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Sugar and SugarCane Policy

  • Sugar industry is an important agro-based industry that impacts rural livelihood of about 50 million sugarcane farmers and around 5 lakh workers directly employed in sugar mills. Employment is also generated in various ancillary activities relating to transport, trade servicing of machinery and supply of agriculture inputs. India is the second largest producer of sugar in the world after Brazil and is also the largest consumer. Today Indian sugar industry’s annual output is worth approximately Rs.80,000 crores.

  • There are 732 installed sugar factories in the country as on 31.07.2017, with sufficient crushing capacity to produce around 339 lakh MT of sugar. The capacity is roughly distributed equally between private sector units and co-operative sector units. The capacity of sugar mills is, by and large, in the range of 2500 TCD-5000 TCD bracket but increasingly expanding and going even beyond 10000 TCD. Two standalone refineries have also been established in the country in the coastal belt of Gujarat and West Bengal which produce refined sugar mainly from imported raw sugar as also from indigenously produced raw sugar.

  • The sector-wise break-up of sugar mills in the country is as given below:
Sr.No. Sector Number Of Factory
1 Co-operative 327
2 Private 362
3 Public 43
Total 732*

* Includes each refinery in West Bengal & Gujarat.

  • With the amendment of the Sugarcane (Control) Order, 1966 on 22.10.2009 and the concept of Statutory Minimum Price (SMP) of sugarcane was replaced with the ‘Fair and Remunerative Price (FRP) of sugarcane for 2009-10 and subsequent sugar seasons. The cane price announced by the Central Government is decided on the basis of the recommendations of the Commission for Agricultural Costs and Prices (CACP) after consulting the State Governments and associations of sugar industry. The amended provisions of the Sugarcane (Control) Order, 1966 provides for fixation of FRP of sugarcane having regard to the following factors:-

    • (a)Cost of production of sugarcane
    • (b)Return to the growers from alternative crops and the general trend of prices of agricultural commodities
    • (c)Availability of sugar to consumers at a fair price
    • (d)Price at which sugar produced from sugarcane is sold by sugar producers
    • (e)Recovery of sugar from sugarcane
    • (f)*The realization made from sale of by-products viz. molasses, bagasse and press mud or their imputed value
    • (g) **reasonable margins for the growers of sugarcane on account of risk and profits
      (* inserted vide notification dated 29/12/2008)
      (**inserted vide notification dated 22.10.2009)

  • Under the FRP system, the farmers are not required to wait till the end of the season or for any announcement of the profits by sugar mills or the Government. The new system also assures margins on account of profit and risk to farmers, irrespective of the fact whether sugar mills generate profit or not and is not dependent on the performance of any individual sugar mill.

  • In order to ensure that higher sugar recoveries are adequately rewarded and considering variations amongst sugar mills, the FRP is linked to a basic recovery rate of sugar, with a premium payable to farmers for higher recoveries of sugar from sugarcane.

  • Accordingly, FRP for 2017-18 sugar season has been fixed at Rs. 255 per qtl. linked to a basic recovery of 9.5% subject to a premium of Rs.2.68 per qtl for every 0.1 percentage point increase above that level.

  • The FRP of sugarcane payable by sugar factories for each sugar season from 2009-10 to 2017-18 is tabulated below:-
Sugar Season SMP (Per quintal) Basic Recovery Level
2009-2010 129.84 9.50%
2010-2011 139.12 9.50%
2011-2012 145.00 9.50%
2012-2013 170.00 9.50%
2014-2015 210.00 9.50%
2015-2016 220.00 9.50%
2016-2017 230.00 9.50%
2017-2018 230.00 9.50%

Cane Price Arrears

  • Sustained surplus production over domestic consumption in the past 5 sugar seasons had led to subdued sugar prices, which had stressed the liquidity position of the industry throughout the country leading to build up of cane price arrears. The peak cane price arrears for 2014-15 sugar season at all India level reached at Rs.21837 crore as on 15.4.2015. About 50% of the peaked arrear pertained to sugar mills located in Uttar Pradesh only. To mitigate the situation, Government has taken following measures:

  • Extended working capital loans with interest subvention to sugar mills under Scheme for Extending Financial Assistance to Sugar Undertakings (SEFASU-2014). Under the scheme, loans amounting to Rs. 6484.77 crores were disbursed by banks; and interest subvention of Rs. 2236 crores have been borne by the Government so far.
  • Provided financial assistance through ‘raw sugar export incentive scheme’. Rs. 425 crore was disbursed under the scheme.
  • Extended financial assistance of Rs.4213 crore to mills through banks under Soft loan scheme, which were directly credited to farmers account on behalf of sugar mills. An amount of Rs. 425 Cr released to the SBI for subvention of interest on the above loan. About 32 lakh farmers have been benefited.
  • Facilitated supply of ethanol under Ethanol Blended Petrol (EBP) programme by fixing remunerative price and waiving off excise duty on supply of ethanol during sugar season 2015-16 (up to 10th August, 2016).
  • A comprehensive performance based production subsidy has been extended @ Rs.4.50 per quintal of cane crushed payable to farmers against their cane dues contingent on mills undertaking export and supplying of ethanol. A total of Rs. 525 crores have been disbursed so far, under the scheme to 203 sugar mills.

