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

Mar, 25, 2019

[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.
Sep, 18, 2018

[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
Jul, 09, 2016

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
Feb, 23, 2016

Sugar prices are set to rise

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
Jan, 23, 2016

Ethanol to be under Priority Sector Lending

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.
Jan, 15, 2016

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.
Oct, 21, 2015

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.
Aug, 06, 2015

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.
  4. India is the largest consumer of sugar and the biggest producer after Brazil.
Aug, 03, 2015

Sugar woes - PM pitches for more ethanol blending

  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?

Jun, 24, 2015

Sugarcane farmers switch to flowers and soya bean

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?

Jun, 12, 2015

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.
Apr, 20, 2015

Ethanol Blending: A lasting solution for sugar mills

  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.
Apr, 16, 2015

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.
Mar, 16, 2015

Mawana Sugars almost gives up

  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.
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