Sugar Industry – FRP, SAP, Rangarajan Committee, EBP, MIEQ, etc.

[op-ed snap] A sour tasteop-ed snap


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Mains Paper 3: Agriculture | Major crops cropping patterns in various parts of the country

From UPSC perspective, the following things are important:

Prelims level: Not much

Mains level: The crisis of delay in payment in sugar sector and how to deal with it.


NEWS

CONTEXT

Cane farmers everywhere are still awaiting full payments for their produce this season.

Background

  • There have been widespread protests.
  • The sugar commissioner  warned of stern action against defaulting mills.
  • Sugar mills in Maharashtra have paid only Rs 14,881.01 crore out of the Rs 20,653.02 crore that they owe to farmers.
  • The problem of arrears is even worse in Uttar Pradesh, where the unpaid cane dues of mills have crossed Rs 10,000 crore.
  • Maharashtra’s sugar commissioner’s office had threatened
    • To attach and auction properties of defaulting mills
    • To register criminal cases against their chairmen and directors.

Reasons for delay in payment

  • The inability to pay has to do with the economics of the industry.
  • A mill in UP is to buy cane at the state government’s “advised” price of Rs 325 per quintal.
  • The bare production cost of sugar at that rate is roughly Rs 34 per kg.
  • As against this, the ex-factory price of sugar is now Rs 31 per kg.
  • Many factories are actually selling below even this “minimum” price fixed by the Centre.
  • If the industry is going to lose a minimum of Rs 3 on every kilo of sugar sold, the total loss of 31 million tonnes.
  • That’s clearly not sustainable for mills.

Government’s Interventionist Policy

  • Governments, both at the Centre and in the states, have only made things worse.
  • It has done so by fixing cane prices out of sync with sugar realisations or setting monthly sale quotas
  • For March, mills have been given a target to sell 24.5 lakh tonnes (lt) of sugar, which is way above the 21.09 lt and 19.52 lt of actual sales undertaken in the same month in 2018 and 2017, respectively.
  • The underlying objective behind forcing mills to sell more sugar  has been to generate more liquidity to enable them to make cane payments.
  • But that has only ended up depressing prices further.

Way Forward

  • Cane prices have to be linked to average realisations of mills, both from sugar and primary by-products (molasses and baggase).
  • Farmers have the freedom to sell to any mill that may want to pay more.
  • If the government wants cane farmers to be paid more, it should credit that amount directly to their bank accounts and not force losses on the industry.

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