After farmers descended in hundreds of thousands on Delhi to vandalize the city the media was full of the sugar crisis. It described how the demonstrators misbehaved and paralyzed the city, how all the opposition parties got united on the issue, how Rahul Gandhi intervened with the PM, and how the government rolled back its decision. All this did not educate the lay public about what the sugar dispute was all about. Being an ignoramus about agriculture and economics this scribe approached a friend, Dr N Chandra Mohan, who teaches economics in a university. The economic implications gathered from him revealed the political reality of what lay behind the crisis. Also, the fact that the crisis is far from over. It may have just begun.
The standard practice was that each year the union government would issue a Fair and Remunerative Price (FRP) for sugar to all state governments as a non mandatory advisory. The respective state governments in turn would review local conditions and issue their own State Advisory Prices (SAP) that could overrule the FRP. This year the government passed an Ordinance by which FRP became mandatory for the states. The determined price was far below what the farmers expected. They agitated and descended on Delhi . The opposition political parties dependent on the rural vote got together and backed the farmers.
Seeing the volume of protest the central government seemingly backed down. It staged the Rahul Gandhi-PM meeting drama in an unsuccessful bid to get credit for the Congress. In fact, contrary to media reports the government did not at all back down. It did not scrap the Ordinance which would have made it look constitutionally and politically ridiculous. Unlike earlier years this time the government through the Ordinance determined a uniform FRP. State governments would have had to pay the difference between the FRP and SAP they decided. After the protest the central government decided that instead of the state governments paying the difference between the FRP and SAP, the sugar mills would make payment. Far from resolving the crisis this will compound it.
If the sugar price is totally uneconomical the mills would not crush the cane. The produce would rot in the fields and eventually be burnt. The sugar market would crash ruining both the farmers and the mill owners. What was needed was for the government to moderate a face off between the farmers and mill owners to determine a fair and mutually beneficial price. Instead the Agriculture Minister played politics. The Ordinance was intended to hit farmers which would have helped the parties of Mulayam Singh and Ajit Singh at the cost of his Maharashtra ally, the Congress, and Mayawati’s party in UP. Maharashtra , the other major sugar cane growing state was sitting pretty. The structure of the sugar industry in Maharashtra is cooperative. Mill owners and farmers are in partnership. And the present granddaddy of the sugar cooperative movement in Maharashtra is the Union Agriculture Minister Sharad Pawar himself.
However now, thanks to his too clever by half approach, Sharad Pawar may also be sweating. The prolongation of the dispute as the wrangling on the final sugar price continues could well make the sugar market crash nationwide. The sugar cane crushing was due to start in October. It has still not started thanks to the dispute. Further delay in fixing price could result in rotting stocks and burning crops. One cannot predict how the crisis will end. But it can be safely said that it is far from over.