The sugar industry is an important agro-based industry that impacts the livelihood of about five crore farmers and five lakh workers employed in sugar mills. India is the world’s second largest producer of sugar. However, as the world’s largest consumer of sugar, India has to formulate a strategy that addresses the needs of sugarcane farmers, sugar mills and consumers while ensuring global competitiveness.

Also, with about 600 mills and an annual production of about 24 million tonnes of sugar, the industry is a huge generator of direct and indirect rural employment. This industry has been plagued with surpluses, shortages and the issue of cane dues to farmers. It is now time for the Government to come out with a national sugar policy that will move this industry from a survival mode to an internationally competitive self-sufficient mode.

The strategy should enable viable sugarcane pricing linked to the market price of sugar and by-products such as molasses, bagasse and press mud. Sugar pricing should be stabilised through a common stock mechanism where the Government stocks sugar during times of surplus and the industry partners with the Government in profit or loss sharing depending on the situation, thereby preventing price volatility in the domestic market and also resolving the availability factor.

But the stumbling block to framing such a long-term policy is the complex nature of the industry which comes under the purview of multiple ministries such as agriculture, petroleum, consumer affairs, and food and public distribution, and also calls for Centre-State coordination.

The sugar scene Sugarcane is mostly produced in six states — Uttar Pradesh, Maharashtra, Karnataka, Tamil Nadu, Andhra Pradesh and Gujarat — which have to be involved along with the industry in framing the policy. A consistent policy for at least 3-5 years is needed to attract investments to the sector. Then there will be stability and people will invest. Such a strategy has benefited Brazil for soya, coffee and sugar; the Philippines for rice; and Vietnam for coffee and sugar. Even a small country like Thailand produces around 11 million tonnes of sugar, which is half of India’s production.

Firstly, the Centre needs to implement the revenue sharing model by which 70 per cent of the price of sugar and by-products go to the farmer and 30 per cent to the mills. This system is already being followed by Gujarat, Maharashtra, Andhra Pradesh and Karnataka. This needs to be made the all-India formula which is transparent in terms of sugarcane pricing and thereby enables the farmer to decide if it is viable to produce cane. This will stabilise sugarcane cultivation and availability.

Secondly, the Government must decide on how much surplus sugar to hold as common stock. India consumes about 24 million tonnes of sugar annually; a common stock of about three months is needed to guard against shortage or excess. Sugar prices should be stabilised with common stocks and not by ad hoc imports or exports. Surplus sugar can also be allowed for export. Financing of the common stock needs to be done by the Government so that there are no cane arrears. However, profit or loss on the stock can be shared by the industry.

Thirdly, while the acreage under sugarcane has increased over the last 20 years by 30 per cent, the yield has stagnated at the same level unlike in other agri products such as rice and wheat. India’s cane production can be substantially enhanced with strong R&D efforts. Public-private R&D partnerships can greatly help accelerate bringing out new high yielding varieties.

By-products and cogeneration Although the Government came out with a programme for mandatory 5 per cent ethanol-blended fuel to save precious foreign exchange, it was not implemented across the states, with the actual blending rate at about 3 per cent. The ministry concerned should make a clear assessment of the actual potential and reach a balance between ethanol and potable alcohol for the liquor industry.

The Government is talking about increasing the percentage blending of ethanol to 10 per cent. The policy must be amended to allow direct sugarcane juice to ethanol; simultaneously the Government must implement 10 per cent blending of ethanol in gasoline. Market-based ethanol pricing can be a win-win for the sugar industry and oil marketing companies, while saving substantial foreign exchange for the country.

Over 200 of the 600 sugar mills have cogeneration plants with an installed exportable capacity of over 3,500 MW. The policy has to be clear on dealing with cogeneration power. There are states that allow open access and there are state electricity regulatory commissions giving ₹3 per unit, which is not viable.

Sugar mills produce electricity and sell it for a low price to the electricity utility and when they need power in the off season, they need to pay at ₹10 per unit. Cogeneration is clearly coming under non-conventional energy and therefore we must have a national law which allows sugar mills to sell their power with open access across all the states so that the power generated can be sold at market rates.

The Power Trading Corporation can also consider entering into a five-year power purchase contract with sugar mills. This needs to be taken out of the purview of tate electricity boards. Since there is large capital investment in cogen plants, such a policy will also motivate the sugar industry to operate and generate power during the off-season using alternative fuel.

Farm-level issues At a micro level, the Government needs to discuss with the industry the challenges it faces with regard to labour and water availability. Aggressive support to farm mechanisation and an effort to increase irrigated areas as has been done in Gujarat will help bring down dependence on the monsoons.

The industry and the Government should redirect energy levels towards development and progress and becoming globally competitive rather than focus on short-term measures of cane dues, bank dues and legal battles. There is large employment potential in this industry and if the industry is given the right push, employment will come from the right place: the rural sector.

The writer is Executive Chairman of the Murugappa group

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