Reforming the Sugar Industry

What is the issue?

• The sugar sector is faring well in terms of production, prices and other factors in recent years.
• It thus calls for taking forward the reforms based on recommendations of the Rangarajan committee on sugar deregulation.

What are the problems and recommendations?

• Sugarcane Price - The Centre fixes a minimum price, the FRP (fair and remunerative price) paid by mills to farmers. 
• States can also intervene in sugarcane pricing with an SAP (state advised prices) to strengthen farmer’s interests. 
• Notably, some States such as UP and TN have set SAPs higher than FRPs.
• The Committee thus recommended that states should not declare an SAP as it imposes an additional cost on mills. 
• It thus suggested a uniform FRP for farmers.
• And also suggested determining cane prices according to scientifically sound and economically fair principles. 
• Levy sugar - Levy sugar is the 10% of production that every sugar mill mandatorily surrenders to the centre, at a price lower than the market price.
• This enables the central government to get access to low cost sugar stocks for distribution through the Public Distribution System.
• The centre saves a huge sum on account of this policy, the burden of which is borne by the sugar sector.
• The Committee recommended doing away with levy sugar. 
• States wanting to provide sugar under PDS would have to procure it directly from the market.
• Regulated release of non-levy sugar - Sugar is produced over the four-six-month sugar season.
• The Centre allows the release of non-levy sugar into the market on a quarterly basis, to ensure distribution evenly across the year. 
• Mills can neither take advantage of high prices to sell the maximum possible stock, nor dispose it to raise cash in need.
• It also impacts the ability of mills to pay farmers and thus regulated release imposes costs on both mills and farmers. 
• The Committee recommended removing the regulations on release of non-levy sugar to address these problems.
• Trade policy - The government has set controls on both export and import of sugar in line with availability, demand and price.
• Even though India contributes 17% to global sugar production (second largest), its share in the world trade of sugar is meagre. 
• It is thus recommended to removing the existing restrictions on trade in sugar and converting them into tariffs.
• Revenue Sharing Mechanism - It stipulates 70-75% of the total revenue earned by sugar mills to be shared with farmers.
• The revenue may accrue from the sale of sugar and its by-products such as molasses, bagasse and co-generated power.
• Being fair to both cane growers and sugar producers, this can also balance sugarcane and sugar output with demand.
• As returns depend on the sugar recovery from cane, it spurs farmers to grow better varieties and improve efficiency of cane cultivation.
• However, a fair and transparent assessment of sugar recovery and revenues of sugar mills is essential.
• Cane area reservation - It mandates cane farmers to supply their sugarcane to the specific sugar mill.
• It is recommended that cane area reservation be phased out.
• Contracting between farmers and mills should be allowed for enabling a competitive market for assured supply of cane.
• On discontinuing area reservation, the Centre should remove the stipulation of minimum distance criteria between two mills.

What lies ahead?

• Barring a few financially distressed mills, most sugar companies have been in profit.
• More than 99% of the cane price dues based on FRP have been cleared by the Centre.
• There is, therefore, little reason for delaying the completion of the reforms process recommended by the Rangarajan panel.
• In particular, some proposals that were left to the states to carry out have not made much headway.
• The other pending or partially done reforms need to be executed.

Source: PRS India, Business Standard