In April this year, food minister Sharad Pawar said in Pune that sugarcane farming was eating into arable land, causing the country to make imports of oilseeds and pulses at high prices.
The minister's comment came after the government revised upward its sugarcane output estimate by 40 million tonnes (MT) to 322.94 MT. It was then becoming clear that the 2005-06 season witnessed a major glut in sugar production. The estimate was later revised to an even higher 345.31 MT. And the glut cost farmers dear.
In 2006, the cotton farming sector in Maharashtra received Rs 2,000 crore in a bailout package from the state government. There is a strong possibility that the state's sugarcane farming community, dominated by cooperatives, would now demand a similar package to ensure that the mills pay them at the right time, that is, before they go bankrupt. In turn, the package might also keep the mills themselves from downing shutters.
However, with its several hasty remedial measures showing little impact on plummeting sugar prices, a helpless government appears ostrich-like, waiting for the 2007-08 sugar season to rectify the situation. It therefore wants to bring down the sugarcane acreage significantly. But not before it imposed heavy costs on the economy.
An agri-sector analyst from Maharashtra said, "The policy the government appears to be banking on now for the sugar sector is ad-hoc." The sector's cyclicity often dupes the farmer and lure him into bringing more land under sugarcane.
Maharashtra has around 105-odd cooperative sugar mills and seven mills in the private sector. More than 50 cooperative mills were forced to down shutters last year when sugarcane production outdid estimates. With several hundreds tonne of levy sugar still lying in mills and no government directive allowing them to offload this in the open market despite poor prices there, sugar mills are facing bankruptcy this year.
"It is quite likely that these mills will renege on paying even the Statutory Minimum Price (SMP) to the farmers, leave alone clear last year's loans from the cooperative banks," the analyst said. Farmers, having put more area under sugarcane each year, are in fact compounding the problems.
According to an ICRA study, the progress of sugarcane acreage showed a 3.9% (year on year) increase to 4.45 million hectare up to July 2006, with increase in acreage reported from all key states. To boot, sugarcane is an all year crop, allowing little possibility of an inter-crop or rabi and kharif inter-changeability. Overall, at an average 4 m ha covered, sugarcane actually accounts for only 2.75% of the country's cropped area. But its attractions for the farmer in Maharashtra, UP, Tamil Nadu, Karnataka, Gujarat and MP, lie elsewhere.
According to the the Commission for Agricultural Costs and Prices (CACP) on Price Policy for Kharif Crops of 2006-07 season, the gross return per ha on sugarcane is an impressive Rs 49,742, higher by leaps and bounds, compared to the returns on other key crops such as paddy and wheat, even pulses such as arhar and oilseeds such as groundnut. The share of sugar in the value of output from agriculture has declined in recent years from 7.1% (1994) to 4.9% (2004) but, in an average to good year, the returns are very attractive.
The sugar output this year is pegged at close to 28 MT against a consumption of only 19.5 MT, leaving a surplus of 8.5 MT (including a 4 MT carryover stock).
Despite fall in acreage in states like UP, this sugar year's cane acreage is still a significant 106.4% of the normal area sown (4.17 m ha). In comparison to the hike in the total area under kharif pulses (down by 16%) and oilseeds (up by 0.4 m ha), this is still better.
What makes sugar, the country's largest agro-based industry, crucial is its key contribution to socio-economic development in rural areas. The sector provides livelihood either directly or indirectly to around 40 million people and so.
A significant chunk of the sugar industry — about 56% — is in the cooperative sector. The industry contributes an estimated Rs 1,700 crore annually to the national exchequer and treasuries of various state governments by way of excise duty and purchase tax on sugar cane. That shows how much a skewed sugar economy perspective or a myopic State policy that refuses to transcend the mofussil mindset can have serious implications for Indian economy.
According to EID Parry's P Rama Babu who is also president of the Indian Sugar Mills Association (ISMA), the root cause of the problem is the persistently sharp increase in the statutorily enforced sugarcane price. "Currently, the Indian sugar industry pays the highest cane price in the world while realising the lowest sugar price. This situation is quite unique as sugarcane price is generally determined based on sharing of sugar sales realisation the world over.
To avoid recurrence of such problems, we need a long-term sugar policy linking the price of sugarcane to the price of sugar, as is the global practice," he holds.
