Sugar Industry in India

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INTRODUCTION
India has emerged the largest sugar producing country in world it ranks fourth in world first three beings Russia, Brazil and Cuba. India bags 22% share in world sugar production. It is a second biggest agro base industry which gives most employment to the people in India. The sugarcane cultivation accounts to 3% of the total cultivated area in India.
PROBLEMS OF SUGAR INDUSTRY
1. It’s an agro based industry so the prices always fluctuates with monsoons. The sugarcane prices are fixed by government that is generally arbitrary.
2. After the removal of stalk, sucrose content of sugarcane begins to decrease by the time, & so the mills must be located in close proximity to the sources of raw material.
3. The percentage of co-operative sugar mills is less. (Co-operatives can act as a good way of profit distribution entities)
4. In India the percentage of sugarcane per acre and percentage recovery of sucrose is low as compared to other countries. E.g. the sugarcane productivity of other countries on an average is 130 tonnes per acre and India’s productivity is 70 tonnes per acre.
5. Problems for production of sugarcane include low yield of sugarcane, short crushing season, unsatisfactory location of sugar industry.
6. Indian sugar factories have low milling efficiency and recovery of sugarcane is very low.
7. Indian sugar industry don’t have their own sugar plantation due to that they don’t have control over quantity and quality of sugarcane which is supplied by numerous sugarcane growers.
8. The uneconomic nature of production in sugar mill, low yield, short crushing season, high prices of sugar and high excise duties are responsible for high sugar prices in India. The Indian sugar prices are relatively higher than other countries.
9. In India the by-products of sugar mills are not fully utilized like that of western countries. The by-product of sugar industry are bagasse and molasses. These by-products can be used for various other purposes like making paper.
10. Government policies regarding sugar industry are highly centralized and are not dependant on market forces. There is no price control on the sale of free sugar.
11. There are price and distribution control on molasses also which is a major by-product of sugar mills.
12. The main reason for sickness in sugar industry is due to the reason that most of the mills are closed due to various reasons.
SOLUTIONS
1. By-product utilization: More utilization of molasses for ethanol production, which is alternative to petroleum products. And ethanol is now blended with petroleum products.
2. The adequate relief and concessions would be required from state government, banks and financial institutions for the revival of sick and closed sugar mills.
3. Use of bagasse for electricity generation, and encouragements of bagasse based power generation. A sugar industry should at least be forced to produce enough electricity for itself.
4. The prices of sugar, gull , khandsari ( raw sugar) should not be competitive.
5. All the remaining sugar industry should be converted into cooperative so that most of the profit will be distributed among farmers i.e. between the ultimate producers rather than getting concentrated in the hands of some contractors.
6. Sugar industry should be placed in close proximity to areas of sugar production so that wastage of sucrose content can be minimized.
7. Modern technology should be introduced in sugar industry so the amount of recovery of sugar from sugarcane can be increased.
COMMITTEE ON SUGERCANE INDUSTRY
Government of India had appointed B.B. Mahajan committee to study the development and growth of sugar industry in India and other sugar producing countries and suggest modification, amendments of existing laws and control in order to increase production and efficiency. They submitted its report in April 1998 and made following recommendations:
Complete decontrol of sugar in order to provide level playing field to domestic industry vis-a-vis imported sugar. That is sugar industry be market regulated instead of government regulated.
Discontiuanation of sugar through PDS so as to prevent PDS sugar entering the open market.
Setting up of a board for determining Statutory Minimum Price (SMP) for sugarcane in the month of September every year.
Prescribed a minimum distance of 15 Kms – instead of the existing 25 ms between an existing sugar mill and a new sugar mill.
Continuance of import of sugar under OGL in order protect the consumers against any unusual rise in prices
Abolition of existing incentives for a new factory.
GOVERNMENT’S NEW POLICY CHANGES
After receiving the Mahajan report, government though didn’t accept all the recommendation, it still accepted the following points of the report:
Government is going to remove sugar industry from compulsory licensing.
To maintain a distance of 15 kms between existing & a new mill.
PRICE MECHANISM
What are the different sugarcane pricing regimes, like SMP and SAP, and how are they different from minimum support price (MSP) for foodgrains?
The statutory minimum price (SMP) is announced by the central government based on the cost of cultivation estimated by the Commission for Agricultural Costs and Prices (CACP). This is the basic price which the sugar mills must pay sugarcane growers. However, citing differences in cost of production, productivity levels and also as a result of pressure from farmers' groups, some states (Uttar Pradesh, Punjab, Haryana, Tamil Nadu and Uttarakhand) used to declare statespecific sugarcane prices called State Advised Prices (SAP), usually higher than the SMP. These states also argued that SMP was merely the 'minimum' price which could be enhanced to protect farmers' interests.
