Will a burst of reforms be sweeping the sugar mill industry as the new government at the Centre settles down to work? Reforms that the industry is pitching for, go well beyond doing away, with the government snapping 10 per cent of the sugar production for distribution through ration shops.
As we are seeing, without reforms, sugar business will be going through a roller coaster ride, causing pain to stakeholders from time to time. A couple of seasons ago, when the country had record sugar production of over 28.3 million tonnes, the ex-factory price of the commodity at one point sank below Rs 1,200 a quintal and the average for 2006-07 was only Rs 1,351 a quintal.
Price-wise, the situation worsened further in the following year under the weight of huge carry forward stocks and second successive bumper sugar production. As a result not only did all sugar producers suffer huge losses, cane growers found their bills, valued over Rs 8,000 crore, remaining unsettled for long time. The crisis of epic proportion forced the government to inject liquidity into the industry by way of interest-free loans, equivalent to excise duty payable for two seasons, so that cane bills get settled and also extend WTO complaint subsidy for exports to reduce the burden of surplus.
According to SL Jain, director general of Indian Sugar Mills Association (ISMA), a new crisis, rising from very low cane production further exacerbated by fall in sugar recovery, is seeing the country importing at least 2.5 million tonnes of expensive raw sugar in the current season ending September 2009. This is some change from our exporting nearly 5 million tonnes last year and in the process earning us the recognition of the world’s best quality raw sugar producer.
Proving all pre and during the season estimates wrong, by long margins, India is ending 2008-09 with a disappointingly low sugar production of 14.7 million tonnes.
It, however, could not have been otherwise since the cane crop saw a fall of atleast 50 million tonnes to 290 million tonnes and sugar recovery was down up to one per cent.
This season has seen sugar factories in Uttar Pradesh engaged in some fierce competition to get cane and in the process, farmers managed to get cane prices up to Rs 260 a quintal. While factories had to put up with poaching of cane in their designated areas, gur and khandsari units made good with ample cane by paying premium prices. No wonder we saw cane supplies to factories starting to dry by February end.
Jain says the country did not moved a little from a surplus driven crisis to a deficit oriented one due to the industry remaining strapped in more than one chain at the central and state levels. “A piece of irrational control has seen levy price remaining unchanged at Rs 1,322 a quintal whereas the average cost of sugar production in the country linked to a cane price of Rs 150 a quintal is Rs 2,100 a quintal,” says industry official Om Dhanuka.
“Tell me. Is there any other industry in the country which has to bear a burden of about Rs 2,000 crore a year to support public distribution of a commodity? Moreover, you know when the price difference between sugar sold at a ration shop and in the open market is so wide, large scale leakages from PDS are unavoidable,” says Jain.
The UPA government in its second term will not be constrained in taking reforms forward as it is no longer dependent on the support of the shrivelled Left Front. Much to the industry’s comfort, there is Sharad Pawar in the government with unmatched understanding of the sugar sector’s problems.
Hopefully, this time round Pawar’s benignity will also work to the advantage of mills outside Maharashtra.
An area calling for immediate attention of the government will be the announcement of statutory minimum prices of cane at a point which will come as an inducement for farmers to commit more land to this cash crop. The Commission on Agricultural Costs and Prices wants SMP for 2009-10 at Rs 125 a quintal which the PM’s Economic Advisory Committee has pared down to Rs 107.76 a quintal.
It is now the call of the Cabinet to exercise its wisdom on SMP. If farmers find the new SMP remunerative, then there are chances of their bringing an additional 10 to 15 per cent land under cane. What they got for their effort this season will also remain an incentive.
A normal monsoon will boost cane productivity and induce higher sugar recovery. Perhaps there is reason to look forward to sugar production of up to 21 million tonnes during 2009-10.