Even in normal years, the SAP paid by mills in Punjab, Haryana, Uttar Pradesh, Uttaranchal and Tamil Nadu are much higher than the SMP announced by the Centre but high cane prices are likely to be the least alien to the sugar mills in Uttar Pradesh, where, in a historic first, the Mayawati government has hiked up the State Advised Price (SAP) for cane to over the price of sugar.
The SAP for 2006-07 has been pegged at a good Rs 45 over the SMP for cane per quintal, at Rs 130 whereas the SMP is only Rs 82 per quintal. Mills estimate losses at Rs 6,000 crore plus (Rs 6/kg) if cane price is maintained at SAP.
The SAP represents the cost of sugar at Rs 13.60 per kg at 9.6% recovery rate (excluding purchase taex, society commission and transport). Bringing down the SAP to SMP levels is the only way, according to experts, that the sugar industry in UP can hope to recover even some of the costs and avoid a total shutdown in the coming crushing season.
But even that slender grace may not be accorded to the non-private sector sugar mills in UP. Around 50 of the 131-odd sugar mills in the state are in the cooperative sector and state-owned sectors and many of these mills have been put up for sale by the Mayawati government. This sugar year threatens to jeopardize more livelihoods and trigger off widespread farmer agitations.
The industry is pitching hard for de-regulation. A key part of this is the push for the government to maintain an all-year round strategic stock of sugar to regulate domestic prices in times when it shoots up, replicating the China model. That buffer should be used by the government in the place of the monthly release mechanism to keep prices in "a sustainable band."
The industry has suggested that instead of imposing a levy sugar obligation, the government should source levy sugar from the open market. These policy measures, an industry supported KPMG study says, "will ensure the steady growth of the sugar industry not only to meet the rising demand for sugar in the country but also to harness the potential for regular export of sugar." Says ISMA secretary general S L Jain, "Notwithstanding every measure the government has taken so far, the only way forward now is to ship out as much of the sugar as we can and as urgently as we can.
According to a recent study, "A new Sugar Industry Policy is required in order to ensure that the industry is de-politicised and gets into a position where chemical products from molasses will give the major value-addition and sugar will become a byproduct." It is said that the government refuses to coin a policy that will tap the industry's potential to cater to 6% of the additional power supply the country needs, through co-generation.
The minister's comment came after the government revised upward its sugarcane output estimate by 40 million tonnes (MT) to 322.94 MT. It was then becoming clear that the 2005-06 season witnessed a major glut in sugar production. The estimate was later revised to an even higher 345.31 MT. And the glut cost farmers dear.
In 2006, the cotton farming sector in Maharashtra received Rs 2,000 crore in a bailout package from the state government. There is a strong possibility that the state's sugarcane farming community, dominated by cooperatives, would now demand a similar package to ensure that the mills pay them at the right time, that is, before they go bankrupt. In turn, the package might also keep the mills themselves from downing shutters.
However, with its several hasty remedial measures showing little impact on plummeting sugar prices, a helpless government appears ostrich-like, waiting for the 2007-08 sugar season to rectify the situation. It therefore wants to bring down the sugarcane acreage significantly. But not before it imposed heavy costs on the economy.
An agri-sector analyst from Maharashtra said, "The policy the government appears to be banking on now for the sugar sector is ad-hoc." The sector's cyclicity often dupes the farmer and lure him into bringing more land under sugarcane.
Maharashtra has around 105-odd cooperative sugar mills and seven mills in the private sector. More than 50 cooperative mills were forced to down shutters last year when sugarcane production outdid estimates. With several hundreds tonne of levy sugar still lying in mills and no government directive allowing them to offload this in the open market despite poor prices there, sugar mills are facing bankruptcy this year.
"It is quite likely that these mills will renege on paying even the Statutory Minimum Price (SMP) to the farmers, leave alone clear last year's loans from the cooperative banks," the analyst said. Farmers, having put more area under sugarcane each year, are in fact compounding the problems.
According to an ICRA study, the progress of sugarcane acreage showed a 3.9% (year on year) increase to 4.45 million hectare up to July 2006, with increase in acreage reported from all key states. To boot, sugarcane is an all year crop, allowing little possibility of an inter-crop or rabi and kharif inter-changeability. Overall, at an average 4 m ha covered, sugarcane actually accounts for only 2.75% of the country's cropped area. But its attractions for the farmer in Maharashtra, UP, Tamil Nadu, Karnataka, Gujarat and MP, lie elsewhere.
