Total decontrol of India sugar sector could still remain a distant dream as the center and state governments are involved in controlling of the commodity. “I don't expect it so soon.”said a sugar industry official.
An expert committee headed by PMEAC(Prime Minister's Economic Advisory Council) is expected to give report on sugar decontrol by September end.
“We have held all the deliberations. We have met with all the representatives of sugarcane growers, various state governments. So, we are in a position to submit the report within the next 10-15 days at the maximum,” Prime Minister’s Economic Advisory Council (PMEAC), chairman, C Rangarajan told reporters on the sidelines of an event in New Delhi.
The sugar industry had been demanding partial decontrol of the commodity; ISMA or Indian Sugar Mills Association and NFCSF (National Federation of Cooperative Sugar Factories Limited) demanded freedom to sell sugar in the open market and levy sugar obligation for PDS be curtailed.
On January 27, the Prime Minister of India. Dr. Manmohan Singh set up an expert committee, under chairmanship of C. Rangarajan, to examine issues related to decontrolling of the sweeter.
The three ironies
The sugar sector in India can be divided into two parts: the sugar cane side and the sugar side. In India, the state government controls the sugarcane side even as the government at the center controls the sugar side of the sector.
The regulation of the sugar side is relatively easy in the sense that it is less controversial and hence susceptible to manipulations. But regulating the cane side is no so easy.
Ironically, the tag of “most organized industry in India” turns out to be the industry's biggest disadvantage.
“Sugar sector is the most organised sector in India. And yes, it is more of a disadvantage as far as the industry is concerned as we can be easily targeted.” lamented an official with a major sugar mill in India. “There could be around 500 mills in India and it is far easier when you want to control the industry.” he said.
One just has to take care of the 500 mills and the rest follows: the logic is evident.
Sugar is the most controlled commodity in India. The mills as per the law of the land is obliged to supply sugar under the levy mechanism. This means the mills set aside 10% of their output, which is a variable, that would be released to the Public Distribution System as per government directives for a price fixed by the government.
This is termed levy sugar and the prices of the levy sugar are way below the production cost of the sugar.
“The mills in effect, subsidise the sugar for the Public Distribution System.”the sugar industry official said.
But when it comes to the cane side, the matter gets complicated as the livelihood of millions of farmers are at stake.
“The farmers are a vote bank. So the political parties generally do not do anything that would estrange the farmers.”
The farmers in Maharashtra are offered a Fair and Remunerative Price or FRP by the government. In Tamil Nadu, the state government has brought in a system of State Administered Price or SAP.
However the sugar industry is also one of the industries that is bearing the brunt of (imprudent) incentives. This is yet another irony.
“ In the State of Uttar Pradesh, way back in 2005-06 the then Mulayam Singh government decided to introduce incentives for sugar cane crushing. That was a time when the sugar mills were functioning 160-180 days a year.” the official recalled.
“The number of mills engaged in crushing, subsequently to the announcement, shot up and the figure suddenly came down to 100-110 days by 2006-07 as the cane availability did not register much of a surge. Meanwhile output from the mills too climbed. In 2003-04 the output hovered around 3 lakh tons even as in 2006-07 output witnessed a surge by around 5 lakh tons to almost 8 lakh tons.” the industry source said.
But this production surge together with other factors like tight regulation took the industry to the brim.
The sugar industry in India is also the most litigant sector despite the numerous acts—like Essential Commodities Act or Sugarcane Control Act--governing it; the third irony.
“With hundreds of acts in place to govern it, sugar mills often engage in spat with each other and with governments--central and states--with regard to levy price, sugar cane price among many other things.” the official said.
Meanwhile, for the quarter ending September sugar mills may garner some profit as the prices have appreciated, the official added. The lack of availability of labour to work in the fields is an issue awaiting the next season, the official concluded.
The sugar industry in India has some uniqueness as well:
New players or mills are not joining the game!
The players who are currently involved in the industry have been here for 3-4 generations spanning 70 years or possibly even more. They know the markets well and have seen their share of ups and downs. The farmers too cherish long drawn relations with the mills.
Many of the farmers, since the time of their parents and grandparents have been supplying sugar cane to these mills, may be for four generations or more. So there is an organic and often emotional relationship between the mills and the farmers.
“Multinationals like Cargill are eyeing an entry into the field. But most of them are hesitant given the complexity of reality on ground. The family owned business houses are at an advantage as they have weathered the storms many a time and hence are adaptable.” the official said.
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