  • As a result of these measures, 99.33% of cane dues payments of farmers for 2014-15 sugar season and 99% for 2015-16 sugar season have been cleared. Even in the current sugar season 2016-17, 93% of cane dues payment of farmers on SAP basis have been cleared.

  • The position of cane price payment and arrears for sugar season 2016-17, as on 31.07.2017, is as under:
    Title (In Crores)
    Cane Price Payable 56761.49
    Cane Price Paid 52453.29
    Cane Price Arrears 4308.20
    Percentage of Cane Price Arrears on Cane Price Payable 7.59

    DE-REGULATION OF SUGAR SECTOR ON THE RECOMMEN DATIONSOF DR. C. RANGARAJAN COMMITTEE REPORT :

    The year 2013-14 was a water-shed for the sugar industry. The Central Government considered the recommendations of the committee headed by Dr. C. Rangarajan on de-regulation of sugar sector and decided to discontinue the system of levy obligations on mills for sugar produced after September, 2012 and abolished the regulated release mechanism on open market sale of sugar. The de-regulation of the sugar sector was undertaken to improve the financial health of sugar mills, enhance cash flows, reduce inventory costs and also result in timely payments of cane price to sugarcane farmers. The recommendations of the Committee relating to Cane Area Reservation, Minimum Distance Criteria and adoption of the Cane Price Formula have been left to State Governments for adoption and implementation, as considered appropriate by them. The gist of recommendations of the Committee and action taken by the Government thereon is at Annexure-I.

    Annexure-I

    Implementation of Recommendations of Dr. Rangarajan Committee

    Issues Gist of Recommendations Status
    Cane Area Reservation: Over a period of time, states should encourage development of such market-based long-term contractual arrangements, and phase out cane reservation area and bonding. In the interim, the current system may continue. States have been requested to consider the recommendations for implementation as deemed fit. So far, none of the States have taken action, current system continues.
    Minimum Distance Criteria: It is not in the interest of development of sugarcane farmers or the sugar sector, and may be dispensed with as and when a state does away with cane reservation area and bonding. States have been requested to consider the recommendations for implementation as deemed fit. There is no reservation of area in Maharashtra. Rest of the States have not made any changes in the current arrangement.
    Sugarcane Price : Revenue Sharing Based on an analysis of the data available for the by-products (molasses and bagasse / cogeneration), the revenue-sharing ratio has been estimated to amount to roughly 75 per cent of the ex-mill sugar price alone. States have been requested to consider the recommendations for implementation as deemed fit. So far only Karnataka & Maharashtra have passed state acts to implement this recommendation.
    Levy Sugar Levy sugar may be dispensed with. The states which want to provide sugar under PDS may henceforth procure it from the market directly according to their requirement and may also fix the issue price. However, since currently there is an implicit cross-subsidy on account of the levy, some level of Central support to help states meet the cost to be incurred on this account may be provided for a transitory period. Central Government has abolished levy on sugar produce after 1st October, 2012. Procurement for PDS operation is being made from the open market by the states/UTs and Government is providing a fixed subsidy @ Rs. 18.50 per kg for restricted coverage to AAY families only who will be provided 1 kg of sugar per family per month.
    Regulated Release Mechanism This mechanism is not serving any useful purpose, and may be dispensed with. Release mechanism has been dispensed with.
    Trade Policy As per the committee, trade policies on sugar should be stable. Appropriate tariff instruments like a moderate export duty not exceeding 5 per cent ordinarily, as opposed to quantitative restrictions, should be used to meet domestic requirements of sugar in an economically efficient manner. Import duty has been enhanced from 25% to 40% w.e.f. 29.4.2015; which has now been enhanced to 50% w.e.f. 10.07.2017. Custom duty @ 20% has been imposed on export of sugar vide Department of Revenue’s notification no. 37/2016 dated 16.06.2016.
    By-products There should be no quantitative or movement restrictions on by products like molasses and ethanol. The prices of the by-products should be market-determined with no earmarked end-use allocations. There should be no regulatory hurdles preventing sugar mills from selling their surplus power to any consumer. Excise duty on potable alcohol/ liquor is a major source of revenue for the State Govts. Restriction on movement of ethanol and levying of taxes and duties on it by State Governments continue to be an impediment in successful implementation of EBP. The Department of Industrial Policy and promotion has now amended the I (D&R) Act, 1951 vide notification No. 27 of 2016 dated 14.5.2016. With this amendment, the States can legislate, control and/or levy taxes and duties on liquor meant for human consumption only. Other than that i.e. de-natured ethanol, which is not meant for human consumption, will be controlled by the Central Government only. With the amendment of I(D&R) Act, 1951 not only the movement of fuel grade ethanol will become smoother but the industry will be encouraged to produce more ethanol thereby increasing the blending percentage with petrol further.
    Compulsory Jute Packing: May be dispensed with. The compulsory packaging of sugar in jute bags has been relaxed further. And only 20% of the production is to be mandatorily packed in jute bags.

