The Indian Sugar Mills Association (ISMA) is the apex organization of the private and public sector sugar mills in the country. The sugar industry is the largest agro-processing sector in the country. Sugarcane is bought by the sugar mills directly from farmers without any middlemen. The sugar season or sugar year is from October to September. In the last sugar season 2009-10, approximately Rs 45,000 crores was paid to farmers as cane price. This year, it is expected to rise to about Rs 51,000 crores.
Speaking to newsmen, Narendra Murkumbi, President, ISMA said that the sector unfortunately continues to suffer the burden of excessive controls and regulations far in excess of those imposed on any other sector in agriculture or industry in India.
Deregulation of the Sugar Industry
Sugar industry in India is totally controlled by the Government. Certain percentage of sugar produced by the sugar manufacturers has to be given to the Government on administrated price for distribution of the same under PDS. In no other country in the world – not even in small countries like Kenya, Tanzania etc – such type of levies have been imposed on sugar industry. We have raised our demand before the Government to de-regulate the industry in phased manner. To start with, the following two steps may be initiated by the Government:-
Abolition of levy sugar obligation on sugar mills
Direct procurement by Government will increase Government subsidy by Rs.2500 crores only. This amount is negligible in comparison to about Rs.70000 crores of Food Subsidy Bill of the Government which is expected to go to about Rs.1.00 lakh crore after promulgation of Food Security Act. Earlier also, the Finance Ministry, Commerce Ministry and Planning Commission had supported proposal for abolition of levy sugar obligation. But the same could not be implemented due to various reasons.
Abolition of monthly regulated release mechanism
In our country, sugar mills did not have any freedom to plan their sales and cash flows. This is multiplied by burden of carrying large stocks of sugar due to the monthly release mechanism which is not successful in controlling sugar prices in the recent past as accepted by the Ministry of Food in its Note for the Cabinet.
We therefore, reiterate our demands of de-regulation of sugar industry in phased manner by implementing the above two steps in the direction of de-regulation of the sugar industry.
Losses suffered in current year
The current sugar season has been a surplus sugar production year and the industry is burdened with unprecedented stocks of sugar. Most of the mills do not have adequate storage capacities and cash flows to manage the surplus inventories of sugar with them which leads to distress sale of sugar. Currently, the value of stock balance with sugar mills would be approximately Rs.30,000 crores.
The cost of production of sugar is around Rs.2,900 per quintal in UP and Rs.2,700 per quintal in Maharashtra and Karnataka. However, due to surplus sugar in the country and continuance of stockholding limit on traders, the ex-mill sugar prices are below the cost of production. Such a situation will only erode the finances of the sugar mills and adversely impact their paying capacity to the farmers. With high sugar production next year and lack of similar opportunities to export sugar from India, the sugar mills will no longer be able to pay to farmers.
As per estimates, even after considering the recent permission to export 5 lakh tons of sugar, the opening balance for 2011-12 would be about 60 lakh tons. This is still about 10 lakh tons more than the normative 3 months consumption opening balance for next year of around 50 lakh tons. Considering, likely surplus sugar production next year also, there is immediate need to reduce sugar stocks held with sugar mills by way of export of another 10 lakh tons and removal of stock holding limit on traders.
With low domestic ex-mill prices and improving international sugar prices, the mills stand to gain about Rs.700 per quintal extra from sugar exports. With a surplus sugar year next season also and expected sugar surplus in the international market from Oct 2011, it is prudent to export maximum possible quantities immediately.
With surplus availability of sugar in India and when the country is trying to export sugar even under OGL, it neither makes much economic sense to have a duty free regime for imports of sugar nor any commercial sense to import now. This is hurting market sentiments and sending wrong signals to the market about clarity of Government policies and intentions.
Building cane price arrears will also harm the farmers who may move out of sugarcane in 2012-13 i.e. just about 18 months later. With increase in domestic demand, the country will have to import at high prices. Not only will the sugar industry and cane farmers suffer, but the consumers will have to bear very high sugar prices, a situation the country had to face, though for a short time in 2010.
Ethanol Blending Programme
Traditionally, molasses, a by-product of the sugar industry, has been used in India to produce rectified spirit and alcohol of about 95% purity for producing liquor for human consumption and various chemicals. However, with technological developments in the recent past, molasses has been effectively used to produce bio-ethanol for blending with petrol as a fuel.
Brazil and USA are the two largest producers and consumers of fuel-ethanol in the world. These countries have flexi-fuel cars which can run solely on ethanol. Japan, China, Thailand, European Union etc. have embarked on ambitious plans of ethanol blending with petrol (EBP) programmes. Some of them who are deficient in ethanol, import the same from other countries. USA even provides huge incentives and subsidies for production and use of bio-ethanol and is slowly moving on to higher levels of blend percentages.