Sugar industries

Introduction

• Sugar industry is an important agro-based industry that impacts rural livelihood of about 50 million sugarcane farmers and around 5 lakh workers directly employed in sugar mills.
• India is the second largest producer of sugar in the world after Brazil and is also the largest consumer.
• Indian sugar industry’s annual output is worth approximately Rs.80, 000 crores. There are 735 installed sugar factories in the country as on 31.01.2018, with sufficient crushing capacity to produce around 340 lakh MT of sugar.

Sugarcane Crop in India

• Sugarcane is grown as a Kharif Crop.
• It needs hot and humid climate with an average temperature of 21°C to 27°C.
• It requires rainfall in the range of 75-150 cm.
• Sugarcane can grow in any soil which can retain moisture. Ideal soil for sugarcane is rich loamy soil.
• India is the 2nd largest producer of sugarcane in the world after Brazil.

North-South Divide in India’s sugar industry

• Three distinct belts of sugarcane cultivation can be identified.
  • The Sutlej-Ganga plain from Punjab to Bihar containing 51 per cent of the total area and 60 percent of the country’s total production.
  • The black soil belt from Maharashtra to Tamil Nadu along the eastern slopes of the Western Ghats.
  • Coastal Andhra and the Krishna Valley.

Dynamics of sugar Industry: How it functions

1. Farmers grow sugarcane and sell it to the sugar mills. Farmers want the sugar cane price to increase even when the sugar price fall.
2. Sugar mills have to buy the sugarcane from farmers at a fixed rate called FRP which is decided by the government.
3. Since the price of sugar cane does not reflect the market price of sugar there is a price mismatch and the mill owners are not able to pay the farmers when the market price of sugar is low, and thus arrears get accumulated.
4. The government provides incentives to these mill owners so that they could clear the arrears.

Problems in Sugar Industry

1. India is again facing with the problem of overflowing sugar stocks.

• The industry’s production estimate for 2018-19 is 35.5 MMT, up from 32.3 MMT in 2017-18, against an annual consumption of about 26 MMT.

1. Another major problem is the rising arrears to cane farmers.

• The arrears rose to Rs 21,675 crore on April 15, up from Rs 8,784 crore a year earlier.

3. Problem of Sugarcane Crop

• Low yield per hectare: The average rate of sugar recovery from the sugar cane is less than other sugar producing areas like Java, Hawaii and Australia.
• Monoculture of sugarcane: lack of crop rotation in some areas, leads to depletion of nutrients in soil and adversely affect cane productivity.
• Water availability: Irregularity in availability of water for irrigation especially in north India, adversely affecting the sucrose content in the crop.
• Perishable nature of crop: Post harvest deterioration in cane quality on account of staling and delayed crushing contributes to low sugar recovery.

4. Problem of cane farmers

• Inadequate availability of quality seed of new sugarcane varieties to farmers.

Delays in payment to the cane farmers lead to lack of financial resources for the next season.

• They have to borrow money from money lenders etc and are engulfed in debt trap which leads to suicide in extreme cases.

5. Problem of Byproducts

• The main by-products of the sugar industry are bagasse and molasses. The industry faces problems in disposing these by-products, especially under pollution control mechanism.

6. Problems faced by the Co-operative Sector and Sugar mills

• Sugarcane has a short crushing season varying normally from 4 to 7 months in a year. The mills and its workers remain idle during the remaining period of the year, thus creating financial problems for the industry as a whole.
• Cooperative sugar industry has been eroded by corruption. The structure of the sector lacks transparency and financial accountability.
• There is a nexus between mill owners and politicians and many of the mills are owned by politician whose main agenda is maximizing profit.
• Lack of professional management.
• Unskilled and untrained workforce.
• Absence of modern management tools and techniques.

7. Problem of High Price

• The cost of sugar production in India is one of the highest in the world.
• This is due to high sugarcane cost, uneconomic production process, inefficient technology and high taxes exercised by the state and the central governments.
• Apart from the manipulations of stocks by sugar factories, hoarding, speculation and black marketing of sugar by wholesale dealers are rampant in India.

