Why the sugarcane-crushing season is set to start on a bitter note

Sugar mills in India gear up to start the new crushing season this month with a concern. Sugar production has grown at an annual growth rate of 5.6 per cent over the past two decades, while consumption has grown at 2.4 per cent per annum. In the last five years, consumption of sugar has remained relatively static at about 25 million tonnes, while production has increased by about 2.4 per cent per year leading to surplus sugar stocks.

India is the largest consumer and the second-largest producer of sugar in the world and accounts for about 18 per cent of world sugar production and 15.7 per cent of global consumption.

Excess production in the last few consecutive years has had an adverse impact on the market sentiments and resulted in a decline in domestic ex-mill prices of sugar. The ex-mill prices were at ₹31-32 per kg from October 2020 till July 2021, but improved slightly in the month of August. During the festival season, it would further go up.

The Ministry of Consumer Affairs, Food, and Public Distribution has admitted that low realisation from the sale of sugar due to surplus stocks had adversely affected the financial health of sugar mills, resulting in accumulation of cane price arrears of farmers. Due to higher cost of production, export too has become difficult under market mechanism. For the sugar season 2020-21, the Centre proposed assistance to sugar mills at ₹6,000/ MT to facilitate exports for which the Central government shouldered an estimated expenditure of ₹3,500 crore.

Ethanol projects

The Centre is encouraging sugar mills to divert excess sugarcane and sugar to ethanol. The government has allowed production of ethanol from B-Heavy molasses, sugarcane juice, sugar syrup, and sugar. To increase ethanol production capacity, the government is extending interest subvention of ₹4,687 crore to sugar mills/ distilleries against loans availed by them from banks to set up new distilleries or to expand their existing capacities. “As the revenues generated from the sale of ethanol by sugar mills/ distilleries reach the accounts of sugar mills in around three weeks’ time as against 12-15 months taken from the sale of sugar, production of ethanol would improve the liquidity of sugar mills enabling them to make timely payment of cane dues tosugarcane farmers,” according to the Ministry.

But the sugar industry is not happy with the assistance. According to the industry, around 80 per cent (or even more in some cases) of the total revenue of a sugar mill/company comes only from sugar. By-products like power, ethanol etc. contribute 15-20 per cent of the total revenue. And hence the assistance to produce ethanol is insufficient to compensate for lower sugar price realisation.

Industry’s demand

With nearly 2.7 per cent of the total cropped area under sugarcane, about 50 million farmers are engaged in sugarcane cultivation and about five lakh are directly employed in sugar mills. As of September 2020, about 752 sugar mills exist in India as per the Price Policy for Sugarcane 2021-22 Sugar Season report published by the Commission for Agriculture Costs and Prices.

The Minimum Selling Price (MSP) has been revised only once and that was way back in February 2019 to ₹31 per kg. The industry wants the government to increase the MSP of sugar to ₹35 per kg. If the government fails to address the concerns, sugar mills are certain to face the problem of shortage of liquidity and the resultant problem of high cane price arrears in this season, according to the Indian Sugar Mill Association (ISMA). Industry players claim that a hike in MSP will not have any impact on food inflation or the general inflation as the new MSP demanded by the industry is lower than the current ex-mill prices.