The Sugar economy: a cobweb of policies

Abstract

The India sugar economy can be viewed as a system consisting of four components: the material flow across the three stages of cane production, its conversion and consumption of end products; the feedback influences between these stages; the policy measures of the central and state governments; and the interest groups affected by these policy measure (See Fig. 0.2). Starting with the protection granted to the domestic industry from foreign competition in the early 30s, the cobweb of policies affecting the sugar economy has gradually become broader in scope and wider in its repercussions. The substantial differences in the production efficiency between the subtropical northern states and the tropical southern states, the differences in consumption patterns of the rich and the poor as well as the urban and rural population etc. have created several vested interests. This dissertation views these interrelated government controls under three broad categories: the minimum support prices for cane at the farmers’ level, the differential levy sugar procurement prices at the zonal level and the dual pricing policy for the consumers. Since all these policy measures are directly applicable to only the sugar factories in the organized sector and not to the gur and khandsari procedures in the unorganized sectors, this dissertation does not venture into any quantitative prediction on impacts of these policies on cane acreage and production response, and hence on sugar production. Nor does it claim to have arrived at definitive conclusions on what should be the policy for sugar, for, any such statement can be made only after a comprehensive look into the optimal cropping pattern for all crops and all regions of the country, which is simply beyond the scope of this dissertation. Subject to the above proviso, this dissertation definitely brings out the vested interests behind the existing sugar policy. The interdependent impacts of the dual pricing for consumers and differential levy sugar procurement pricing for consumers show the real intention behind these policies: protecting the inefficient northern states from the competition of the southern states. The estimates for the leakage of levy sugar into the open market is shown to be the only logical result of the existing high levy sugar protection and the consumption at lower levels in levy sugar distribution and/or an indirect subsidy to the poor who sell their levy sugar, are shown to be the unintended consequences of the political patronage at the zonal level. This dissertation, through a ‘worst-case’ analysis of the scope for and consequences of speculation by the trade, under the existing monthly release control mechanism, raises the question whether the central government is being ‘penny wise and pound foolish’ by focusing its attention on this policy which has a really trivial impact compared to the other policies.