Bitter Taste Of Sugar

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The price dispute between the sugar mill owners and the sugarcane-producing farmers, like in the past years, has resurfaced, again. The farmers are arguing that the price offered by the sugar mills is far below their cost; and demanding a higher rate. The mill owners have their take: as the sugar price volatility is high, it would be unfeasible for them to meet the farmers’ demands. Both arguments have valid underpinnings.
The reference price for both buyers and sellers of sugarcane in Nepal has been the neighbouring Indian states of Utter Pradesh and Bihar.  Buyers here offer the price at par to their Indian counterparts. But, this price hardly attracts the Nepali farmers as their production cost is much higher than their Indian friends. India has massive farm and input subsidies effective. In desperate situations, government ventures to buy the product. They have better mass-scale cold storage facilities to wait for off-season high price sells. On the contrary, the energy and labour prices here are higher, electricity supply and irrigation facilities are unstable, thus costly. Other infrastructures like warehousing are in acute short supply. The farmers are forced to sell their sugarcane at the price offered by the mills as they have no alternatives. Besides, the sugarcane has a huge transportation cost to explore market in greater distances. In Nepal, the government support to the farmers is almost nil.
On the buyer side, the special feature of seasonality in sugar production is a challenge. They must employ all their resources in this season. High demand of workers adds cost of production and the practice of hedging the base price throughout the year is not even contemplated in our context. Nepal’s sugar pricing is largely affected by the Indian price trends. Therefore, Nepali producers’ may be sandwiched between the high prices of sugarcane here and over production and supply of sugar in India.
The situation is indeed dire and warrants a lasting solution to this annually recurrent problem. In the open market economy, it is not advisable to invite an outright, continuous and equally effective government intervention. But, as long as government continues to subsidise in inputs and facilities, there is no harm that it does the same for the sugarcane as well. But, more lasting solutions should be explored from the market mechanism itself. And, there is ample scope for it.
One of the bones of contention of the price rigidity of the sugarcane is ever impending sugar price volatility. This can be best addressed by price hedging of both sugarcane and sugar, at least in the yearly range. The newly developed commodities futures market of Nepal can be instrumental in it. Or, it can be made so. Implementing the already enacted Secured Transaction Registry Act and validation of warehouse receipts for bank financing can be highly supportive to this initiative. If the government can’t afford to invest to set-up sufficient warehouses, it must work to create the environment for private investment for the same.
The second strategy could be market-scoping of sugar, and price-difference support. We have almost convincing data that Nepali sugar produce can only meet about forty percent of the Nepali demand. And, sixty percent of imported sugar invariably has a higher market price for obvious reasons. In such a scenario, government can easily figure out how much the country annually spends on sugar, and what price per unit for. On this basis, government can set a reference price for both sugarcane and sugar. In the year end, instead of indiscriminately subsidising on inputs or incentivizing the producers, government can choose to subsidise only the price difference between the base and market prices. This can work both ways. Even if the producers charge much higher rate than the base price and earn larger profits, it can be arranged such that some portion of it goes to the farmers.
Since sugarcane is a special kind of seasonal crop, it needs special policy attention. 

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