Sugar Industry

Facts:
  • India is world’s second largest sugar producer after Brazil with production of around 20-25 million tonnes of sugar every year.
  • The sugar production was 25.13 million tonnes in 2015-16 sugar season (sugar season ~ October to September); 20.2 million tonnes in 2016-17, 25 million tonnes in 2017-18 and is expected to be around 30 million tonnes in 2018-19.
  • Currently, UP is India’s foremost sugar producing state and it is likely to maintain this position for the next two years.
  • Maharashtra is on number 2 in production of both sugarcane as well as sugar.
Problem of Plenty:
  • The bumper harvest of sugarcane has created problem of plenty for already troubled cane farmers, sugar mills as well as governments at centre and state.
  • The sugar mills need to buy cane from farmers at state advised price (SAP) but have to sell their produce at either marginal cost above production or in loss.
  • Thus, higher price purchase of sugarcane but low price sale of sugar in open market creates stress on sugar mills and they are unable to make payments to farmers. This leads to accumulation of arrears.
Government Efforts:
  • Though government decontrolled sugar industry partially in 2013 and allowed them to sell their produce in open market, the sugar industry faces a bizarre problem that price of its raw material (cane) is fixed by state and central governments as State Advised Price (SAP) and Fair and Remunerative Price (FRP) respectively.
  • The government supported cane prices are attractive to farmers, but loss due to any fall in the prices of sugar in open market has to be borne by the sugar industry.
  • Further, absence of infrastructure for ethanol production makes sure that the surplus production of sugarcane is not optimally absorbed.
It is said that the Indian sugar industry is under severe stress due to many factors. Examine the problems faced by the Indian sugar industry, its recent growth trend and measures taken by the government to address these problems. (200 Words)
At present India is the second largest producer of the sugar. However if gur and khandsari are also included than India can become largest producer.
Problems faced by sugar industry:
  • At the heart of the crisis is the fall in global crude oil prices along with a decline in the Brazilian currency (real). Lower crude prices means Brazil‘s mills that have just started crushing would divert less sugarcane for producing ethanol. The extra sugar resulting from this, combined with a weak real, has brought down international prices, making it also further difficult for India to export.
  • India has largest area under sugar cane cultivation yet yield per hectare is extremely low as compared to other countries . This leads to overall low production.
  • Most of the sugar mills in UP and Bihar are 50 years old. These mills are using old and obsolete machinery
  • High cost of sugarcane, inefficient technology, uneconomic process of production and heavy excise duties result in cost of manufacturing. PC can be reduced by proper utilization of by products in industry Ex: Bagasse can be used in manufacturing pulp, insulating boards, plastics, carbon cortex etc. Molasses can be used gainfully for manufacturing of power alcohol. Press mud can be used for extracting wax.
  • India has short crushing season varying between 4 to 7 months . Mills and workers remain idle for rest of the time creating financial problems for the industry.
  • Most of the mills are small in size making large scale production uneconomic.
  • Per capita consumption of sugar in India is much lower than world average. This result in low market demand
  • Sugar industry is grappling with high stock building which they are not able to clear causing non-recovery of input cost
  • The 5% blending of ethanol in diesel and petrol is not achieved yet. Producing ethanol is profitable to sugar mills rather than producing sugar.
  • The working capital from banks is becoming difficult because of the issue of debt non-repayment.
  • Due to stock pile up, these mills are not able to clear the arrears of farmers because FRP is higher than the selling price, leading to discontent among them.
  • Fair and Remunerative Price (FRP) : is the existing arrangement for the price to be paid to sugarcane farmers by the Sugar Mills and is announced each year by the Centre, under the Sugarcane Control Order and on the advice of Commission for Agricultural Costs and Prices (CACP), as the minimum price of sugarcane. However, many states in north India also announce a State Advised Price (SAP) under state  legislation. Generally, the SAP is substantially higher than the FRP, and therefore wherever SAP is declared, it is the ruling price. Mill owners are obligated to pay SAP to farmers. This system suffers from problems of accumulation of arrears of cane dues in years of high price and low price for farmers in other years and hence C. Rangarajan committee set up in Oct 12 has recommended doing away with this and introducing a profit sharing mechanism.
Measures by government to address above problems:
  •  A major step was taken by government when licensing requirements for sugar mills was abolished in 1998.
  •  Sugar import tax to raise from 25% to 40%
  •  Centre has approved export subsidy of Rs 4000 per tonne
  •  Do away with 12.5% excise duty on ethanol
  •  Ethanol blending which is only 3% currently could be raised to 10%
  •  Also, urged to give financial assistance directly to sugarcane growers
  •  Bagasse generated can be used by power plants to produce electricity
Despite efforts made by the union and state governments to address the problems of sugar industry, it is found that this industry is still reeling under many problems. Examine why. (200 Words)
India is the 2nd largest producer of sugarcane in the world. Its sugarcane industry problem are equally humongous. The main reasons for this are:
  • Politically determined price: Sugar industry is obliged to pay according to the administered price mechanism. With Supreme court‘s order fixing SAP, their woes have further increased as SAP is generally higher than FRP. This also leads to price disconnect.
  • Reserve area norm: Mills are obliged to purchase all cane brought to it from a reserved area. This assurance exhort farmers to continuously increase the cropped area with complete disregard to market.
  • Global Prices: Sugar production is cyclic. Presently the global market is at the cusp of production thus sugar prices are plunging and making export less remunerative.
  • Crude oil prices: Global decline in crude oil prices cause ethanol blending less profitable hence the stocks have piled up.
As a result, there is a liquidity crunch. Over production and declining rates reduce the capacity of industry to pay farmers. On the flip-side, delayed arrears to farmers is inducing another agrarian crises.
It is high time that government should start deregulating sugar industry. To begin with Rangarajan Committee recommendation and Karnataka model can be used as a road map. Price deregulation, Higher import duties, Mandatory ethanol blending and extending time period of interest free loan etc. should follow to rescue sugar industry from disaster.
ias4sure.com - Sugar Industry