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

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

Harvesting and Transportation (HnT) charges on Sugarcane

Note4Students

From UPSC perspective, the following things are important :

Prelims level : HnT

Mains level : Sugar industry in India

  • Maharashtra Sugar Commissioner has introduced two crucial changes during the crushing season of 2019-20, and both of them are expected to change the way the industry functions.
  • While millers have expressed strong reservations about the changes, some of them feel the move will help streamline the payment system for farmers.

The changes 

  • Farmers can transport their own cane
  • Mills have to make harvesting and transportation costs public

Harvesting and Transportation (HnT) charges

  • Starting this season, officers of the Sugar Commissionerate will publish HnT charges of individual mills in an area.
  • The list will have the Fair and Remunerative Price (FRP) net after deducting the HnT of individual mills, which is the real cane payment received by farmers after selling their produce to those mills.
  • Farmers will also be allowed to harvest and transport their own cane. Seemingly simple, these changes have serious implications for both cane growers and millers.
  • Unlike their counterparts in Uttar Pradesh, mills in Maharashtra arrange for harvesting and transportation of cane from the farmers’ fields till the mill gate.
  • Based on the date of planting of cane, mills draw up their harvesting calendar to ensure the availability of cane across the season to maximise their operations.
  • In lieu of this service, mills deduct the HnT charges from the final cane payment to the farmers.

Advantages of the new system

  • The current system seems to be working out in favour of both millers and farmers.
  • The farmer doesn’t have to bother about transporting the cane while the mills are ensured quality harvested material for their operations.
  • The harvesting is done by migrant workers who travel to the mills at the beginning of the season and leave once it is over.
  • In case the harvested cane is mixed with other non-sucrose items such as leaves, mills report a dip in the sugar recovery.
  • One of the main reasons why Maharashtra’s sugar recovery is higher than that of Uttar Pradesh is because the mills arrange for harvesting and transportation of cane.

 Disadvantages of the new system

  • The decision of the mill to levy average HnT charges may be advantageous to some farmers, but it works out against other farmers.
  • On an average, mills procure cane from within a radius of 50-60 km around them.
  • For farmers whose fields are further away from the mills, the transportation of cane is an advantage, but not so much for farms closer to the mills, which can transport the cane and save the HnT charges.
  • But HnT charges for mills in Solapur, Ahmednagar, Nashik and Marathwada, which account for around 40 per cent of the state’s total sugar production, have started charging HnT in the range of Rs 800-900 per tonne.
  • This is a substantial amount of the total earnings of the farmers. These mills, meanwhile, cite the extra distance they have to cover to procure enough cane to justify higher HnT charges.
  • But farmer have alleged that the millers are inflating the HnT charges and going out of their way to favour relatives, friends and supporters of the mill directors, whose fields are located further away.

What has the Sugar Commissioner done and why are mills apprehensive?

  • The commissioner has decided to make the HnT charges of mills public and also allow farmers to harvest and transport their own cane.
  • The commissioner is hopeful that making the HnT charges public will help farmers choose which mill to sell their cane to, and where their realization will be maximum as mills will not deduct the HnT charges in such cases.
  • This move may also help build up pressure on mills to streamline their HnT charges and avoid procuring cane from financially unviable distances.
  • But millers have said the process will have operational hurdles and expressed doubts about the farmers’ ability to arrange for harvesters and transportation of cane.
  • They fear that this will eventually affect the sugar recovery of mills. Millers have also pointed out that the current system has been in place for a long time and cautioned that any bid to change it may backfire.

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

[op-ed snap] A sour taste

Note4students

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.

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

[op-ed snap] From Plate to Plough: Drowning in sweetness

Note4students

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 plenty in sugar sector and how to deal with it


Context

Overstock & payments crisis in sugarcane sector

  1. The sugar sector is heading for a major crisis of plenty
  2. The industry’s production estimate for 2018-19 is 35.5 MMT against an annual consumption of about 26 MMT
  3. Another problem is the rising arrears to cane farmers, which stood at Rs 21,675 crore on April 15, up from Rs 8,784 crore a year earlier
  4. These arrears might spike further by 50 to 100 per cent by April 2019, if no bold corrective action is taken quickly by the government

Why this high amount of arrears id pending?