    Sugar Subsidy

    Central Government was reimbursing @ 18.50 per kg of sugar distributed by the participating State Governments /UT Administrations. The scheme was covering all BPL population of the country as per 2001 census and all the population of the North Eastern States / special category/ hilly states and Island territories. The National Food Security Act, 2013 (NFSA) is now being universally implemented by all 36 States/UTs. Under the NFSA, there is no identified category of BPL; however, the Antyodaya Anna Yojana (AAY) beneficiaries are clearly identified. The Government of India has reviewed the Sugar Subsidy Scheme and has decided that it is imperative to give access to consumption of sugar as a source of energy in diet, for the poorest of the poor section of the society i.e. AAY families. Accordingly, Central Government decided in May, 2017 that the existing system of sugar distribution through PDS may be continued as per the following:-

    (i) The existing scheme of supply of subsidized sugar through PDS may be continued for restricted coverage of AAY families only. They will be provided 1 kg of sugar per family per month.

    (ii) The current level of subsidy at Rs. 18.50 per kg provided by the Central Government to States/UTs for distribution of sugar through PDS may be continued for the AAY population. The States/UTs may continue to pass on any additional expenditure on account of transportation, handling and dealers’ commission etc. over and above the retail issue price of Rs. 13.50 per kg to the beneficiary or bear it themselves.

    Pursuant to the above decision, revised guidelines for reimbursement of sugar subsidy to States/UTs for distribution of sugar under PDS for AAY families have also been issued.

    Ethanol Blended Petrol Programme (EBP Programme)

    Ethanol is an agro-based product, mainly produced from a by-product of the sugar industry, namely molasses. In years of surplus production of sugarcane, when prices are depressed, the sugar industry is unable to make timely payment of cane price to farmers. The Ethanol Blended Petrol Programme (EBP) seeks to achieve blending of Ethanol with motor sprit with a view to reducing pollution, conserve foreign exchange and increase value addition in the sugar industry enabling them to clear cane price arrears of farmers.

    Ethanol Blended Petrol (EBP) Programme has been taken up since the year 2007 The Cabinet Committee on Economic Affairs at its meeting held on 22/11/2012, considered the recommendations of the Group of Ministers on the reports of the Expert Committee on Pricing of Ethanol and the Economic Advisory Council to the Prime Minister, and approved that the procurement price of ethanol will not be fixed by the Government and will be decided henceforth between the oil marketing companies and the suppliers of ethanol. Pursuant to the above Cabinet decision. Ministry of Petroleum & Natural Gas have issued a Gazette Notification dated 02/01/2013 for implementation of 5% mandatory ethanol blending with petrol across the Country. The Central Government has scaled up blending targets from 5% to 10% under the EBP. The procedure of procurement of ethanol under the EBP has been simplified to streamline the entire ethanol supply chain and remunerative ex-depot price of ethanol has been fixed. To facilitate achieving of new blending targets, a "grid” which networks distilleries to OMC depots and details quantities to be supplied has been worked out. State-wise demand profile has also been projected, keeping in view distances, capacities and other sectoral demands. Excise duty has also been waived on ethanol supplies to OMCs for EBP by sugar mills during 2015-16 (up to 10 August, 2016). The results have been quite encouraging, with supplies doubling every year. In the year 2013-14, ethanol supplied for blending was only 38 crore litres, whereas in 2014-15, under the modified EBP supplies increased to 67 crore litres. In the ethanol season 2015-16, the ethanol supply has been historically high and has reached 111 crore litres achieving 4.2% of blending.

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