Sugar's still bitter

Decontrol was too partial to help

Regardless of the partial dismantling of controls on the sugar sector, the woes of the industry have not eased as much as had been expected. The two key reforms carried out in April involved lifting the levy that required sugar mills to hand over 10 per cent of their output to the government at discounted prices, and doing away with the regulated release mechanism that limited the stocks the mills could sell in the market. These were supposed to improve the economic health of the industry, which would have enabled it to make prompt payments to farmers for the sugarcane supplied by them. However, this hasn’t happened: arrears payable to sugarcane producers, which amounted to Rs 12,600 crore in mid-March, have continued to grow. The major reason for this is the spurt in the cost of production – thanks to a substantial rise in sugarcane prices, more so in the case of state advised prices – even as the returns tended to drop owing to softening of sugar prices in the domestic as well as international markets. To add to the despair of the sugar industry, the changed price equation ruled out exports as an outlet to clear the surplus stocks, while imports continued under the open general licence regime at a nominal duty of 10 per cent. Close to half a million tonnes of exotic sugar has consequently landed at Indian ports, exacerbating the over-supply in the domestic market.

Sugar production this year is projected to reach around 25 million tonnes, against the estimated demand of 22.5 million tonnes. With an opening stock of nearly six million tonnes, coupled with imports, the net surplus, or the end-of-season stock, is likely to be around nine million tonnes. Unsurprisingly, therefore, the apex bodies of sugar mills – both private and co-operative – have stepped up their demand for raising import duty on sugar to at least 30 per cent to discourage imports. The half-hearted and unfinished reforms in the sugar sector have, in fact, left both sugar manufacturers and sugarcane growers discontented. While the industry is peeved at lower realisation from its output, farmers are hurt owing to non-payment of their sugarcane price dues. The controls that persist include sugarcane area reservation that binds farmers to supply only to the designated factories; minimum distance criterion between the mills; restrictions on the sugar industry’s primary by-products such as molasses and ethanol; and the dual (central and states’) control over sugarcane prices. The last is the most forbidding, since it totally delinks sugarcane prices from sugar prices.

The Rangarajan Committee, whose report formed the basis for removing the compulsory levy on sugar and dispensing with the sugar release mechanism, had also suggested a way to undo the input-output price disconnect. It had mooted a formula-based sugarcane price linked to the price of sugar and its primary by-products. This implies sharing the sugar industry’s profits with sugarcane growers, to the benefit of all. It would also mitigate the cyclicality in the production of sugarcane and sugar, which causes wide periodic fluctuations in sugar prices. Total decontrol of the sugar sector remains the ideal solution.