  1. The root cause of the mounting cane arrears is that in 2016-17, domestic sugar production was as low as 20.3 MMT, necessitating imports, and domestic sugar prices (ex-mill) crossed Rs 36/kg
  2. Global sugar prices were also high ($490/tonne in October 2016)
  3. This led to an expansion of the area under the crop, and with a good monsoon, improved yield and recovery ratio, lead to dramatic increase in sugar production from 20.3 MMT in 2016-17 to 32.3 MMT in 2017-18
  4. This production boost substituted imports and replenished stocks, but it became a problem when the world prices of sugar dropped by almost 50 per cent to $244/tonne by August 2018
  5. This made Indian sugar non-competitive in global markets

Pricing of sugarcane

  1. The GoI announces Fair and Remunerative Price (FRP) for Sugarcane
  2. For the 2018-19 season, while the GoI is trying to ensure 50 per cent margin over cost A2+FL for Kharif crops, in case of sugarcane this is already 87 per cent at all India level
  3. The Rangarajan Committee on the pricing of sugarcane had recommended 75 per cent of the sugar price to be given to farmers as cane price
  4. If we force the sugar industry to pay irrationally high prices of cane, it will be pushed towards sickness, large NPAs, and an even bigger mess

Policy options for the sugar sector

  • Trade policy
  1. In June 2016, India had imposed an export duty of 20 per cent to discourage exports as domestic production was low and sugar prices high
  2. In 2017-18 export duty was removed and import duty raised from 50 to 100 per cent in February 2018
  3. Although the import duty of 100 per cent seems very high, yet the direction of trade policy is broadly right
  • Exporting 5-7 MMT of sugar
  1. At prevailing world prices, this is not feasible
  2. Unless the rupee falls further and global prices improve, the export situation may remain grim
  3. Exporting sugar through heavy subsidisation has its limits, as exporting countries like Brazil, Thailand, and Australia may drag India to the WTO
  • Create a larger buffer stock
  1. This may help India stabilise prices in lean years
  2. It includes higher expenditure on stocking
  3. Given the surplus supplies and low domestic prices, the sugar industry cannot bear this burden without the government underwriting a part of the stocking costs
  • Divert cane to ethanol
  1. The government has already taken a bold step by allowing ethanol from sugarcane juice or B-molasses
  2. It will help the industry diversify and reduce risk
  3. The Government of India (GoI) has also announced soft loans to the sugar industry for capacity expansion to produce ethanol

Way Forward

  1. This should not be seen as crisis instead it should be turned into an opportunity to reform sugar policies

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

Sugar output may drop

  1. News: India’s sugar production could decline by over 7% to 23.26 million tonnes in 2016-17 marketing year (October-September)
  2. The preliminary estimate was given by the Indian Sugar Mills Association (ISMA)
  3. Reason: Drought in major growing states – Maharasthra (largest production) and Karnataka
  4. Sugar production in Uttar Pradesh, the second largest producer, is seen to increase in 2016-17
  5. Trivia: India is the world’s second largest sugar producer after Brazil

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

Sugar prices are set to rise

  1. News: Maharashtra govt has given its green signal to export more sugar, and the prices are likely to go up by Rs 4 to 5
  2. Context: Cooperative sugar mills would be allowed to export 10 lakh metric tonnes (MT) of sugar
  3. Why? To ensure cash flow and help the mills pay fair and remunerative price (FRP) to sugarcane farmers
  4. Benefits: Sugar mills are exempt from purchase tax for 10 years, as they also generate electricity
  5. Centre pays around 10 per cent interest on the soft loans the mills take for 1 year, and the States pay the interest for the next 4 years
  6. These benefits will be withdrawn if sugar is not exported

sugarmills


  1. News: Maharashtra govt has given its green signal to export more sugar, and the prices are likely to go up by Rs 4 to 5
  2. Context: Cooperative sugar mills would be allowed to export 10 lakh metric tonnes (MT) of sugar
  3. Why? To ensure cash flow and help the mills pay fair and remunerative price (FRP) to sugarcane farmers
  4. Benefits: Sugar mills are exempt from purchase tax for 10 years, as they also generate electricity
  5. Centre pays around 10 per cent interest on the soft loans the mills take for 1 year, and the States pay the interest for the next 4 years
  6. These benefits will be withdrawn if sugar is not exported

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

Ethanol to be under Priority Sector Lending

  1. This would encourage sugar mills to invest in adding distillery capacity & ensure that they could take loans for this at 2-3% less than the existing market rates.
  2. Centre has planned to augment ethanol storage facilities, so that sugar mills could raise output without worrying about storage and transportation.
  3. Ministry has sought an assurance from the mills that they’d produce enough ethanol to achieve a full 5% blending with petrol.
  4. Government rules mandate 5% ethanol blending with petrol for more than a decade but the target has never been met, due to disagreement over the price OMCs would pay to millers.
  5. Production of ethanol from sugar distilleries is the second biggest pollutant of the Ganga river.

Petroleum Ministry is to ensure that ethanol production is brought under the priority sector lending norm by banks.