8. Faulty government policy

• The sugar economy is a highly controlled one. Sugar mills were under compulsory licensing till 1998.
• There is a Fair and Remunerative Price (FRP) for sugarcane fixed by the Central Government and State advised prices (SAP) fixed by each State over and above the FRP.

9. Faulty Trade Policy

• The Government imposes export and import restrictions on sugar without a clear cut policy.
• When the sugar stock increases the government imposes import restrictions by increasing import duty and when the sugar stocks depletes the government imposes export restriction by increasing export duty.
• The decision by the government leads to price mismatch between demand and the supply and creates confusion in the market.

Government Initiative

• Fair and remunerative price (FRP):
• The FRP is the minimum price that sugar mills have to pay to sugarcane farmers for procurement of sugarcane.
• It is determined on basis of recommendations of Commission for Agricultural Costs and Prices (CACP) and after consultation with State Governments and other stakeholders.

1. State Advised Price: Although the Central government decides the FRP the state governments can also set a State Advised price which a sugar mill has to pay to the farmers.

Minimum Indicative Export Quota (MIEQ):

• Government has implemented an allocation of mill-wise Minimum Indicative Export Quota (MIEQ) of 20 LMT and financial assistance @Rs.5.50/quintal of cane crushed amounting to about Rs.1500 crore.
• This is done in view of the inventory levels with the sugar industry and to facilitate achievement of financial liquidity.

Other Initiatives:

• Government brought out a comprehensive package of about Rs.7000 crore. This includes creation of buffer stock of 30 LMT at the cost of Rs.1200 crore.
• Government has also decided a minimum price for sale of sugar at Rs.29/kg which will help clearance of sugarcane dues of the farmers.

Ethanol Blending Program (EBP)

• Government has also proposed the Ethanol Blending Program
• A major scheme worth more than Rs.4400 crore for increasing the ethanol capacity in the country for diversion of sugarcane for production of ethanol in surplus sugar season.
• The Government will bear the interest subvention cost for this scheme.

Rangarajan Committee Recommendations

Best Practises: What India can learn from Brazil

• Brazil being the largest producer of sugarcane began deriving ethanol from sugar cane in 1970s under National Alcohol Program.
• The government offered subsidy to the ethanol producers and also enforced high ethanol blending mandate which is 27% nationwide currently.
• The programme also initiated the availability of E100 (96% pure ethanol and 4% water) or hydrous ethanol at the retail level.
• But the E100 can only be used in flex-fuel vehicles (FFVs). Therefore, there was tax incentive for consumers in order to purchase FFVs.
• However, since 2000 the Brazilian ethanol market has been restructured with the government playing minimal role, leaving the determination of ethanol price to the market forces.
• Majority of the sugar mills in Brazil are capable of producing both sugar and ethanol.
• The sugar processing facilities in Brazil are considered as biorefinery, which along with sugar can produce bioethanol and electricity from bagasse.
• These plants are flexible to either produce more sugar or more ethanol depending on the price premium of one over another.
• If India replicates the Brazilian model then domestic sugar cane-producing farmers will see renewable-energy feedstock market as an alternative to the traditional sugar market.
• Sugar mills with ethanol production capacity could switch between sugar and ethanol and remain profitable even if there were to be a fall in the price of one of the commodities. This could further stabilize India’s sugar market as it did for Brazil.

Way Forward

• Rangarajan Committee stated that the sugar industry has the potential to double its turnover in 5 years. The government should implement the recommendation of Rangarajan committee at the earliest.
• The government should make the trade policy more transparent so that uncertainties in sugar market are avoided.
• The government should also create a larger buffer so that excess sugar can be stored safely.
• The government should focus more on Ethanol blending program and try to harness its full potential.
• The government should learn from the best practices of countries like Brazil which have achieved substantial success in improving their sugar industry

• Government should also popularize innovative methods like Sustainable Sugarcane Initiative (SSI) which uses less seeds, less water and optimum utilization of fertilizers and land for sugarcane production.

• Sugar cane production is an important pillar in achieving the government’s aim of doubling the farmer’s income by 2022 and the government should take all the necessary steps to achieve it.