The incidents, like the recent one with sugarcane farmers and mill owners, occur every year and throughout Nepal. But this time, sugarcane farmers from Sarlahi made it a point to come to Kathmandu. Among them was Raudi Mahato, who took a loan at 36 percent interest rate to plant sugarcane. He claimed Annapurna Sugar Mills owes him Rs400,000 but hasn't paid him for the last three years. There are 15,000 farmers like him in Sarlahi and many more in other parts of Nepal.

Legislators and public-office holders were forced to act, asking sugar mill operators to clear the dues.

The larger problem, however, is unlikely to be resolved soon. The primary reason for the recurrent conflict among sugar manufacturers, sugarcane farmers, and consumers is government corruption. Government policies are often designed to distort the market rather than to stabilise it.

It is part of a much more worrying trend—the decline of democracy itself.

Sugarcane politics

At the centre of the conflict is money and its easy link with politics.

The sugar market in Nepal is huge. The country's total annual demand for sugar is about 250 thousand metric tonnes, which translates to anything between Rs12 billion to Rs25 billion per year depending on price fluctuations. Nepal's own total sugar production is about 56 thousand metric tonnes, although the Department of Industry data sometimes shows numbers far higher than the registered production capacity.

Recurrent episodes in the last several years have shown that public policies and government decisions are often distorted to serve the interests of crony capitalists, at the cost of the farmers, the citizens, and the economy.

In September 2018, Prime Minister K P Oli instructed for immediate restrictions on the import of sugar, in order to protect Nepali farmers and sugar manufacturers. During the meeting, political representatives had raised concerns about the ad hoc manner in which the government fixes sugar cane prices.

The restriction on import, which followed an earlier increase in customs duty, caused a price hike during the 2018 festive season, when sugar prices soared to Rs105 per kg from an earlier low of Rs48 per kg in 2017-18. Such an escalation distorted the sugar market, causing a windfall for those who had stocked sugar.

After widespread public criticism, Oli claimed in April 2019 that the private sector had duped him. Soon after, however, the government extended the import restrictions and raised customs duty indicating that the sugar producers had deeper political clout.

Policy distortions

Government policies have allowed sugar producers to enjoy a triple advantage. While they consistently delay payments to the farmers citing losses, they continue to appropriate VAT refunds that are supposed to go to the farmers. Consumers continue to be extorted. While the government works with institutions like the Salt Trading Corporation and the National Supply Company to stabilise supply as well as the prices, decision-makers, by design, fail to facilitate these institutions.

There is, however, a hidden phenomenon. Although the government appears to favour sugar industries, businesspersons complain that it is also engaged in extortion and rent-seeking.

Given the persistent conflicts prevalent in sugar production and ad hoc political interference, only businesspersons with political clout can dare to enter the market. For example, one of the biggest sugar manufacturers, Diwakar Golchha was a member of the federal parliament representing Nepali Congress. Similarly, Birendra Kanodia, one of the sugar manufacturers implicated in the current controversy, is also a Nepali Congress leader.

The government needs to protect the interests of all stakeholders, including consumers. Looking after the interests of the sugar manufacturers can help generate wealth, which in turn can be redistributed through the national economy to the general public. Protecting the interests of sugarcane farmers means that they get a decent price for their produce and are not exploited by the industrialists or suffer from the vulnerabilities of the market.

At the same time, the government should not interfere in the market to the extent that the production of sugar becomes uncompetitive, which increases the cost of sugar. If sugar prices are high, then consumers will look for cheaper alternatives like imported sugar, or, in the absence of that option, turn against the government. If consumers ditch locally produced sugar, both the sugar farmers and the manufacturers will suffer losses.

Decline of democracy

Government policies should create a level playing field and stabilise the market through good governance. The best public policy solutions would encourage diversification of sugarcane by-products like bagasse, molasses and filter muds, which in turn can be converted into many useful products including fertiliser, electricity, writing paper and chemicals. For example, one producer started making ethanol, but in the absence of appropriate government policy had to shut it down. Others have started to generate electricity.

If the government appears to address the concerns of farmers and consumers, it is only because of the thin strand of democracy that connects the people to the state. Democracy in Nepal would fail if the elected representatives and politicians do not need to appease the voters or be responsive to their demands.

In recent years, some policy-makers and politicians have tried to level the playing field and stabilise the market by trying to balance the interests of the industries, farmers and consumers. But financial interests have won the longer-term battle. Government policies, thus, appear inconsistent because they are designed to extract money through policy corruption and to balance public grievances when exposed.

Money has become the most powerful driver of human behaviour. Human behaviour, warped by the desire for financial gain, distorts institutions that are designed to serve the public interest. Policies, disguised as legitimate efforts to serve the public interest, are designed to serve financial interests.

Recent events indicate a much more worrying trend. Efforts by the government to stifle freedom of expression and to control information means that it would be much easier to manage public grievances in the future. This, in turn, would mean that the decision-makers would need to become less accountable and responsive to the citizens. It is a process where money and power would win and democracy would lose.