  1. This would encourage sugar mills to invest in adding distillery capacity & ensure that they could take loans for this at 2-3% less than the existing market rates.
  2. Centre has planned to augment ethanol storage facilities, so that sugar mills could raise output without worrying about storage and transportation.
  3. Ministry has sought an assurance from the mills that they’d produce enough ethanol to achieve a full 5% blending with petrol.
  4. Government rules mandate 5% ethanol blending with petrol for more than a decade but the target has never been met, due to disagreement over the price OMCs would pay to millers.
  5. Production of ethanol from sugar distilleries is the second biggest pollutant of the Ganga river.

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

Cane price arrears came down to Rs 2,700 cr from Rs. 21,000 cr

  1. The measures taken by the govt to improve liquidity position of sugar mills enabled them to clear cane price dues of farmers.
  2. The cane price arrears were reduced from Rs. 21,000 cr to about Rs 2,700 cr.
  3. The measures included providing incentive on raw sugar export, extended financial assistance in the form of soft loan.
  4. It also provided fixed remunerative price for sugarcane and waived off excise duty on ethanol supplied under Ethanol Blending Program.
  5. Recently, a production subsidy was provided to sugar mills to offset cost of cane and facilitate timely payment of cane price dues.
  1. The measures taken by the govt to improve liquidity position of sugar mills enabled them to clear cane price dues of farmers.
  2. The cane price arrears were reduced from Rs. 21,000 cr to about Rs 2,700 cr.
  3. The measures included providing incentive on raw sugar export, extended financial assistance in the form of soft loan.
  4. It also provided fixed remunerative price for sugarcane and waived off excise duty on ethanol supplied under Ethanol Blending Program.
  5. Recently, a production subsidy was provided to sugar mills to offset cost of cane and facilitate timely payment of cane price dues.

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

Sugarcane farmers worried over payment

  1. As the sugarcane crushing season commences in the country’s northern States, farmers are hoping to get timely payment for their produce from sugar mills.
  2. Sugarcane harvesting has started in parts of UP, Punjab and Haryana and farmers are preparing to sell their crop.
  3. Farmer unions said that farmers make huge investments in sugarcane farming but the payments for their produce was delayed for several months.
  4. As per govt estimates, sugarcane mills across India, owe Rs.12,000 crore as dues to farmers for the cane sold during the 2014-15 season.
  1. As the sugarcane crushing season commences in the country’s northern States, farmers are hoping to get timely payment for their produce from sugar mills.
  2. Sugarcane harvesting has started in parts of UP, Punjab and Haryana and farmers are preparing to sell their crop.
  3. Farmer unions said that farmers make huge investments in sugarcane farming but the payments for their produce was delayed for several months.
  4. As per govt estimates, sugarcane mills across India, owe Rs.12,000 crore as dues to farmers for the cane sold during the 2014-15 season.

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

Mandatory exports likely

  1. In a bid to tackle the problem of low domestic sugar prices, Govt. may make it mandatory for the sugar mills to export the surplus.
  2. The global market is flooded with sugar supplies and the prices are at a 6 year low, but the move is expected to bring respite to the sugar mills in terms of higher domestic prices.
  3. The mandatory export will come into play only when production is more than domestic demand.

 

  1. In a bid to tackle the problem of low domestic sugar prices, Govt. may make it mandatory for the sugar mills to export the surplus.
  2. The global market is flooded with sugar supplies and the prices are at a 6 year low, but the move is expected to bring respite to the sugar mills in terms of higher domestic prices.
  3. The mandatory export will come into play only when production is more than domestic demand.
  4. India is the largest consumer of sugar and the biggest producer after Brazil.

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

Sugar woes – PM pitches for more ethanol blending

  1. To implement ethanol blending with petrol from 2 to 5% which could eventually be raised to 10% and exploring the possibility of exporting sugar to liquidate sugar stock.
  2. Sugar industry owes about Rs 14,398 crore to cane farmers and is unable to make payment.
  3. It is facing severe liquidity crunch on account of surplus production that has resulted in low prices of sugar in the domestic market.
  1. Prime Minister Narendra Modi has asked his ministerial colleagues to take concrete efforts to implement ethanol blending with petrol from 2 to 5% which could eventually be raised to 10% and exploring the possibility of exporting sugar to liquidate sugar stock.
  2. Sugar industry owes about Rs 14,398 crore to cane farmers and is unable to make payment as it is facing severe liquidity crunch on account of surplus production that has resulted in low prices of sugar in the domestic market.

Do you think this will solve the problem for the sugarcane industry at large?

This solution will have to weigh against our capacity to produce such a huge amount of ethanol and what happens to the chemical sector at large. But what else?

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

Sugarcane farmers switch to flowers and soya bean

  1. Why? Due to unpredictable rains & groundwater depletion.
  2. Government-sponsored ‘Beyond Sugarcane’ movement has gathered pace in the dry district of Osmanabad, with thousands of farmers taking to soyabean, tur & horticulture, and most importantly Gerbera.
  3. Government says that contrary to earlier practice of having bore wells, sugarcane farmers have to compulsorily employ drip irrigation.

