The government has created a committee headed by the country’s former finance secretary Vijay Kelkar to look at ways in which the ailing sugar industry can be revived. The industry is plagued by problems related to oversupply and declining prices.
“The committee will prepare a road map for the sugar industry. Various issues related to sugar cane pricing, export policy, high stock of sugar and outstanding loans of sugar factories will be thrashed out by the committee,” said a senior official at the ministry of agriculture, food and consumer affairs who did not wish to be identified.
Both 2005-06 and 2006-07 have been good years for the industry in terms of sugar cane production. However, demand has not kept pace. Production is estimated to touch 29 million tonnes (mt) in 2006-07 (October to September), while demand in the same period is estimated at 19 mt.
The government expects the production to be even higher next season and has estimated that there will an excess stock of around 16.4mt in 2007-08.
Meanwhile, prices of sugar have declined steadily since June 2006. With sugar prices in the range of Rs1,150 a quintal (100kg), in Maharashtra and Rs1,350 in Uttar Pradesh (UP), the average all-India price works out to Rs1,250, which is about Rs400 below the average cost of production.
This has resulted in sugar companies failing to pay farmers from whom they have been buying sugar cane. According to a group of ministers looking into the problems of sugar industry, such arrears are as high as 17.4% of total sugar cane supply this year, against 2.9% last year.
In value terms, the arrears were around Rs4,717 crore in May, of which Rs2,600 crore was in UP itself.
“Arrears are likely to increase next year because of huge carry over stock. This will result in massive losses to sugar mills and also squeeze their borrowing limits. This is particularly true for UP where the state advice price (SAP) is higher than the statutory minimum price (SMP) which prevails in most other states,” said an executive at a sugar company who did not wish to be identified.
State governments prescribe SAP, the price to be paid to farmers by sugar companies. The executive added that issues such as these would have to be considered by the committee.
However, S. Raghuraman, head of trade research at Agriwatch.com, an agri-business portal run by Indian Agribusiness Systems Pvt. Ltd, said the government will have to look beyond issues such as promoting export of sugar or reducing state advice prices to arrive at a policy that would benefit the industry in the long-term.
“While export is a matter of pure commercial consideration between buyers and sellers, reducing support prices will go against the government’s long-term objective of inclusive growth,” he added. “The country can make do with 5mt of less sugar but use the molasses for producing ethanol or other kinds of alcohol. By doing this neither farmers will suffer nor the industry,” he said.
The committee includes senior officials from the food ministry, T. Haque, chairman, Commission for Agricultural Costs and Prices (CACP), and Ashok Gulati, agricultural economist and director, International Food Policy Research Institute.
According to the official at the ministry of agriculture, food and consumer affairs, the first meeting of the committee will be held this month and its final report will be submitted in five to six months.