Thursday, November 19, 2009


Sugar industry on sticky grounds...

Unlike the property, the economics of sugar has never been sweet! In spite of numerous policies and efforts by the government, both at the Center and the State level, to regulate the industry, the industry still suffers from several predicaments. In fact it is these policies to regulate the industry in itself had been the villain of peace. And this cannot be ignored for long, as in India over 35 million people are either directly or indirectly related to this industry.

Since a last couple of decades, in the entire nation (particularly in the state of Uttar Pradesh), the business of sugar (or rather the whole sugar cane farming) has become the centre-stage of political battle. And the biggest sufferers are the stakeholders who are at the extreme end of the sugar cycle — the sugarcane farmers and the consumers. So if on the one hand (ironically though!), in UP in spite of Centre’s proposal of introducing the ‘fair and remunerative price’ or FRP — which is almost 15 per cent more than the earlier price, the farmer is threatening to disrupt the forthcoming winter Parliament session. On the other hand, in Maharashtra, (second largest sugar producer after UP) low cane supplies due to bad monsoon have hampered the price of sugar in the state. As a fallout, sugar price is at an all time high and going by official data, domestic retail prices for sugar have risen by 90 per cent to Rs 38 a kg. Going by various reports, in 2008-09, India's sugar production fell to 15 million tonnes from 26.4 million tonnes in the previous year. As a result we need to import around 5-7 metric tones of sugar to bridge the prevailing demand supply gap, which will further affect the market of domestic cane farmers. Interestingly, the rise in market price of sugar does not guarantee any better price to sugar cane farmers. Farmers still depend, and have to accept the price offered by the millers. And this is where the problem lies!

In the given scenario, farmers are demanding a high price for their crop – thanks to the rising sugar price. Now since, canes have to be crushed (immediately) in order to recover sugar; farmers have no option but to sell it to their neighbourhood mill, thus creating virtual zoning, eventually leading to monopoly. Moreover, as FRP serves as the ceiling price, the mill owners are easily able to rake in huge profit. In retaliation, many a times, farmers decide not to grow cane or rather to cut down their production. In fact mills cannot be solely blamed as to address this, sugar mills in UP have decided to pay Rs 15 a quintal more to farmers (up and above the State- Advised Price or the SAP of Rs 165-170). Millers are not willing to more price, as they need to sell almost 20 per cent of the produce to the Public Distribution System (PDS) this year, which is twice of what they sold to PDS last year.

Further to counter this, the government introduced the concept of sugar cooperatives. But then there is respite here too, as most of these cooperatives, situated in UP, are practically being operated by politicians and mafias. Policy makers need to interlink the sugarcane prices to the market price of sugar. As a matter of fact, sugarcane cannot be transported over longer distance as it loses sucrose content — policy makers need to set regulations on sugar cane price across all states. There is no solution other than to deregulate the market to arrest the trade distortions and simultaneously create a broader market by infusing more competition amongst millers. This is no rocket science, as India has enough precedence to prove that how deregulation across industries has helped to benefit each and every stakeholder in the longer run. The same would hold true for sugar too...


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