Financial Daily from THE HINDU group of publications
Friday, Jan 02, 2004
Agri-Biz & Commodities - Insight
Statutory minimum price: Bitter news for sugar industry
The decision to raise the statutory minimum price (SMP) of sugarcane by Rs 3.50 per quintal to Rs 73 at 8.5 per cent recovery of sugar from cane with 82 paise for every 0.1 per cent additional recovery, as recommended by the Commission on Agricultural Costs and Prices (CACP) at a high-level meeting chaired by the Prime Minister, Mr Atal Bihari Vajapyee, did come as a big blow to the sugar industry.
That the Finance Ministry was not inclined to hike the SMP for sugarcane was no secret as the decision over the matter was deferred during a meeting of the Cabinet Committee on Economic Affairs (CCEA) where the Finance Minister, Mr Jaswant Singh, was reported to have even sought a rollback to Rs 64.50 per quintal as originally proposed for the sugar season 2002-03 (October to September) which was subsequently raised to Rs 69.50 in the backdrop of a devastating drought.
Interestingly, the sugar industry's opposition to periodic hikes in sugarcane price was not born out of any callous disregard for a fair and reasonable price of produce for the growers but because of the ill-effects of associated increase to SMP by the State-level kisan leaders who appear keen on politicising the pricing issue by superimposing the State-advised price (SAP).
The latter has virtually sapped the viability of many a sugar mill, pushing it into the red. That the sugarcane arrears of mills run into crore of rupees is no secret as the industry could not cope with bear the cost of sugar production going haywire every time SAP is demanded in preference to SMP.
According to the Indian Sugar Mills Association (ISMA), with States fixing higher sugarcane prices arbitrarily year after year, and much lower prices being realised by the mills due to glut and proliferation of units in contiguous areas in the wake of delicensing, the industry today is saddled with losses of over Rs 5,000 crore.
No wonder, the Government's mid-year decision to raise the SMP by Rs 5 per quintal following the worst drought last sugar year did not benefit the growers while causing serious instability in the functioning of the sugar industry, compelling several units to seek stay in different courts from paying the hiked portion of the SMP.
With the current sugar season cane price being pegged at Rs 73 per quintal, ISMA reckons the uncovered gap will be upwards Rs 2,000 crore as sugar prices continue to rule soft due to large surplus stocks.
Thailand, the world's largest efficient sugar producer, has a formula under which the liability of cane price payments by the mills is circumscribed to their capability to pay based on sugar sales realisation, with the gap between the assumed fair price and the disbursement made by the industry filled through direct assistance to the sugarcane farmers by the government.
Is it not time that the Government, which swears by support to farm sector, assumed its responsibility in forking out direct subsidy as India's aggreage measure of support (AMS) under the WTO norm is still negative?
This way the sugar industry should breathe a bit easy and its basic economics may return to some semblance of sanity and spaciousness?
But in an election year, it is too much to expect from the political dispensation any favour for industry be it small, medium or big since implicitly, but undeservedly, it has little choice but to carry the cross.
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