Sugarcane Pricing Issue
This article deals with the ‘Sugarcane Pricing Issue.’ This is part of our series on ‘Economics’ which is an important pillar of the GS-3 syllabus. For more articles, you can click here.
The sugar industry is a highly regulated Industry
The sugar industry is highly regulated.
Regulations at Farmer Level
- Farmers are obliged to sell produce at the nearest mill only. Mills are obliged to purchase from all farmers.
- Wrt sugarcane pricing, the Union government announces the Fair and Remunerative Price (FRP) suggested by the Department of Food and Public Distribution and approved by Cabinet Committee on Economic Affairs.
- State governments announce State Administered Prices (SAP) which are usually higher than Union’s FRP due to vote bank politics.
Regulations at Mill Level
- Mills are obliged to purchase from all farmers at FRP or SAP (whichever is higher).
- The government also fixes the Minimum Selling Price of sugar (which as of 2021 is Rs 3,100 per quintal).
- The Centre also fixes the mill wise sales quota of sugar.
- Centre’s Sugarcane (Control) Order mandates mills to pay the FRP within 14 days of cane purchase from farmers, failing which 15% annual interest is charged on the due amount for the delay period.
- Government levy: Earlier, mill owners had to give 10% of their production to the central government at the government-determined price (which was much lower than the market price). This provision has been abolished now.
Main Problem of Sugar Industry (price related )
- Cost of Production of Sugar (of Mills) is greater than Market Price of Sugar.
- Significant arrears of sugar farmers towards Sugar Mills to the tune of ₹22,000 crores are still lying.
- Union and State governments announce high FRP & SAP due to vote bank politics.
- The sugar industry has a seasonal character – mill, and the workers remain idle for almost half a year.
- The sugar recovery rate in India is less than 10% compared to Java and Hawaii, where it is up to 14%.
- Low Sugar Prices in World Market: The world is sugar surplus. Mill owners cant increase the price of sugar due to the import of foreign sugar.
- WTO ruling against Sugar Pricing Regime: Australia, Brazil, and Guatemala filed a complaint against India in 2019 to support its sugarcane farmers that go against the WTO principles and breach the de-minimus limit. In 2021, WTO Dispute Settlement Body ruled against India.
Suggestions to address woes of Sugar Sector
- C Rangarajan Panel on Sugar Pricing recommended that States should stop announcing SAP and go with FRP suggested by Union.
- The Union government should devise a proper mechanism to arrive at FRP. Presently, Union Government doesn’t reduce FRP even if sugar prices are low.
- Proper utilization of the by-products of Sugarcane like Ethanol, Bagasse etc.
- The industry association opines that if states announce SAP higher than FRP, the state governments should bear such price differential.
- Power generation using cogeneration technology & generating revenues by selling extra electricity.
Steps taken already
- Union Government has given soft loans with low interests to sugar mill owners to pay the arrears of farmers.
- Import duty on the import of sugar was increased from 50% to 100%.
- Export duty on exporting sugar has been scrapped.
- State Specific Steps: In 2020, the Maharashtra government gave a state guarantee for loans to Sugar Cooperatives to buy sugarcane from farmers on time.
Side Topic: Ethanol
- Ethanol is a by-product of the sugar industry
- Use: It can be used as fuel by mixing with petrol.
- To offset their losses, Sugar Mills can go towards Ethanol manufacturing.