Sugar in India is a bitter-sweet story. The protests last week by thousands of farmers in Delhi were part of the drama re-enacted every few years since Independence. The sector continues to be governed by archaic laws and rules, and price discovery mechanisms for the sweet substance are weak. The result is that all three sides in the sugar story—consumers, sugar cane farmers and sugar companies—are unhappy.

Every year, the Union government fixes the minimum price of sugar cane that sugar mills have to pay farmers when they purchase the raw material from farmers. This never satisfies farmers. Under political pressure from farmers’ lobbies, the state governments in cane-growing regions increase this price further. The state advised price (SAP) is the real floor price that mills have to pay. The result is that over the years, their profitability have been dented badly.

The latest episode began after certain Supreme Court judgements regarding pricing of sugar compulsorily bought by the government from sugar mills. To meet the altered situation after the apex court orders, the Union government took two steps in October. On the production and pricing of sugar, it issued an ordinance called the Essential Commodities (Amendment and Validation) Ordinance 2009. On the sugar cane front, it created Sugarcane (Control) Amendment Order 2009. Under this order, the difference in the price fixed by the Union government and SAP was to be paid by the state governments. Both orders should be seen together as they reflect state intervention in different stages of the sugar production cycle.

The political impact was immediate. Farmers understand the pricing dynamics of sugar and sugar cane very well. Financially wobbly governments such as Uttar Pradesh would be in no position to bear the burden of the gap between SAP and the price fixed by the Union government. Under the new regime, sugar mills would have some breathing space but life had become difficult for state governments and various political parties. Sugar cane farmers are one of the best organized political lobbies in India. It was only a matter of time before the order would have been nullified. The government now plans to introduce a new Bill in Parliament. The sugar story is set for more twists and turns in the future.

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