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India: The sugar sector is highly politicised

When I started the research for my paper 15 years ago, over 90 per cent of mills were cooperative. Cooperative mills may be going private for at least two potential reasons: first, the mill is in poor financial health and a private investor buys it out because the investor believes he/she can run the mill better; or second, a politician figures out that he/she can extract better rents from running the mill directly rather than through the cooperative model (which has internal elections). If it is the latter reason, which I fear it is, then the implications are that the sector will continue to be politicised. Uttar Pradesh has now become the largest sugarcane and sugar producer in the country and the contribution of private sugar mills is more than 90 per cent of the state’s total sugar production. How do you see the political dynamics of these private mills in state politics? If the mills are run by private investors with a pure profit motive, then the main worry is whether the monopsony power inherent in sugarcane processing will mean that farmers will end up worse off. If these mills are being run by politicians, then the fear is that farmers may still be worse off, and the taxpayer is also worse off as politicians extract rents from farmers (lower prices in the way of “contributions” to political causes) as well as the government by directing agricultural credit to their own mills.