Why? Due to unpredictable rains & groundwater depletion.


  1. Government-sponsored ‘Beyond Sugarcane’ movement has gathered pace in the dry district of Osmanabad, with thousands of farmers taking to soyabean, tur & horticulture, and most importantly Gerbera.
  2. Government says that contrary to earlier practice of having bore wells, sugarcane farmers have to compulsorily employ drip irrigation.

    Do you have any clue what Gerbera is?

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

Govt. must buy surplus sugar: Industry

  1. The Govt. decision to give a Rs. 6K crore interest-free loan to the sugar industry to help it clear arrears to farmers has not gone down well with the industry body.
  2. It had also waived excise duties on ethanol in the next sugar season to further incentivise ethanol supplies for the blending program.
  3. The industry on the other hand, is demanding the creation of a two million-tonne buffer stock of sugar on government account to reduce stocks.
  4. Agencies like the FCI or MMTC, STC or APEDA should instead buy out 2.5-3 million tonnes of surplus sugar from the industry to help it reduce stocks and pay up the farmers.
  1. The Govt. decision to give a Rs. 6K crore interest-free loan to the sugar industry to help it clear arrears to farmers has not gone down well with the industry body.
  2. It had also waived excise duties on ethanol in the next sugar season to further incentivise ethanol supplies for the blending program.
  3. The industry on the other hand, is demanding the creation of a two million-tonne buffer stock of sugar on government account to reduce stocks.
  4. Agencies like the FCI or MMTC, STC or APEDA should instead buy out 2.5-3 million tonnes of surplus sugar from the industry to help it reduce stocks and pay up the farmers.

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

Ethanol Blending: A lasting solution for sugar mills

  1. Indian sugar prices are at their lowest in the last seven years.
  2. Ethanol, which is a plentiful product in the sugar manufacturing process and is blended with petrol, can be a vital revenue earner for the mills.
  3. Ethanol blending is only at around 3%. It could easily be raised to 10% & this may help in reducing the sugar surplus arrears.
  4. Another suggestion – The govt. should buy 3 million tonnes of sugar at cost of production and store it as a buffer.
  5. Exports are not viable anymore as international prices have declined due to a glut.
  1. Indian sugar prices are at their lowest in the last 7 years.
  2. Ethanol, which is a plentiful product in the sugar manufacturing process and is blended with petrol, can be a vital revenue earner for the mills.
  3. Ethanol blending is only at around 3%. It could easily be raised to 10% & this may help in reducing the sugar surplus arrears.
  4. Another suggestion – The govt. should buy 3 million tonnes of sugar at cost of production and store it as a buffer.
  5. Exports are not viable anymore as international prices have declined due to a glut.

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

Stock pile-up puts sugar industry in a fix

  1. The sugar industry is facing the worst-ever financial crisis due to pile-up of surplus sugar of 90 lakh tonnes.
  2. There seems to be a mismatch in cane prices paid to farmers and the realisation (sale) price of sugar.
  3. While prices of products are determined by the market forces, the input costs are determined by the government.
  4. Producers should have the freedom to decide on the cane quantity to be sourced or the price at which it is sourced.
  1. The sugar industry is facing the worst-ever financial crisis due to pile-up of surplus sugar of 90 lakh tonnes.
  2. There seems to be a mismatch in cane prices paid to farmers and the realisation (sale) price of sugar.
  3. While prices of products are determined by the market forces, the input costs are determined by the government.
  4. Producers should have the freedom to decide on the cane quantity to be sourced or the price at which it is sourced.

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

Mawana Sugars almost gives up

  1. And we are speaking on the sugarcane crisis in UP where sugar mills are raring to shut the operations!
  2. In UP, Sugar cane and sugar prices are not linked which is already been done in Maharashtra and Karnataka.
  3. Banks are running away from giving loans to mills. Most of the money that is coming from the sale of sugar is going to farmers & mills are getting ~nothing.
  4. The state fixes their own cane price, which is much higher than the Centre’s cane price, known as ‘Fair and Remunerative Price’ (FRP).

 

  1. Welcome to UP, where sugar mills are raring to shut down the operations!
  2. Out here, sugarcane and sugar prices are not linked unlike what’s been done in Maharashtra and Karnataka.
  3. Banks are running away from giving loans to mills. Most of the money that is coming from the sale of sugar is going to farmers & mills are getting ~nothing.
  4. The states can fixe their own cane price, which is much higher than the Centre’s cane price, known as ‘Fair and Remunerative Price’ (FRP).
  5. But here’s a catch – Mills cannot shut down when they want – they can do so only when the district magistrate allows them to do so.
Subscribe
Notify of
2 Comments
Oldest
Newest Most Voted
Inline Feedbacks
View all comments