Invisible Monopsony in Indian Sugar Sector

Sugarcane market in India is almost turning monopsonic in nature given the trend in declining jaggery processing units coupled with policies like cane reservation area and minimum distance criterion. Under the cane reservation policy, certain area is reserved for each sugar mill, and all the farmers are entitled to sell their cane only to that designated sugar mill. Deeper observation into the scenario unravels structure of existing sugarcane market. With the exploratory research approach this article tries to identify the monopsonic characteristics exhibited by sugarcane market, reasons behind it and its impact on sugarcane farmers and millers. Single buyer, restriction on entry of firms, geographic immobility of seller and buyer is a price maker are some of the monopsonic characteristics exhibited and reasons behind it could be deteriorating jaggery sector, lobbying capacities of sugar millers and inclined State support to sugar mills. This kind of market structure has several negative impacts on its stakeholders like limited opportunity for seller to select their buyer and vice versa, low welfare as compared to perfect competition and farmers lose their control over their microlevel decisions. This is important that now the State takes active step towards abolishing market distorting policies in sugar sector in order to find a solution to current crisis in the sector.