The Indian Sugar Industry is at a very
interesting juncture at this point of time. The sugar cycle has been
conventionally understood as following a 4-5 year cycle; 3 years of increasing
trend followed by 2 years of declining trend. Higher sugarcane production
results in falling sugar prices and non-payment of dues to farmers compelling
them to switch to other crops thereby causing a shortage of sugarcane,
consequently leading to an increase in sugarcane prices, resulting in an
imminent switch back to sugarcane. Such a vicious circle is characteristic of
the Indian sugar production. There is now evidence that this cycle is now
becoming a 2-3 year cycle. Sugar still stands listed in several states under
the purview of the Essential Commodities Act, 1955. Sugar is a politically
sensitive commodity, with strong lobbies including the cane growers, sugar
mills, gur and khandsari producers, consumers of subsidized sugar having a say
in influencing the price. Pressures are often reflected at various central and
state levels, which sometimes have independent interests. The government
through pragmatic policies can remove or at least minimize the infamous sugar
cycle and bring about long term healthy growth of the Indian Sugar Industry and
its stake holders.
The Indian Sugar Industry, with an annual
productive capacity of over 25 MMT, stands out to be the second largest in the
world after Brazil, accounting for around 15 per cent of the global sugar
production. Uttar Pradesh is leading in producer of sugar with 39.40 per
cent followed closely by Maharashtra (33.74 per cent), Karnataka (7.62 per
cent) and Gujarat (4.23 per cent). The country consumes approximately 25
MT of sugar annually, with Maharashtra contributing over 60 per cent of it
while the rest of the output come from states like Tamil Nadu, Karnataka, Uttar
Pradesh and Madhya Pradesh. In 2017–18, the FRP for cane has been hiked to
Rs 255 per quintal. Besides the cyclical downturn that may have set in leading
to a decline in crop output, deficient rainfall in some of the major sugarcane
producing states of Maharashtra, Karnataka and Tamil Nadu has also been a
contributing factor.
The current production scenario suggests
that we can notice Uttar Pradesh leading the National Sugar Supply amicably
making up for the shortages reported from other states. Indian Sugar Mills Association (ISMA) has revised
country's 2017-18 sugar production upward by about 4 per cent for the current
season to around 261 lakh MT, against the first advance estimates of ISMA of
251 lakh MT. the current year’s sugar consumption is expected to
reach 26 million MT, a marginal increase from the 25.6 million MT estimated for
current year. Bulk consumers account for two-thirds of total sugar consumption
in India which caters to soft drink manufacturers, bakeries, hotels,
restaurants and other bulk and individual users. Global S&D reveals that
Brazil and India are the two major players in the global market producing
about 36.44 per cent of global production. Other countries with
significant production are China (5.84 per cent), Thailand (6.25 per cent),
United States (4.39 per cent) and Mexico (3.66 per cent). Though India ranks 2nd in
terms of production, it is the largest consumer of sugar with global share of
15.15 per cent. Other major consumers of sugar are China (9.21 per cent),
Brazil (6.35 per cent) and United States (6.51 per cent). The global sugar
market is likely to end its surplus trend after three consecutive year of
surplus in 2017.
The Indian
sugar industry is also confronting with the perennial issues of Regulation of
FRP, Low Recovery of Sugar from cane, lack of trust and transparency in
weighing of sugarcane and problem of arrears. Some State governments, namely,
Haryana, Punjab, Tamil Nadu, Uttar Pradesh and Uttarakhand have been announcing
their own State Advised Prices (SAPs) which are not based on scientific basis
and are usually higher than the FRP. The SAP does not incentivize efficiency in
terms of better sugar recovery as SAP is not linked to sugar recovery rate
unlike FRP which could be a more logical approach. For Ensuring more
remunerative prices to the farmers Sugar Price Stabilization Fund (SPSF) under
the Sugar Development Fund (SDF) can be created. Recovery rate of sugar mainly
depends on sucrose content in sugarcane, conditions of plant and machinery,
cane supply arrangements in the State and agro-climatic conditions in the
region. Except the agro-climatic condition, which is a natural factor, the
other factors can be influenced by taking appropriate initiatives to improve
recovery rate. Lack of trust and transparency in weighing of
sugarcane is also a concerning factor for dissatisfaction among sugarcane
growers. Government should persuade the state governments/Cane Commissioners
and sugar mills to make adequate arrangements for electronic weigh bridges/machines,
which measure and display the actual weights so as to improve trust and
transparency between these two stakeholders. Apart from production of sugar,
the mills should also develop facilities for production of alcohol, ethanol,
power and other downstream products, which would make the sugar mills as energy
hubs of the country and enable them to pay remunerative price to cane growers.
The current falling prices in the country has
been the major concern for the government in the recent months. According to ISMA, the Government that there is an
immediate need to take action to control the falling prices, for which some of
the stocks could be exported as quickly as possible. The Government has also
appreciated the concern of the sugar sector and agreed that all steps required
to be taken to ensure that the additional sugar stocks gets exported quickly,
will be taken soon. This could include similar steps as taken by the Government
in the past like mandatory sugar exports by each sugar mill in the country.
Since, the quota levy system has been removed, the Sugar prices are determined
by market sentiments and market forces, and the government can’t have much
direct control over it. Everything remains good until the high FRP of sugarcane
results in over-production of cane and sugar. In order to support the industry,
the government may marginally raise the corpus for Sugar Development Fund (SDF)
to Rs. 500 Crore in the Budget for 2018-19. SDF, managed by the food ministry,
is used for lending money to mills at lower interest rates. In order to arrest
the falling prices, the central government has put a ceiling on the amount of
sugar mills can sell by imposing significant minimum stocks for the next two
months to check falling prices. As per the new quota imposed on sugar
sales, in February mills must maintain sugar stock of not less than 83 per cent
of the closing stock on the last day of January in addition to sugar produced
in February, less sugar exported during the month. For March, sugar mills have
to keep not less than 86 per cent of the closing stock on the last date of
February, in addition to sugar produced during March less sugar exported in the
month. There are also indications that the government may allow export of raw
sugar under Duty Free Import Authorization (DFIA) scheme, which was withdrawn
in May 2015. These two measures have become necessary to ensure that the Indian
sugar mills are able to pay the sugarcane arrears of farmers. Moreover, there
are also concerns over development in the neighbouring countries. Pakistan
has hiked the amount of sugar eligible for export subsidies to two million
tonnes from five lakh tonnes in view of excess domestic supplies. In order to
counter such moves, The Central Government hiked the Import duty on
sugar is to avoid any shipment of the sweetener. Apprehending import
of cheaper sugar from Pakistan, the food ministry has pushed for 100 per cent
import duty on the sweetener from 50 per cent to nip in the bud the
possibility of subsidised sugar imports from Pakistan.