Even though the name suggest that SAPs are advisory prices, litigation in courts has established that the mills in these states mandatorily pay SAP to farmers in these states. Unlike the MSP for wheat or paddy announced by the Centre, where the government procures a commodity from farmers directly in case market prices go below the MSP, the government never procures sugarcane from farmers directly. It is only sugar mills or khandsari units that buy it from farmers at the prices which shouldn't fall below that determined by the government (SMP or SAP).
WHAT IS THE PROBLEM WITH THE ARRANGEMENT ?
Government while buying sugar from the sugar mills gives the money considering the SMP rates.
So, mills never get prices for the as per the SAP. They incur losses in the process.
On the contrary, states always hike the SAP saying that it is protecting farmer’s interest.
The interests of sugar mills, farmers and government have clashed on this issue leading to rounds of litigation among them over years.
SC in it’s 2008 judgment has asked Centre to consider the SAP prices & not just its SMP prices while buying sugar from sugar mills.
What is this Fair and Remunerative Prices (FRP)?
Due to SC verdict, government decided to change the pricing policy.
So, the government amended Section 3 (3C) of the Essential Commodities Act, 1955, replacing the concept of "Minimum Price" by "Fair and Remunerative Price" (FRP) of sugarcane with consequential amendments to the Sugarcane Control Order, 1966.
Under FRP, government added “risk” and “profit” as factors over and above the cost of production used for SMP, in calculating the FRP based on the overall sugarcane and sugar production scenario.
NEW PROBLEM WITH FRP
FRP is still well below some of the SAP rates some states had announced last year.
Farmers are demanding more than Rs. 200 per quintal price as compared to Rs. 130 per quintal (FRP price).
Farmers have antagonized on the centre’s action of discouraging states to announce SAP.
ANY SOLUTION TILL NOW
Centre not clear on this topic.
Need’s a more comprehensive, transparent and participative mechanism for calculating prices.
Government should also see that these price rate fights do not hamper sugar industry which is the ultimate backbone of this sector.
Rangarajan Committee on Sugar Industry
It was formulated by the government to look into all issues relating to the deregulation of the sugar sector.
Sr. No. Element Issue Recommendation
1. Trade Policy of Sugar Import export mechanism of sugar heavily government regulated. Trade policies be stabilized. Export & import be made market regulated.
2. Cane Reservation area and bonding Every mill is obligated to purchase from cane farmers within the cane reservation area, and conversely, farmers are bound to sell to the mill Do away with reserved area. Give farmer option to trade with any mill.
3. Minimum distance criterion It is prescribed a minimum distance of 15 km between any two sugar mills. This restriction be uplifted.
4. Price of Sugarcane FRP is the minimum price for sugarcane. Many states try to announce State Advised Price (SAP) 1. SAP be cancelled.
2. Give the farmers FRP price at the 1st stage
3. Share 70% of the sold value of gar + molasses +bagasse+press mud at the 2nd stage.
5. Levy Sugar Obligation 1. Every sugar mill mandatorily surrenders 10% of its production to the Central Government at a predetermined price.
2. This enables centre to procure cheap sugar for its PDS system.
3. This creates a burden of 30 billion which is borne by sugar industry.
Cancel the 10% sale. pass on the subsidy to state government, which can buy the sugar from the market and give it subsidized.
6 Packing It is mandatory to pack sugar only in jute bags according to Jute Packing Materials Act (JPMA), 1987. Sugar industry like the cement and fertilizer be removed from the purview of JPMA.
CURRENT PROBLEMS
Sugar industry is unhappy about the states policy of announcing State Advised Prices which are very high.
Government formulated a Group of Ministers headed by Agriculture Minister Sharad Pawar which came out with a bailout package.
The package includes interest-free loans adding up to Rs.7,500 crore with favourable repayment terms, restructuring of existing loans, incentives for the production.
Banks are not happy to restructure the sugar industry loans in this policy regard as they consider it as an extremely sick industry.
The most important recommendation of the Rangarajan report of revenue sharing between the sugar mills and the farmers is not being followed.
The main problem lies with the SAP. It is being used so as to conserve & protect the big vote banks where sugar cane growers are more.
The Rangarajan Committee recommended a 70:30 revenue-sharing mechanism between farmers and mills, taking into account revenues from the sale of sugar and also by-products such as molasses and bagasse. The States should adopt the Committee’s formula, which is not only transparent but has been arrived at after a study of the cost structures of sugarcane farming and sugar mills.
 
Practice Questions
Q1
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