From Sugar Mills to Distilleries in Maharashtra - Market Interventions Leading to Sequential Distortions

Market Interventions in the form of MSP, trade regulations, buffer stocks etc, are required for relieving excessive demand or supply pressures, normally during exigencies. However, with respect to sugarcane and sugar sector, policy intervention have become a rule, with administered price mechanism and other multiple and often forced sequential regulations aimed at correcting one or other negative consequences of previous distortions. Unsustainable support pricing and guaranteed offtake of sugarcane has resulted in significant excess production of sugar followed by subventions, to bail out the mills. However, the current supply shocks in the global scenario, in the 2021-22 sugar season, have given an uplift to sugar exports with remunerative market prices. It would however be imprudent to assume long term continuance of such an environment. Much less, it would be counter-productive to use this opportunity to increase the MSP, citing high inflation. The main long-term proposal that seems to gain acceptance is to encourage redirecting of such excess stocks to ethanol production so as to achieve the national targets on ethanol blending. This is at best considered a very short-term solution; as sugarcane is a water-fertilizer intensive crop with serious concerns for the drought prone areas of Maharashtra. The bio-fuel policy should instead focus on producing ethanol through more environment friendly crops such as sorghum, millets, and corn and the agricultural residue from these crops.