The sugar industry is supposed to commence its crushing activities for the 2020-21 season this month.
But the industry appears to be hamstrung by problems - some familiar and some new.
What are the problems?
After every season of surplus, the industry has run up large arrears with farmers for the supply of cane.
This year, because of the lockdown, millers’ cash flows have been hit.
The hit is due to the sharp fall in the institutional off take of sugar from food and beverage makers and hotels — usually a stable revenue source.
What did the governments do?
The industry’s persistent working capital crunch has also been aggravated by the Centre.
The Centre delayed its promised payouts towards transport subsidy on sugar exports, relying on which the industry has shipped out over 60 lakh tonnes of sugar this year.
The Centre has been tardy in reimbursing mills for the carrying costs on the 40-lakh tonne buffer-stock created at its behest.
State governments have been delaying payments on co-generated power.
The Centre and State governments have persisted with populist policymeasures that interfere in the active functioning of the market.
This has aggravated the industry’s structural problems.
What are the populist measures taken?
Instead of desisting from hikes in the Fair and Remunerative Price (FRP) for cane, which would discourage farmers from planting excessive cane, the Centre has kept up FRP hikes.
The Centre has begun announcing a ‘minimum selling price’ for sugar.
States like Uttar Pradesh have worsened the over-capacity situation with unrealistic State Advised Prices and capital subsidy schemes.
What are the other problems?
Industry’s own efforts at de-risking the business through forward integration moves have come a cropper, too.
These forward integration moves include the processing of molasses into ethanol and bagasse into power.
Annual conflicts between the sugar industry and oil marketing companies on the quantum and pricing of ethanol have ensured that the ethanol blending programme is a non-starter.
With revenues from co-generated power dependent on the finances of State discoms, this diversification gambit hasn’t worked either.
What could be done?
The obvious solution to the sugar industry’s woes lies in freeing prices of both cane and sugarfrom the shackles of government control.
Free market forces should be allowed to dictate the demand-supply equation for sugarcane and its end-products.
Many expert committees have already put out policy prescriptions for untangling the mess that is the Indian sugar sector.
This includes the recommendations of the Rangarajan committee (2012).
The only thing required now is the political will to implement these recommendations.