According to the the Commission for Agricultural Costs and Prices (CACP) on Price Policy for Kharif Crops of 2006-07 season, the gross return per ha on sugarcane is an impressive Rs 49,742, higher by leaps and bounds, compared to the returns on other key crops such as paddy and wheat, even pulses such as arhar and oilseeds such as groundnut. The share of sugar in the value of output from agriculture has declined in recent years from 7.1% (1994) to 4.9% (2004) but, in an average to good year, the returns are very attractive.
The sugar output this year is pegged at close to 28 MT against a consumption of only 19.5 MT, leaving a surplus of 8.5 MT (including a 4 MT carryover stock).
Despite fall in acreage in states like UP, this sugar year's cane acreage is still a significant 106.4% of the normal area sown (4.17 m ha). In comparison to the hike in the total area under kharif pulses (down by 16%) and oilseeds (up by 0.4 m ha), this is still better.
What makes sugar, the country's largest agro-based industry, crucial is its key contribution to socio-economic development in rural areas. The sector provides livelihood either directly or indirectly to around 40 million people and so.
A significant chunk of the sugar industry — about 56% — is in the cooperative sector. The industry contributes an estimated Rs 1,700 crore annually to the national exchequer and treasuries of various state governments by way of excise duty and purchase tax on sugar cane. That shows how much a skewed sugar economy perspective or a myopic State policy that refuses to transcend the mofussil mindset can have serious implications for Indian economy.
According to EID Parry's P Rama Babu who is also president of the Indian Sugar Mills Association (ISMA), the root cause of the problem is the persistently sharp increase in the statutorily enforced sugarcane price. "Currently, the Indian sugar industry pays the highest cane price in the world while realising the lowest sugar price. This situation is quite unique as sugarcane price is generally determined based on sharing of sugar sales realisation the world over.
To avoid recurrence of such problems, we need a long-term sugar policy linking the price of sugarcane to the price of sugar, as is the global practice," he holds.
Even in normal years, the SAP paid by mills in Punjab, Haryana, Uttar Pradesh, Uttaranchal and Tamil Nadu are much higher than the SMP announced by the Centre but high cane prices are likely to be the least alien to the sugar mills in Uttar Pradesh, where, in a historic first, the Mayawati government has hiked up the State Advised Price (SAP) for cane to over the price of sugar.
The SAP for 2006-07 has been pegged at a good Rs 45 over the SMP for cane per quintal, at Rs 130 whereas the SMP is only Rs 82 per quintal. Mills estimate losses at Rs 6,000 crore plus (Rs 6/kg) if cane price is maintained at SAP.
The SAP represents the cost of sugar at Rs 13.60 per kg at 9.6% recovery rate (excluding purchase taex, society commission and transport). Bringing down the SAP to SMP levels is the only way, according to experts, that the sugar industry in UP can hope to recover even some of the costs and avoid a total shutdown in the coming crushing season.
But even that slender grace may not be accorded to the non-private sector sugar mills in UP. Around 50 of the 131-odd sugar mills in the state are in the cooperative sector and state-owned sectors and many of these mills have been put up for sale by the Mayawati government. This sugar year threatens to jeopardize more livelihoods and trigger off widespread farmer agitations.
The industry is pitching hard for de-regulation. A key part of this is the push for the government to maintain an all-year round strategic stock of sugar to regulate domestic prices in times when it shoots up, replicating the China model. That buffer should be used by the government in the place of the monthly release mechanism to keep prices in "a sustainable band."
The industry has suggested that instead of imposing a levy sugar obligation, the government should source levy sugar from the open market. These policy measures, an industry supported KPMG study says, "will ensure the steady growth of the sugar industry not only to meet the rising demand for sugar in the country but also to harness the potential for regular export of sugar." Says ISMA secretary general S L Jain, "Notwithstanding every measure the government has taken so far, the only way forward now is to ship out as much of the sugar as we can and as urgently as we can.
According to a recent study, "A new Sugar Industry Policy is required in order to ensure that the industry is de-politicised and gets into a position where chemical products from molasses will give the major value-addition and sugar will become a byproduct." It is said that the government refuses to coin a policy that will tap the industry's potential to cater to 6% of the additional power supply the country needs, through co-generation.
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