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The sugar industry, a vital backbone of the agricultural sector, finds itself at a crossroads as it approaches the 2024-25 sugar season. Unfavourable weather conditions, global market fluctuations, and constrictive government policies have collectively cast a shadow over this crucial commodity. It is important to delve into the intricacies of the current sugar scenario, exploring its multifaceted challenges and potential solutions.
It is the second largest agro-industry, providing livelihoods to more than 5 million farmers and their families. Beyond its primary role in sugar production, a key kitchen staple, the industry plays a vital role in the production and delivering of environmentally friendly biofuel, ethanol, to oil marketing companies. This ethanol is blended with petrol, serving as a green fuel for automobiles.
Production shortfall
The shortfall in sugar production, attributed to reduced rains in the 2023-24 season, doesn’t bode well for the industry. Sugar millers, dissatisfied with the imposed restrictions on exports and ethanol production, argue that a more liberal approach could significantly boost revenue and safeguard it against future financial shocks.
The government’s decision to raise the Fair and Remunerative Price (FRP) by 8 per cent from October 2024 aims to support farmers, but it has raised some concerns among sugar millers, regarding their ability to pay farmers their cane price on time, repay bank loans, and keep enough in their kitty to spend on maintenance and other overhead expenses. They argue that the government should increase the Minimum Selling Price (MSP) of sugar corresponding to the increase in FRP.
The last time when the government increased sugar MSP to ₹31/kilo, the FRP in the country was ₹275 per quintal. Since then, the FRP has seen an increase of almost ₹65/quintal (including the latest increase of ₹340/quintal), whereas the MSP continues to remain static at ₹31/kilo. As the MSP is determined taking FRP and other factors into account, sugar millers are asking for an immediate increase in MSP, to mitigate the increase in the cost of production.
The sugar prices in key domestic markets continue to remain soft, raising fears that sugar millers may not be able to recover the cost of sugar production, which will financially incapacitate them. The price of S-grade sugar in Kolhapur market in western India is trading at ₹34-34.40/kilo. And the price of M-grade sugar in the North in the Muzaffarnagar market is ₹37.40-37.80/kilo.
Moreover, the global sugar market continues to be volatile, led by a cocktail of factors. Both ISO and Sucden, in their latest reports, talked about tightening of global sugar supplies, which caused a rally in international sugar prices. However, Unica’s latest report of a bumper Brazilian crop has put pressure on prices.
With ethanol production prioritised to C Heavy molasses, sugar millers stress the need for the government to reconsider its stance, and allow additional quantities of sugar towards ethanol production in the current supply year.
The government’s cautious approach raises questions about the delicate balance between economic stability and political imperatives. Striking the right chord is crucial to safeguarding the interests of both farmers and the broader economy.
The upcoming monsoon will play a pivotal role in determining the success of the 2024-25 sugar season. For a good sugar season, ample and well-distributed rains are vital, which will feed the standing crops as well as the water reservoirs, especially in States which are irrigation-dependent.
The sugar industry faces a complex web of challenges. Balancing the needs of farmers, millers and the economy requires proactive measures, including reconsidering export restrictions, reassessing MSP, and prioritising the ethanol blending programme.
The writer is Co-founder and CEO, AgriMandi Live
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