Sugar de-control safeguarding sector's, growers', consumers' interests
In a landmark decision, the government has abolished
the levy sugar mechanism and regulated release mechanism to de-control
the Indian sugar industry and at the same time ensured that the poor
segments of the society continue to get sugar at the existing subsidised
prices by taking upon itself the entire financial burden of
distributing sugar through ration shops. A notification in this regard
was issued recently.
With this landmark decision, the government has ensured that the interests of all segments of the sugar economy – be it the industry, the farmers, the consumers or the poor section of society – are safeguarded.
The measure will give the industry the freedom to sell their produce without any restriction and improve their liquidity position. Improved liquidity will ensure that millions of sugarcane farmers in India will no longer have to wait for their due price from sugar millers. For the consumers, it means sugar availability will increase in the market by as much as 10 per cent per year.
The government has decided to reimburse the state governments for purchasing and selling sugar through the public distribution system (PDS) below the market rate, for which it will bear upon itself an additional burden of around Rs 3,100 crore.
The issue of de-controlling of sugar industry was engaging the attention of the government for a very long time. There were representations from sugarcane farmers’ associations as well as sugar mills, the major stakeholders of the sugar industry, that a price-sharing formula for sugarcane was long overdue.
The government also thought about bringing a level playing field where the interests of the consumers on the one hand and the development of sugar industry on the other hand can be ensured.
The demand for decontrol of sugar has stemmed from the cyclic nature of sugar production in the country, which puts the sugar industry at a disadvantage in that they are not able to find it a viable business option finally affecting sugarcane farmers.
Starting from a normal year when there are no major cane price arrears, the farmers tend to plant larger area under sugarcane. This leads to increase in sugarcane production with the consequent increase in sugar production which in turn leads to excess stocks resulting in depressed sugar prices and building up of cane price arrears.
As a result of lower returns, the farmers tend to take lesser care of the cane and area under sugarcane gets reduced in the subsequent years. The years of reduced production of sugarcane also witness higher diversion of cane for gur-making, a significant part of which also finds its way into the liquor industry in the unorganised sector as a substitute for molasses which itself would be in short supply. The lower production of sugarcane and higher diversion combine to produce still lower availability of cane for crushing in sugar mills which results in disproportionately low sugar production.
As a result, the sugar prices rise, the mills get higher returns, the arrears position is taken care of, the farmers get a good price and are encouraged to plant more, and the area under sugarcane starts rising again. In two to three years' time, this would lead to another year of peak production and the cycle would start all over again.
The Central government was confident of taking the burden arising out of de-control of sugar, as the country could achieve sugar production of 263.50 lakh metric tonne during the 2011-12 (October-September) sugar season, which was 20 lakh tonne more than the sugar production of 243.50 lakh tonne during the 2010-11 sugar season.
While the seasonal variation in sugar production had also started to smoothen in the last three or four years, the market price of sugar had remained within reasonable levels all throughout 2012-13 sugar season.
The Rangarajan Committee appointed by the government to look into the whole gamut of sugar de-control had observed that levy amounts to a cross-subsidy between the open market and PDS sugar, and it is not in the interest of the general consumers or the development of the sugar sector and recommended that levy sugar be dispensed with.
So the two crucial issues emanating from the Rangarajan Committee’s report came up before the government for a decision. These are (a) whether sugar is to be continued as an item under the PDS; and (b) if sugar is to be continued as an item under the PDS, does the current levy obligation on sugar mills need to be continued with or the PDS supplies are to be met through open market procurement?
The options that were available before the government were quite complex in that it had not only to take the state governments along, but also to look into other critical issues such as increase in procurement cost, problems relating to market distortions, including delayed payments for cane price, the subsidy burden, etc.
It was felt that removal of sugar in the PDS could not be acceptable. The major decision to take was that if sugar was to be continued as an item under the PDS, who would bear the extra burden for keeping the delivery at Rs 13.50 per kg? The extra burden, in terms of increase in subsidy owing to the de-control of sugar, would be around Rs 3,100 crore, excluding the distribution costs involved.
At present, the open market price of sugar hovers around Rs 32 per kg, while in respect of retail price through PDS, it is Rs 13.50 per kg, which has not been revised since 2002. The government is able to provide sugar at Rs.13.50 per kg by absorbing the subsidy involved in each kilogram at Rs 6 per kg after buying it from sugar mills at the levy price fixed by the government, i.e. Rs 19.05 per kg.
At present, the total expenditure being incurred by the government in terms of subsidy for supply of 27 lakh tonnes of sugar under PDS comes to Rs 2,556 crore. With the de-control of sugar, the additional burden would mean absorbing the increase in subsidy component to the tune of Rs 13 per kg, currently being borne by the individual sugar mills, i.e. the difference between the ex-mill price of Rs 32 and the levy price fixed on them for the current year, which is Rs 19.50. The total additional subsidy burden works out to Rs 3,100 crore, excluding distribution cost.
The Central government had decided to take the responsibility of the additional burden in terms of subsidy increase upon itself.
The decision of the government to partially de-control sugar has not affected the sugar price in the open market also, as there is enough sugar in the country with this year’s production expected to be around 24.5 million tonne as against a requirement of 22.2 million tonne.
Now the states will also be free to purchase sugar through a transparent system at the current ex-factory price of Rs 32 per kg, which has been capped for two years.
