Sugar sector players feel ignored

Unless policy framework is changed, the issues are likely to crop up again

The fundamental problems of the sugar sector have taken a back seat but haven’t gone away, with the policy framework unchanged. The problem of a disconnect between the price of cane, sugar and its by-products in almost all states remains unresolved. Officials in the sector said the fundamental problem was pricing.

In 15 months, ex-mill sugar prices have dropped Rs 7-8 a kg but the expenses (including the price paid to farmers) have risen. “Till reforms are done on cane pricing, the fundamental problem with the sector will remain and all these interest-free loans or export incentives are short-term measures,” B B Mehta, chief executive of Dalmia Sugar, told Business Standard.

“We need to ensure the Rangarajan (committee) formula of price sharing is implemented fully on both the raw materials and finished products, as it is beneficial to both the farmers and the sector,” said Ajit Shriram, deputy managing director of DCM Shriram Consolidated. He said for farmers, the formula was beneficial as they sold cane on weight basis, irrespective of the recovery rate. By the formula, cane with higher sucrose content will get a better price. “This will encourage farmers to plant better varieties,” said Shriram.

C Rangarajan, chairman of the Prime Minister’s Economic Advisory Council, had suggested a revenue-sharing formula for cane, one based on sugar prices and the second including the price of by-products. His recommendations were part of a report on reform in the sector.   Of the major cane-producing states, those in the sector said Maharashtra had accepted the Rangarajan formula and Karnataka in part. Uttar Pradesh had set up its own board to determine a price formula. Maharashtra and Karnataka have also announced the formation of such boards.

The UP example
In UP, the cost of producing sugar is Rs 35-36 a kg, while the ex-mill price is Rs 28-28.5 a kg. In Maharashtra, it is Rs 30-31 a kg, while the ex-mill price is Rs 26-26.5 a kg. “The current price is not remunerative for mills,” said Abinash Verma, director-general of the Indian Sugar Mills Association.

He said the recent decision to provide interest-free loans of Rs 6,600 crore to mills was full of conditionalities. “In 2007-08 (the previous occasion when the government had sanctioned interest-free loans), it was mandatory for banks to extend those to mills. This year, the government has imposed conditions like the viability of mills, their cash flow in five years and security.”

In UP, according to sectoral estimates, cane payment dues to farmers had climbed to Rs 4,400 crore till December 31, of which Rs 2,250 crore was more than 14-day old. The official rules say payment for cane has to be within 14 days, after which it is calculated as dues. “Already, dues are piling this year; from last year, Rs 1,881 crore is still pending.”  He said even if all the mills get the promised Rs 6,600 crore, the share of mills in UP won’t be Rs 1,920 crore, as 30 per cent of the country’s sugar production comes from here.

“With this money, mills will only be able to clear last year's dues,” said Verma.  

Agreed Mehta of Dalmia Sugar, “We have started making payments to farmers but most of these are last year’s dues.”

Mills in UP had suspended operations in November, expressing inability to pay a higher cane price due to their precarious financial position. The UP government later kept the State Advised Price for the 2013-14 season unchanged at last year's level of Rs 280 a quintal. Part of this, Rs 260 a qtl, is to be paid upfront and the rest only if mills make profits.

However, like the mills, farmers associations are also not satisfied. “This (the price agreed by the UP government for payment to farmers) does not even cover our basic cost of producing cane,” a farmer leader said.

“The cane dues which were estimated to be Rs 12,000 crore in 2012-12 will swell to Rs 15,000-20,000 crore by the end of the 2013-14 season unless the government makes availing of interest-free loans smoother and also helps in absorbing the surplus sugar,” said Verma.

Chart for sugar production (in million tonnes)
Year	Production
2010-11	24.35
2011-12	26.29
2012-13	25.74
2013-14	24.4
*Estimated
NOTE: Sugar season runs from October to September
Source: Department of Food and Consumer Affairs