By definition, it fits the Prime Minister’s ‘Make in India’ policy. It has one of the highest value additions in the whole of the manufacturing sector. It puts even the waste generated to perfect economical use. It provides employment. It gives assured returns to large sections of our farmers. Yet, it has historically been the whipping boy of our government.
Yes, we are talking about the domestic sugar industry. It may be noted that at 25 MT, India’s annual sugar production is next only to Brazil. We are also the second-largest global consumer of sugar.
In the last few years, the Indian sugar industry has produced a surplus, over its domestic requirement. Ideally, with such surplus, we should have dominated the global markets. Instead, this is the bane of the domestic sugar industry. This paradox is an outcome of a skewed cane pricing policy of the government that has recklessly incentivised farmers to produce excess cane at prices far beyond what the industry can afford. Under the extant well-intended government regulations, there is a requirement to maintain a minimum distance of 15 km between two sugar mills which can be increased by the state government with the approval of the Central government. In case of Maharashtra, Punjab and Haryana, the distance has been increased to 25 km. There is also a system of cane area reservation for each sugar mill, which is done by respective state governments. Under this system, the cane farmers must necessarily supply their sugarcane to the specific sugar mill and at the same time, the sugar mill has to crush each and every stick of sugarcane grown in the reserved area. This is intended to be the payment guarantee to every farmer who grows cane.
Now for the price of cane supplied to the sugar mills. The central government determines the cane price under the Sugarcane (Control) Order, 1966 (as derived under the Essential Commodities Act, 1955). This Statutory Minimum Price (SMP) for cane is fixed by the central government on the basis of recommendations made by Commission on Agricultural Costs and Prices (CACP). So far so good.
Worsening matters, state governments like UP, Haryana, Punjab, Uttarakhand and Tamil Nadu revised the SMP further as determined by the CACP. Let us not forget there are 40 million cane growers across the country forming a significant vote bank. This arbitrary fixing of cane prices over and above the prices fixed by the CACP by state governments has virtually broken the back of sugar industry.
The net consequence of this is that several sugar mills have been reeling under tremendous loss in the past few years. Quite a few have fallen sick, registered with BIFR, applied for financial restructuring with CDR or have become NPA accounts. Several more are on the verge of NPAs if there is no improvement soon. Most have used their working capital facilities to fund these losses. Consequently, cane arrears are mounting. Some have threatened closure leading to workers becoming jobless.
Surely, surplus sugar production at highly uncompetitive prices is an outcome of myopic polices of government. Sadly, as most of this sugar has been produced at uneconomical prices, these surpluses are not even exportable unless there is some intervention through some form of subsidy. Fortunately, there are funds in the SDF (Sugar Development Fund) to pay for the subsidy. The Sugar Development Fund has been accumulating surpluses in good days and it is at times like this that this amount should be put to use to support the Industry.
The Indian sugar production was known to be cyclical, when 3 years of good production was followed by 2 years of low production. The main reason was that high sugar production led to depressed sugar prices which in turn, resulted in cane price arrears of farmers. Farmers shifted out of sugarcane reducing sugarcane production increasing sugar prices. This once again triggered in government fixing higher cane prices to farmers thereby attracting farmers to grow more cane. Whatever be it, there was a ‘systemic balance’ over the years between farmers, sugar producers and consumers.
However, irrational increase in cane prices by the Government has upset the apple cart. As cane prices continuously increased, farmers opted to produce more and more of cane, in lieu of other crops. This shift in cropping pattern has been detrimental. And, what was supposed to be the ultimate insurance to farmers – the guarantee of payment by Sugar Mills – is virtually collapsing and making our farmer vulnerable. Do politicians realize the calculated harm done to our farmers with such policies? Do we realize the negative impact of these developments on our financial sector notably our banks? Whatever be it, uneconomical cane pricing has bled the sugar industry to the verge of closure. At these high uneconomical rates, it is virtually impossible for the sugar industry to buy endless quantity of cane, crush them and manage to survive, let alone incur profit. Do we realize that unless the sugar industry survives and is economically viable that the cane farmer cannot survive. More importantly, should India face a closure of sugar industry, as it looks imminent that sugar prices will shoot through the roof. And remember, no country in the world has excess sugar to satisfy the demands of a billion plus consumer.
As the sugar industry is spiralling to its collapse, one hopes that the Prime Minister will decisively intervene. Unless there is a revival package from the government by first exporting the surplus sugar of approximately 2 MT (in the short term) and prohibiting the intervention of the cane prices by state government (in the medium term) – the sugar industry is virtually headed for collapse. Should that happen, it could be a negative signal for the Make in India campaign of the Hon’ble Prime Minister.
A Vellayan is the chairman of the Indian Sugar Mills Association