The government ensured that this important decision on the partial de-control of sugar takes care of the interests of the sugarcane farmers, while also ensuring that the interests of the common man and the development of the sugar sector.
With this landmark decision, the government has ensured that the interests of all segments of the sugar economy – be it the industry, the farmers, the consumers or the poor section of society – are safeguarded.
The measure will give the industry the freedom to sell their produce without any restriction and improve their liquidity position. Improved liquidity will ensure that millions of sugarcane farmers in India will no longer have to wait for their due price from sugar millers. For the consumers, it means sugar availability will increase in the market by as much as 10 per cent per year.
The government has decided to reimburse the state governments for purchasing and selling sugar through the public distribution system (PDS) below the market rate, for which it will bear upon itself an additional burden of around Rs 3,100 crore.
The issue of de-controlling of sugar industry was engaging the attention of the government for a very long time. There were representations from sugarcane farmers’ associations as well as sugar mills, the major stakeholders of the sugar industry, that a price-sharing formula for sugarcane was long overdue.
The government also thought about bringing a level playing field where the interests of the consumers on the one hand and the development of sugar industry on the other hand can be ensured.
The demand for decontrol of sugar has stemmed from the cyclic nature of sugar production in the country, which puts the sugar industry at a disadvantage in that they are not able to find it a viable business option finally affecting sugarcane farmers.
Starting from a normal year when there are no major cane price arrears, the farmers tend to plant larger area under sugarcane. This leads to increase in sugarcane production with the consequent increase in sugar production which in turn leads to excess stocks resulting in depressed sugar prices and building up of cane price arrears.
As a result of lower returns, the farmers tend to take lesser care of the cane and area under sugarcane gets reduced in the subsequent years. The years of reduced production of sugarcane also witness higher diversion of cane for gur-making, a significant part of which also finds its way into the liquor industry in the unorganised sector as a substitute for molasses which itself would be in short supply. The lower production of sugarcane and higher diversion combine to produce still lower availability of cane for crushing in sugar mills which results in disproportionately low sugar production.
As a result, the sugar prices rise, the mills get higher returns, the arrears position is taken care of, the farmers get a good price and are encouraged to plant more, and the area under sugarcane starts rising again. In two to three years' time, this would lead to another year of peak production and the cycle would start all over again.
The Central government was confident of taking the burden arising out of de-control of sugar, as the country could achieve sugar production of 263.50 lakh metric tonne during the 2011-12 (October-September) sugar season, which was 20 lakh tonne more than the sugar production of 243.50 lakh tonne during the 2010-11 sugar season.
While the seasonal variation in sugar production had also started to smoothen in the last three or four years, the market price of sugar had remained within reasonable levels all throughout 2012-13 sugar season.
The Rangarajan Committee appointed by the government to look into the whole gamut of sugar de-control had observed that levy amounts to a cross-subsidy between the open market and PDS sugar, and it is not in the interest of the general consumers or the development of the sugar sector and recommended that levy sugar be dispensed with.
So the two crucial issues emanating from the Rangarajan Committee’s report came up before the government for a decision. These are (a) whether sugar is to be continued as an item under the PDS; and (b) if sugar is to be continued as an item under the PDS, does the current levy obligation on sugar mills need to be continued with or the PDS supplies are to be met through open market procurement?
The options that were available before the government were quite complex in that it had not only to take the state governments along, but also to look into other critical issues such as increase in procurement cost, problems relating to market distortions, including delayed payments for cane price, the subsidy burden, etc.
It was felt that removal of sugar in the PDS could not be acceptable. The major decision to take was that if sugar was to be continued as an item under the PDS, who would bear the extra burden for keeping the delivery at Rs 13.50 per kg? The extra burden, in terms of increase in subsidy owing to the de-control of sugar, would be around Rs 3,100 crore, excluding the distribution costs involved.
At present, the open market price of sugar hovers around Rs 32 per kg, while in respect of retail price through PDS, it is Rs 13.50 per kg, which has not been revised since 2002. The government is able to provide sugar at Rs.13.50 per kg by absorbing the subsidy involved in each kilogram at Rs 6 per kg after buying it from sugar mills at the levy price fixed by the government, i.e. Rs 19.05 per kg.
At present, the total expenditure being incurred by the government in terms of subsidy for supply of 27 lakh tonnes of sugar under PDS comes to Rs 2,556 crore. With the de-control of sugar, the additional burden would mean absorbing the increase in subsidy component to the tune of Rs 13 per kg, currently being borne by the individual sugar mills, i.e. the difference between the ex-mill price of Rs 32 and the levy price fixed on them for the current year, which is Rs 19.50. The total additional subsidy burden works out to Rs 3,100 crore, excluding distribution cost.
The Central government had decided to take the responsibility of the additional burden in terms of subsidy increase upon itself.
The decision of the government to partially de-control sugar has not affected the sugar price in the open market also, as there is enough sugar in the country with this year’s production expected to be around 24.5 million tonne as against a requirement of 22.2 million tonne.
Now the states will also be free to purchase sugar through a transparent system at the current ex-factory price of Rs 32 per kg, which has been capped for two years.
The government ensured that this important decision on the partial de-control of sugar takes care of the interests of the sugarcane farmers, while also ensuring that the interests of the common man and the development of the sugar sector.
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