used to discuss all relevant issues to reach a broad consensus.
Based on this exercise, APCom made recommendations to the ministry of food and agriculture (MINFAL) which, after obtaining views of other federal and provincial ministries concerned, would send a summary on the subject to the cabinet based on technical analysis.
But the cabinet took its decision keeping in view the political considerations which could be contrary to the APCom recommendations. The cabinet fixed the minimum price the farmers of each province should get for their produce containing recovery of 8.5 per cent in the Punjab and the NWFP and 8.7 per cent in Sindh. If recovery at the end of crushing season was found to be higher than these benchmarks by the mills, the farmers would get a ‘quality premium’, the amount of which was announced at the time minimum support price was declared.
Over the last few years, the procedure has been replaced with a ‘free market system’. The provinces fix the price which sometime creates problems for the federal government, particularly the ministry of food and agriculture to reconcile or solve them. It would be better if instead of taking rather ad hoc decisions, the recommendations made by the APCom [now the Agricultural Policy Institute (API)] are adopted. My information is that API has not produced any report for the sugarcane crop for 2008-09 and 2009-10. The government does not seem to be interested in using the API analysis/recommendations.
But I would suggest that the input from the API in the form of a detailed report (to be prepared by them) should form the basis for determining cane prices for the next year.These prices would be on the basis of 8.5 per cent recovery for Punjab and NWFP and 8.7 per cent recovery for the Sindh crop. At the time the “quality premium” should also be announced, but payable by every mill after the crushing season is over and the recovery level is known.
This ‘quality premium’ would be payable after the crushing season at the rate of an increase of 0.1 per cent recovery over the base recovery level. Similarly, there should be discounted “quality premium” if the average recovery of the mill turns out to be less than 8.5 per cent in Punjab and NWFP, and 8.7 per cent in case of Sindh. Such an action would take care of one of the major objections of mills for not starting the crushing season on schedule.
The prices should be announced at least 6-8 week prior to the sowing season so that farmers could take decision about their sowing plans in time.
In the 1980s, the ministry of industries used to calculate sugar prices on the basis of cane support price. Dr Mahboob-ul-Haq, the then minister for commerce and industries, passed on this responsibility to the APCom. Until recently, sugar prices were determined by it.
While sugarcane prices were approved by the cabinet, these were fixed by the ECC presided over by the finance minister. The system was working satisfactorily till such time the so-called ‘free market’ system was adopted under the influence of international financial institutions.
This system has created confusion in marketing of sugar/sugarcane, wheat, rice/paddy, cotton, etc. Such decisions should be left to local experts who are equally, if not better, than their foreign counterparts.Unfortunately, the sugar crisis is continuing. One of the major reported reasons mills take as plea is that they purchased cane at prices ranging from, say Rs60/40 kg to Rs120 or more, and the price of sugar at Rs40 per kg fixed by the court does not cover their cost.
I would like to suggest as to how an amicable solution to the crisis could be found.
Every mill has a record of cane delivered by every farmer and the price paid to him. At the end of the year, the mill has all the data regarding the cane purchased, and the prices paid to each supplier. It should not be difficult to work out at the end of the year, an average weighted price for the total cane crushed during the entire crushing period of a mill.

All the mills, for example, in Punjab, would thus have a similarly worked out weighted price paid for the purchase of cane (by each of the mill) during the crushing season. This average weighted price of each mill can then be averaged for the whole province. Thus one can have the weighted price of cane for each cane growing province. If so required, these prices of the provinces can be further weighted averaged, which would give a better idea based on scientific method, as to the price paid by the mills for the purchase of cane in each province or even for the country as a whole.
This is somewhat a lengthy exercise, but in this age of computer, this is the best way to solve this thorny problem facing the court and the policymakers. On this basis, the production cost of sugar can be determined. However, the differences on factors in working out the cost of sugar can be settled by mutual consultations. In anyway, the cost of cane is the major (80 to 90 per cent) component of the sugar cost.
The above exercise would greatly help reduce the intensity of the crisis, if the government can ensure that hoarders deliver sugar to the government, and smuggling is checked.

Courtesy: The DAWN

Muhammad Ramzan Rafique
Muhammad Ramzan Rafique

I am from a small town Chichawatni, Sahiwal, Punjab , Pakistan, studied from University of Agriculture Faisalabad, on my mission to explore world I am in Denmark these days..

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