The Hindu Business Line : Sugar: A bitter-sweet policy

Even as there is call for the government to exit businesses, it remains interested in many, often for reasons political. The most regulated sector in agriculture is `sugar'. From licensing of mills to the specifications of gunny bags to be used for packaging, every thing is dictated by the Sugarcane Control Order, 1966. The government's 1998 decision to de-licence the sugar industry is pending before the Supreme Court. A number of matters relating to levy sugar, the Statutory Minimum Price (SMP) and the State Advised Price (SAP) are pending before various courts. Now, sugar mills have also been co-opted for co-generation as also ethanol production. And, under the new United Nations' norms for co-generation, the industry is also to take up Clean Development Mechanism (CDM) projects.

In this context, every aspect of the sugar policy needs to be reviewed.

Cane area

The government retains the power to reserve any area where cane is grown for a sugar factory, considering the availability of sugarcane and the crushing capacity of the unit. The limit of 15 km as the minimum distance between two factories has been held by the court to be directive in nature and not mandatory. While the sugar industry no more requires compulsory licensing, it would help the growth of a healthy industry if the assessment of sugar availability were left to the discretion of the entrepreneurs.

The power of "zonebandi" — reserving cane areas for sugar factories — is with the State governments rather than the Centre. The restriction of 15 km was fixed in the context of open pan technology. The sugar industry unnecessarily carries the whole of the sugarcane load, from the field to the factory. This can be easily avoided by doing the crushing and primary crystallisation near the field itself and then going to refineries, each of which can serve a radius of 40-50 square km.

The Statutory Minimum Price (SMP) for the sugarcane is decided on the basis of a number of considerations. The general dissatisfaction about the SMP fixed by the Central government is wide spread.

Price conundrum

The statistical averaging method used by the Commission of Agricultural Costs and Prices (CACP) results in some hilarious but very wrong computations. The costs attributed to labour, pesticides, manure, power and irrigation have been often quite bizarre. Recently, the Minister of State for Agriculture in Maharashtra admitted that the actual cost of production of sugarcane in the State was about Rs 300 a tonne higher than the SMP.

Further, the cooperative mills also deduct from farmers' dues various amounts for their trusts, and various deposits including some non-refundable ones. The SAP given by Punjab, Haryana, Uttar Pradesh, Uttaranchal and Tamil Nadu is much higher than the SMP.

Quota and Free Sale

The Centre also has the powers to take away a certain percentage of the sugar produced, as levy sugar at a price to be determined by it. Different levy prices are fixed for different zones. In principle, they are determined by the cost of cultivation of sugarcane and the cost of production of sugar. In practice, however, the levy prices fixed have no rhyme or reason. There is a suspicion that the government follows a hidden policy of equalisation of incomes per hectare for different zones. It may be noted that while fixing the Minimum Support Price (MSP) and procurement prices for other commodities no attempt is made to equalise net incomes per hectare for a given crop.

The Centre also uses tariffs on import of sugar and restrictions on exports as also releases of monthly quota of free sale sugar in a manner not consistent with the interests of the sugar industry or of the sugarcane producers.

There have been instances of monthly quota releases of free sugar and the restrictions on exports and imports being manipulated to score political brownie points. At times the free sale sugar is converted into levy sugar on various pretexts. But rarely the other way around.

All producers of sugar are required to use new jute bags for packaging. Given that the sugar deteriorates on exposure to moisture, jute bags are, obviously, not the best. The jute industry has remained moribund for decades and shown no inclination to modernise. It appears to pressure the Centre to make the use of jute sacks mandatory for foodgrains and sugar. Some years back, a move was made to allow other packaging material to some extent. The present UPA Government has ordered use only of jute bags, perhaps on pressures from allies.

The Tax Burden

The sugar industry is subject to heavy taxation. The current rate of the excise duty is Rs 71 a quintal. Including VAT (value added tax) the levies come to Rs 143 a quintal. Ironically, even the members of the cooperative sugar mills have to pay a hefty purchase tax though there is no sale or purchase involved.

The reasons why politicians seem keen on tightly regulating the sugar industry becomes clear from recent experience. In the 2006-07 season, sugar exports were banned as long as the farmers held the sugarcane. Once the mills seemed on a roll and the cane supply appeared assured, export of sugar was allowed. But only for a short time. Assembly elections in five States and the continuously rising inflation made the government announce a ban on export of all politically sensitive commodities such as sugar, onion and wheat.

The sugar industry needs to be deregulated entirely. The Food Corporation of India (FCI) must be kept out of the levy sugar and PDS network.

A new Sugar Industry Policy is required in order to ensure that the industry is de-politicised and gets into a position where chemical products from molasses will give the major value-addition and sugar will become a byproduct. The industry will be able to take up co-generation and production of ethanol and take its place amongst major modern industries instead of a mofussil agro-processing industry.

(The author, a member of the Rajya Sabha, is Founder of the Shetkari Sanghatana. E-mail: sharad.mah@nic.in)

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