Experts call for reforms to clear mess in sugar sector

Experts and industry players have demanded major reforms in the way sugarcane prices are fixed and ethanol is produced to clear the mess in the sugar sector.

Their demand followed criticism of India’s sugarcane pricing policy by a recent report of the Organisation for Economic Co-operation and Development (OECD) and the United Nations Food and Agriculture Organization (FAO).

The report says there is no link between sugarcane prices and the relatively market-driven prices of sugar.

The sugarcane prices are fixed according to the fair and remunerative price (FRP) announced every year by the Union government in consultation with the Commission for Agricultural Costs and Prices (CACP).

If state governments wish to fix a higher price — state advised prices, or SAP — they need to pay for it.

“Major reforms are needed in the sugar sector to clean up the mess. The government is still hesitant to introduce significant changes in this sector,” CACP Chairman Ashok Gulati said.

He said the OECD-FAO observation that sugarcane prices and sugar prices in India were divorced from each other was not completely true.

“We do take into account the market situations and demand-supply factors while fixing prices. There are bureaucratic issues involved, due to which prices may not always be in tandem with each other.”

He also added that there was no clear-cut market signal which helped them determine the prices.

“In Brazil, factories switch from molasses to sugar and vice-versa depending on the market needs. In India, it is not so. Even now, ethanol is only produced from molasses,” Gulati said.

Abinash Verma, director general of the Indian Sugar Mills Association, said there was no direct link between the cane prices and sugar prices. Moreover, there are inter-state differences in the sugar prices itself.

“The government gives a benchmark price, the FRP, based on certain criteria. But in states like Uttar Pradesh, Uttarakhand, Punjab, Haryana and Tamil Nadu, there is no validity for FRP, as they fix the price themselves, which is the minimum price for sugarcane. This is much higher than the FRP,” he said.

Gulati said price fluctuations were due to higher SAPs in several major sugar producing states.

According to Verma, major sugar producers like Brazil, Australia and Thailand follow a specific pricing formula.

He said there was 300,000-400,000 tonnes of sugar carried forward into the next month, as the government was releasing sugar, more than the necessary quota.

However, in June, it did not happen. The ex-mill prices dipped massively in June, as there was no carry forward of the sugar quota.

He said Uttar Pradesh and Maharasthra — the country’s leading sugar producers — incurred a loss of Rs 300 per quintal this year, as sugar was sold below the cost of production.

Verma also added that the mills wanted the ex-mill prices to improve without affecting retail prices. “The ex-mill price is around Rs 26 per kg of sugar. The retail price is around Rs 32 per kg. Even if ex-mill prices are increased, retail consumers would not be affected, as there is a huge gap between the two prices.”

With the government’s decision to export an additional 500,000 tonnes of sugar, domestic sugar prices are expected to head northwards. Moreover, the 2010-11 (October-September) production is estimated at 24.4 million tonnes (mt), against the OECD-FAO estimate of 32 mt.

The price fluctuations, therefore, may continue for a longer period; unless serious efforts are taken by the government to deal with the issues of the sugar sector, experts said.