Problems in Sugar Industry

What is the issue?

• The sugar industry is supposed to commence its crushing activities for the 2020-21 season this month.
• But the industry appears to be hamstrung by problems - some familiar and some new.

What are the problems?

• After every season of surplus, the industry has run up large arrears with farmers for the supply of cane.
• This year, because of the lockdown, millers’ cash flows have been hit.
• The hit is due to the sharp fall in the institutional off take of sugar from food and beverage makers and hotels — usually a stable revenue source.

What did the governments do?

• The industry’s persistent working capital crunch has also been aggravated by the Centre.
• The Centre delayed its promised payouts towards transport subsidy on sugar exports, relying on which the industry has shipped out over 60 lakh tonnes of sugar this year.
• The Centre has been tardy in reimbursing mills for the carrying costs on the 40-lakh tonne buffer-stock created at its behest.
• State governments have been delaying payments on co-generated power.
• The Centre and State governments have persisted with populist policy measures that interfere in the active functioning of the market.
• This has aggravated the industry’s structural problems.

What are the populist measures taken?

• Instead of desisting from hikes in the Fair and Remunerative Price (FRP) for cane, which would discourage farmers from planting excessive cane, the Centre has kept up FRP hikes.
• The Centre has begun announcing a ‘minimum selling price’ for sugar.
• States like Uttar Pradesh have worsened the over-capacity situation with unrealistic State Advised Prices and capital subsidy schemes.

What are the other problems?

• Industry’s own efforts at de-risking the business through forward integration moves have come a cropper, too.
• These forward integration moves include the processing of molasses into ethanol and bagasse into power.
• Annual conflicts between the sugar industry and oil marketing companies on the quantum and pricing of ethanol have ensured that the ethanol blending programme is a non-starter.
• With revenues from co-generated power dependent on the finances of State discoms, this diversification gambit hasn’t worked either.

What could be done?

• The obvious solution to the sugar industry’s woes lies in freeing prices of both cane and sugar from the shackles of government control.
• Free market forces should be allowed to dictate the demand-supply equation for sugarcane and its end-products.
• Many expert committees have already put out policy prescriptions for untangling the mess that is the Indian sugar sector.
• This includes the recommendations of the Rangarajan committee (2012).
• The only thing required now is the political will to implement these recommendations.

Source: Business Line