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Friday, December 3, 2021

It Ain't So Sweet Anymore


To get the Rs.800 billion Indian sugar industry out of its appalling state the government needs to fully deregulate it
TSI | Issue Dated: December 15, 2013, New Delhi
Tags : Uttar Pradesh | Suger |

Sugar mill owners in Uttar Pradesh might have ended their month long shutdown but another crisis seems to be brewing up for them. With the cane price unchanged, private sugar mill owners across the state fear that cane arrears would mount up to unimaginable levels by next year as Rs.280 per quintal even in two installments is out of their paying capacity. “The industry in the larger interest of lakhs of farmers has announced commencement of crushing operations for the 2013-14 season, despite being unviable at the present cane pricing,”Deepak Guptara, Secretary, Uttar Pradesh Sugar Mills Association (UPSMA) said in a statement after announcing the commencement of crushing operations.

In fact, such clashes are not limited to Uttar Pradesh. Farmers in all top sugar producing states including Maharashtra and Karnataka are demanding more money for their cane, while sugar mills, already cash-strapped, want to cut prices in sync with falling market prices. Over the last three seasons (FY2010-11 to FY2012-13), the average price paid by sugar mills for cane has increased at 14% CAGR, whereas sugar prices have gone up by only 3% annually. Even for sugar season 2013-14, the central government has announced a 24% hike in the minimum price payable for sugarcane – the fair and remunerative price (F&RP), whereas as per Crisil Research’s estimates, the increase in sugar prices is likely to be only 8-9%. The financial performance of sugar mills is, therefore, bound to deteriorate further.

Interestingly, the sugarcane price plays a major role in the state politics of the sugar producing states that have over 600 sugar mills acting as a source of bread and butter for over 90 million farmers producing more than 300 million tonnes of sugarcane every year! Hence, despite various policies by the government, both at the Center and the State level, the industry still remains regulated thus suffering from several predicaments. In fact, over the last few years, in the entire nation, the business of sugar and sugarcane has been morphed into a political battlefield with victim being the sugar industry. According to Indian Council for Agricultural Research (ICAR), India's sugar production has fallen to 24.52 million tonnes in FY2012-13 from 28.32 million tonnes just a few years ago in FY2006-07. So what’s the way out?
Well, to get the Rs.800 billion Indian sugar industry out of its current appalling state the government needs to fully deregulate it. Although the government, in April this year, had approved the dismantling of rules requiring sugar mills to sell sugar at below-market prices through the public distribution system (PDS) and abolished curbs on open market sale, it now needs to take it to the next level. While the government should revise the existing arrangement for the price to be paid to sugarcane farmers (which suffers from problems of accumulation of arrears of cane dues in years of high price and low price for farmers in other years), the cane area reservation too needs to be phased out with contracting between farmers and mills allowed for enabling the emergence of a competitive market for assured supply of cane. This would definitely be in the interest of both farmers and mill owners across the country.

It's high time and the government will have to decide – whether it wants to please the farmers, the mill workers, mill owners, the public, or the politicians selfish needs. In its pursuit to please everybody it is doing good to nobody. In fact, there is no alternative than to bring in the deregulated competition. If not, the taste of sugar might remain sweet, but its essence would surely turn bitter!

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Issue Dated: Feb 5, 2017