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Sugar industry is an important agro – based industry that impacts rural livelihoods of about 50 million Sugarcane farmer 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.

Sugarcane Pricing Policy

With the amendment of the Sugarcane (Control) Order, 1966 on 22.10.2009, 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 fair and remunerative price of sugarcane having regard to the following factors:

  • cost of production of sugarcane;
  • return to the growers from alternative crops and the general trend of prices of agricultural commodities;
  • availability of sugar to consumers at a fair price;
  • price at which sugar produced from sugarcane is sold by sugar producers;
  • recovery of sugar from sugarcane;
  • *the realization made from sale of by-products viz. molasses, bagasse and press mud or their imputed value;
    (*inserted vide notification dated 29/12/2008)
  • **reasonable margins for the growers of sugarcane on account of risk and profits.
    (**inserted vide notification dated 22/10/2009)

Under the FRP system, the farmers are not required to wait for the end of the season or for any announcement of the profits by the sugar mills or the Government. The new system also assures the margins on account of profit and risk to farmers in all the years, irrespective of the fact whether the 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 2015-16 sugar season has been fixed at Rs. 230 per QTL. linked to a basic recovery of 9.5% subject to a premium of Rs.2.42 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 2015-16 is at tabulated below :-

Sugar Season FRP(Rs. per quintal) Basic Recovery Level
2009-10 129.84 9.5%
2010-11 139.12 9.5%
2011-12 145.00 9.5%
2012-13 170.00 9.5%
2013-14 210.00 9.5%
2014-15 220.00 9.5%
2015-16 230.00 9.5%

De-Regulation Of Sugar Sector On The Recommendations Of 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 are as under:

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.
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. No export duty on sugar. Import duty has been enhanced from 25% to 40% w.e.f. 29.4.2015.
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 therefore the situation varies from State to State. The State Governments have already been requested to reconsider the regulatory controls on movement of molasses which can be used for producing ethanol.
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 mandatory packed in jute bags.

Review Of Existing System For Distribution Of Sugar Through PDS

Central Government has put in place a new dispensation for distribution of sugar through the Targeted Public Distribution System (TPDS) post de-regulation of the sugar sector in April, 2013. Under the new system, State Governments/UT Administrations are required to procure sugar from open markets and make it available in the TPDS; the Central Government is to reimburse a fixed subsidy @ 18.50 per kg limited to the quantity based on existing allocations. State Governments /UT Administrations may either absorb additional costs incurred on handling, transportation and dealer’s commission or pass it on to consumers by adding it to the Retail Issue Price of Rs. 13.50 per kg under the PDS. Also, State Governments/UT Administrations, implementing NFSA, have been allowed to continue the existing coverage or extend it to beneficiaries under NFSA, within existing allocation of sugar.

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 Blending 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.

The Central Government has scaled up blending targets from 5% to 10% under the Ethanol Blending Programme (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 .

Scheme For Extending Financial Assitance To Sugar Undertakings (SEFASU-2014)

The Government on 3.1.2014 notified a Scheme for Extending Financial Assistance to Sugar Undertakings (SEFASU-2014) envisaging interest free loans by bank as additional working capital to sugar mills, for clearance of cane price arrears of previous sugar seasons and timely settlement of cane price of sugar season 2013-14 to sugarcane farmers. Rs. 6420 crores have been disbursed under the scheme. Interest burden on this loan, over next five years would be borne by the Government through Sugar Development Fund.

Incentive For Marketing And Promotion Services Of Raw Sugar Production

The Government notified a scheme on 28.2.2014 allowing incentive for marketing and promotion Services of raw Sugar production targeted for export during sugar season 2013-14 which was further extended to sugar season 2014-15. The incentive amount is to be used for clearance of cane price dues of cane growers.

Soft Loan To Sugar Mills To Facilitate Clearance Of Cane Price Arrears

A scheme was notified on 23.6.2015 to provide soft loan to sugar mills to facilitate clearance of cane price arrears of sugar season 2014-15. Rs. 4305 crores have been disbursed under the scheme. Interest subvention during moratorium period of one year would be borne by the Government.

Minimum Indicative Export Quotas (MIEQ)

With a view to improving domestic sugar price sentiments, the Government fixed indicative export targets for each mill proportionate to their sugar production so as to evacuate 4 mMT of sugar stocks. No export subsidy or incentive is offered and the industry is expected to export at prevailing international prices and absorb the losses so incurred. It is expected that with stock evacuation, domestic sugar prices would increase and reach levels more supportive of cane prices. These are the Minimum Indicative Export Quotas (MIEQ). The industry can export greater quantities, and is at liberty to export raw, white or refined sugar depending on global market demand. The Quotas have also been made tradable.

Production Subsidy

The Government vide notification dated 2.12.2015 has also extended production subsidy @ Rs. 4.50 per quintal to sugar mills to offset cost of cane and facilitate timely payment of cane price dues of farmers for the current sugar season 2015-16. The production subsidy is payable provided mills achieve targets in respect of exports and ethanol blending.

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