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ISSUES FACED BY SUGAR INDUSTRIES IN INDIA

History of sugar and sugar cane in India goes back to several thousand years BC. Indian mythology vouches for this since it contains some legends depicting origin of sugar cane. It was sometimes in 4/6th century art of sugar making was discovered. Method was crude beyond imagination. Cane was cut in pieces - crushed under heavy weight - juice thus obtained was boiled and stirred, till it turned solids. Thus, it could be rightly said that India has been the original home for sugarcane as well as sugar manufacture.

India is the only country in the world that produces plantation white sugar. All other countries are producing either raw sugar or refined sugar or both. India is second largest producer of sugarcane after Brazil and Sugarcane accounted for 6.0 percent of the total value of agriculture output in India. The sugar cane produced in the country is utilized for the following purposes: Production of white sugar; Production of traditional sweeteners like Gur or Khandsari; Seed, feed and direct consumption (chewing).

But sugarcane industry is suffering from the following issues:

• Productivity Issues

1. Monoculture of sugarcane i.e. lack of crop rotation in some areas, leads to deletion of nutrients in soil and adversely affect cane productivity.

2. Post harvest deterioration in cane quality on account of staling and delayed crushing contributes to low sugar recovery.

3. An irregularity in availability of water is other major issue in cultivation of sugarcane crop. As many states have sufficient irrigation facility with regular raining season (like South India) while others have poor irrigation facility with even raining season (like Uttar Pradesh).

4. Inadequate availability of quality seed of new sugarcane varieties and poor seed replacement rate adversely affect the realization of potential cane yield of varieties.

5. Further reduction in yield of sugarcane due to rise in temperature is significant.

• The average yield of sugarcane is around 50 tons/hectare only which is much lesser when compared to other nations such as 70 tons/hectare in Brazil or 100 tons/hectare in Hawaii.  

• The technology used by sugar mills is obsolete and old which make sugar mills economically unviable and due to this farmers benefit get affected. 

• The small crushing season last only for 4 to 6 months especially in North India due to lesser availability of water or occurrence of frost, etc. 

• The political ownership or their large share in cooperative sugar mills cause delays in payment to farmers. The corruption due to political ownership further cause higher price and poor productivity in sugar mills.

REGULATION OF SUGAR SECTOR

The drivers for regulations in sugar industry are: (i) the highly perishable nature of sugarcane; (ii) the small land holdings of sugarcane farmers; and (iii) the need to keep the price of sugar at reasonably affordable levels while making it available through the Public Distribution System (PDS). 

The major breakdown in regulation of sugar sector occurs in 1998 when compulsory licensing requirement for new sugar mills was abolished. This deregulation helped in the growth of installed capacity with annual range of more than 7% as compared to previous growth rate of 3%. Deregulation paved the path for structural transformation in sugar industry, till 1998 where cooperative dominate the industry but by 2012 private sector came in dominance. 

The deregulation in 1998 was just a step towards better and competing sugar industry in India.  Still sugar industry faces many regulations that stunted the growth of sugar industry and fluctuation in production is become large in last few years. The major regulatory issues that are prohibiting the growth of sugar sector alongwith recommendations of Rangarajan Committee are as follows:

• Cane Reservation Area: The government has specified a cane reservation area under which farmers have to sell their produce to particular sugar mill and mill owner has to buy sugarcane from these farmers only. This reduces bargaining power of farmers to get better price. The mill owner has to depend on farmers of cane reservation area for supply of cane and in case of low production of sugarcane in specified cane reservation area, mill owner has no other option.

Rangarajan Committee proposed that the states should encourage development of market-based long-term contractual arrangements, and phase out cane reservation area and bonding.

• Min Distance Criterion: To ensure decent supply of sugarcane to each sugar mill, the central government has prescribed a minimum radial distance of 15 km b/w any two sugar mills. But this criterion help to create the monopoly of mill owner over a large area as 15 km radial distance is large in number and ultimately led to exploitation of farmers especially where landholding is smaller. Also this regulation prohibits innovation and investment by entrepreneurs.

Rangarajan Committee: In order to increase competition and ensure a better price for farmers, the Committee recommended that the distance norm be reviewed. Removing the regulation will ensure better prices for farmers and force existing mills to pay them the cane price on time.

• Price of Sugarcane: The central government declares a min price of sugarcane that called Fair Remunerative Price (FRP) and state governments have also right to declare their own price which is called State Advisory Price (SAP). Generally SAP is more than FRP which pose the conflict that which is fair price for both farmers and mills.

Rangarajan Committee:  States shall not declare their own SAP. The pricing shall be done on basis of scientific and economically viable principles. The committee suggested that sharing of revenue generated under sugarcane supply chain shall be divided on basis of 70:30 to farmers and mill owners respectively. This method will be applicable for by products as well. The payment shall be paid to farmers in two installments: 

1. First Floor or FRP shall be paid to farmers at time of purchase of sugarcane,

2. Second, balance shall be paid after final price of sugar decided and sold by mill.

• Levy Sugar Obligation: Every sugar mill have to sell 10% of total produce to central government at price lower than market price which is known as levy sugar.

Rangarajan Committee:  The condition of levy sugar shall be abolished as it act as a burden on mill owner and reduce their viability. The government shall buy sugar directly from market for the purpose of PDS. 

• Regulated Release of Non Levy Sugar: The sugar mills have to release non levy sugar in market on periodic basis as decided by central government and currently release orders are on quarterly basis. The sugar, which is produced in span of 4-6 months, sold throughout the year and mill owners have to bear extra cost due to regulated release. The Mill owners can’t raise money to meet immediately to meet various obligations and not in position to get advantage of high prices. It reduces financial viability of sugar mills and a major cause of delay in payment to farmers.        

Rangarajan Committee: recommended for removing the regulations on release of non-levy sugar.  Removal of these controls will improve the financial health of the sugar mills.  This, in turn, will lead to timely payments to farmers and a reduction in cane arrears. 

• Trade Policy: There are various restrictions posed by central government on import and export of sugar. That’s why India contributes 17% to world sugar production but our export is only limited 4% of world trade of sugar.   

Rangarajan Committee: Import and export duty shall not be more than 10%. 

• The state governments have posed various regulations on trading of by-products which impede revenue generation for both farmers and mill owners. 

Rangarajan Committee: remove all regulations on trade of by products. 

However government recently take some steps like providing 6000 Cr loan to sugar mill owners who have paid at least 50% arrears to farmers or use of ethanol blending in petrol up to 10% to be achieved till 2016. But government should take proactive steps to maintain and revive growth in sugar industry like:

• Sustainable Sugarcane Initiative (SSI): In SSI, farmer grow crop initially in a nursery for 8-10 days then plant it in farm area with a suitable distancing method which will help to reduce water and chemical requirement by 25 to 30% meanwhile increases productivity by 20%. The government shall provide necessary support like training to farmers for adoption of SSI.

• The Rangarajan committee recommendation should be considered and adopted as soon as possible. 

• Further government should provide subsidy on new technology and equipment to both mill owner and farmers. New attractive schemes shall be launched for increasing investments and empowering entrepreneurs in sugar industry.

 

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