Link payments to realisations from sugar and by-products.
By no measure, sugar is as sensitive commodity as pulses and cereals or fruits and vegetables or edible oils are. But as we saw last year and also in the beginning of this year, when raging inflation was sending food prices up every week, the government became inert in taking some long-pending decisions on sugar, irrespective of their possible impact on prices.
For example, had the government removed controls covering the whole gamut of operations starting from raw material cane to finished product sugar to by-products-based industries like alcohol and ethanol, the milling industry would have attracted large local and foreign investment facilitating its capacity expansion, modernisation and most importantly consolidation. It begs the question that the industry will perform significantly better if sugar production and downstream operations are done on a much larger scale than is the case now.
But citing the compulsion of building a consensus among various stakeholders, including the cane growing states, New Delhi avoids taking a decision on decontrol. Yet, one more case of political expediency taking precedence over the crying need for reforms. Agriculture minister Sharad Pawar said, “The government is keen to play the role of a facilitator and not that of a regulator” of the sugar industry. This, however, will not be the case as long as the controls remain. Interestingly, Pawar acknowledges that freed from controls, the industry could move into a “faster growth trajectory.”
The fact remains that cane growing states have overarching powers over the running of sugar factories in their domain. Some states like Uttar Pradesh are too jealous of the way their writ run on cane price fixing at a big premium over the fair and remunerative price (FRP) declared by the Centre. For example, this season the UP government made sugar mills pay Rs 210 a quintal, which is Rs 70.88 a quintal more than FRP. Mills in Bihar have also bought cane at more or less an identical premium over FRP.
There is a double whammy in that for the mills in north India, which came under a spell of bad weather, leading to low sugar recovery of 9.2 per cent. FRP of Rs 139.12 a quintal is linked to sugar recovery of 9.5 per cent with cane price going up with rises in recovery rates.
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Mills in Maharashtra and Karnataka, where crushing is still on, are paying for cane according to the FRP formula. But the sugar recovery there being high, cane growers are adequately compensated with FRP indexed prices. No doubt Maharashtrian mills are better off than their counterparts in UP and Bihar. Indian Sugar Mills Association (Isma) former president Om Prakash Dhanuka says sugar being an agro-based industry is fed cane by around 50 million growers, it is in everyone’s interest to sustain their interest in the crop by rewarding them adequately for their efforts. What should also be factored in is that how much land farmers will keep under cane will be based on relative rates of return from a bunch of crops. “Cane growers can be paid well without the mills piling up unpaid cane bills as is happening this season provided sugar is sold in the market on cost plus basis. Let’s be clear that sugar prices don’t punch a hole in the family budget, such low is its share in total food bill,” says Dhanuka.
Isn’t there a consensus in the industry that a “formula-based cane price linking cane price payment to realisations from sugar and primary by-products bagasse and molasses,” which has worked nicely in some leading sugar producing countries, be introduced here? At the same time, other reforms touching the industry should not be postponed any longer. Let decontrol start with the removal of 10 per cent levy obligation of the industry and also doing away with sugar release mechanism. On neither issue, the state governments do not have a role to play. So, New Delhi is spared the pain of seeking a concord in these matters. Moreover, the time cannot be more opportune than now to push through the reforms. Sugar is plentifully available with this season’s estimated production at 25 million tonnes. The way planting has progressed so far and the initial forecast by Meteorological Department of a normal monsoon should lead to a record sugar production in the next season beginning October 2011. At this point, the industry is incurring a loss of at least Rs150 a bag filled with 100 kg sugar.
No surprise then that the industry’s cane dues have climbed to around Rs 7,000 crore. The point is if there is haemorrhaging of the industry, which is now happening, because of policy inadequacies, farmers’ interest will invariably be compromised. Unpaid farmer bills will periodically visit the sugar economy till such time a linkage is established between realisations from sugar and its by-products and cane prices. At the same time, why should sugar be singled out from the whole range of commodities for its producers to bear a subsidy burden of over Rs 2,800 crore. But, once cash transfers to the target population replace the corruption ridden PDS, levy sugar will become redundant.