Sugarcane disputes, not so sweet!

Cut_sugarcaneSugarcane prices and disputes between farmers and mill owners is not a new story in terms of agricultural disputes in Nepal. A recent article in the online portal ekantipur.com (November 7, 2013)
Sugar, is a basic commodity in Nepal whose demand peaks during the festival time. According to Karobar Daily (May 30,2013), nearly 200,000 farmers in Nepal are involved in cultivating sugarcane and as per the sugar manufacturer association, production of sugar has also increased by 22,000 ton this year bringing the total production to 165,000 tons which would significantly help in satisfying the annual demand of 170,000 ton per year. As per the demand theory increase in production indicates a decrease in the prices of sugar.

Each year, farmers and mill owners have a dispute over the price of sugarcane which till now has been fixed on a mutual understanding between farmers and mill owners. Last years price had been established after a month long dispute with the mill owners at Rs 500 per quintal based on Indian sugar prices. However, this was not deemed helpful for Nepali farmers as the cost of production in India was comparatively cheaper than Nepal (ekantipur.com, December 12, 2012). The cost of sugarcane has still not been announced by the mills this year which has forced the sugarcane producers to sell their product at a cheaper rate to earn their living.

One of the reasons for the back log of payment and the reluctance of mills to state the sugar price was the 28% increase in wholesale price of Sugar at Rs 69 per kg. Due to this increase the Sugar Mill Producers group had verbally stated a price of Rs 483 per quintal which was rejected by the sugarcane producing farmers federation who wanted prices increased as per last year where wholesale had been 54 with sugarcane price at Rs 411.5 Increasing the rate of sugarcane production as per the increased whole sale price would mean that the locally produced sugar would not be able to compete with the price of imports and thereby this would lead to more unsold stocks ( sugaronline.com, 2013).

The prices adjustment is very critical for the sales of local sugar with the import of Indian sugar that has experienced a surplus and is being traded at Rs 51. Furthermore, it has also been affected by the government’s decision to import sugar in the festive seasons at a subsidized rate despite the increased production in the country that has led to decreasing price of sugar. Furthermore, Nepal also imports sugar from neighboring Bangladesh whose custom duty was reduced from 40% to 15% (Karobar Daily, May 30, 2013).

News Report state that Nepal has started becoming self reliant in terms of sugar production and industry that uses its byproduct to make other products, like liquor are also being established in Nepal. Furthermore, sugarcane by-products can also be made to use alternative fuel. This translates to reduction of spending on importing petroleum product from India (Karobar Daily, Septemeber 24, 2013).

Despite these arguments, it all boils down to basic economics. Yes, it is true that being self-reliant is not a bad thing but when it is possible to sugar at a cheaper rate like Indian sugar whose production cost is less than Nepal; this means Nepal’s sugar would never be able to compete with it until unless they identify ways to reduce the production cost.
This does not mean that Nepal should stop cultivating its sugar as industries that are dependent on the by-product of sugar are currently built in the country. However, it would be more beneficial in the long run if crops that have a comparative advantage which are suitable to the climate as sugarcane could be identified which also has export potentials.

As many farmers are involved in sugarcane production and since one of the key problems facing this agricultural industry is the lack of timely payment, contract farming should be introduced and enforced stringently. Contract farming would ensure that farmers get their payment on time and to protect them from having to sell their produce at a cheaper rate to the mills.

Astha Joshi

Astha completed her undergraduate degree in Politics, Philosophy and Economics (PPE) and is working as a research assistant at Samriddhi, The Prosperity Foundation.

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