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Sugarcane Pricing Policy

With the amendment of the Sugarcane (Control) Order, 1966 on 22.10.2009, the concept of Statutory Minimum Price (SMP) of sugarcane was replaced with the ‘Fair and Remunerative Price (FRP)’ of sugarcane for 2009-10 and subsequent sugar seasons. The cane price announced by the Central Government is decided on the basis of the recommendations of the Commission for Agricultural Costs and Prices (CACP) in consultation with the State Governments and after taking feedback from associations of sugar industry. The amended provisions of the Sugarcane (Control) Order, 1966 provides for fixation of FRP of sugarcane having regard to the following factors:-

a) cost of production of sugarcane;

b) return to the growers from alternative crops and the general trend of prices

of agricultural commodities;

c) availability of sugar to consumers at a fair price;

d) price at which sugar produced from sugarcane is sold by sugar producers;

e)recovery of sugar from sugarcane;

f)the realization made from sale of by-products viz. molasses, bagasse and

press mud or their imputed value ( inserted vide notification dated 29.12. 2008);

g) reasonable margins for the growers of sugarcane on account of risk and profits

(inserted vide notification dated 22.10.2009).

Under the FRP system, the farmers are not required to wait till the end of the season or for any announcement of the profits by sugar mills or the Government. The new system also assures margins on account of profit and risk to farmers, irrespective of the fact whether sugar mills generate profit or not and is not dependent on the performance of any individual sugar mill.

In order to ensure that higher sugar recoveries are adequately rewarded and considering variations amongst sugar mills, the FRP is linked to a basic recovery rate of sugar, with a premium payable to farmers for higher recoveries of sugar from sugarcane.

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Accordingly, FRP for 2018-19 sugar season has been fixed at Rs. 275 per qtl. linked to a basic recovery of 10% subject to a premium of Rs. 2.75/qtl for each 0.1% increase of recovery over and above 10% and reduction in FRP at the same rate for each 0.1% decrease in the recovery rate till 9.5%. With a view to protect interest of farmers the Government has decided that there shall not be any deduction in case where recovery is below 9.5%; such farmers will get Rs. 261.25 per quintal for sugarcane in the current season.

The FRP of sugarcane payable by sugar factories for each sugar season from 2009-10 to 2018-19 is tabulated below:-


Sugar Season

FRP

(Rs. per quintal)

Basic Recovery Level

2009-10

129.84

9.5%

2010-11

139.12

9.5%

2011-12

145.00

9.5%

2012-13

170.00

9.5%

2013-14

210.00

9.5%

2014-15

220.00

9.5%

2015-16

230.00

9.5%

2016-17

230.00

9.5%

2017-18

255.00

9.5%

2018-19

275.00

10 %

DE-REGULATION OF SUGAR SECTOR ON THE RECOMMENDATIONS OF DR. C. RANGARAJAN COMMITTEE REPORT

The year 2013-14 was a water-shed for the sugar industry. The Central Government considered the recommendations of the committee headed by Dr. C. Rangarajan on de-regulation of sugar sector and decided to discontinue the system of levy obligations on mills for sugar produced after September, 2012 and abolished the regulated release mechanism on open market sale of sugar. The de-regulation of the sugar sector was undertaken to improve the financial health of sugar mills, enhance cash flows, reduce inventory costs and also result in timely payments of cane price to sugarcane farmers. The recommendations of the Committee relating to Cane Area Reservation, Minimum Distance Criteria and adoption of the Cane Price Formula have been left to State Governments for adoption and implementation, as considered appropriate by them. The gist of recommendations of the Committee and action taken by the Government thereon is at Annexure-I.

MINIMUM INDICATIVE EXPORT QUOTAS (MIEQ)

In view of the inventory levels with the sugar industry and to facilitate achievement of financial liquidity, mill-wise Minimum Indicative Export Quotas (MIEQ) have been fixed for sugar season 2017-18 vide DFPD’s order dated 28.03.2018 which was subsequently revised vide order dated 9.5.2018. Export Quotas of 20 Lakh tonnes of all grades of sugar; viz. raw, plantation white as well as refined, have been prorated amongst sugar factories by taking into account their average production of sugar achieved by the sugar mills during last two operational sugar seasons and the current season (up to February,2018).

Further, in view of high inventory levels with the sugar industry and to facilitate achievement of financial liquidity, mill-wise Minimum Indicative Export Quotas (MIEQ) of 50 LMT have also been fixed for sugar season 2018-19 vide DFPD’s order dated 28.09.2018. Sugar mills are required to export their MIEQ of sugar allocate to them by 30.9.2019.

SCHEME FOR ASSISTANCE TO SUGAR MILLS FOR SUGAR SEASON 2017-18

Government has notified a scheme "Assistance to sugar mills” under which financial assistance @Rs.5.50/quintal of cane crushed will be provided to sugar mills to offset the cost of cane amounting to about Rs.1540 crore. The assistance is to be used for payment of cane price dues of the current sugar season 2017-18 and arrears of previous sugar seasons. The assistance shall be paid directly to the farmers on behalf of the mills and be adjusted against the cane price dues payable to the farmers including arrears. Subsequent balance if any, shall be credited into mill's account.

FIXATION OF MINIMUM SELLING PRICE (MSP) OF SUGAR

In exercise of the powers conferred by clause (c) of sub section (2) of section 3 of the Essential Commodities Act, 1955, Government has notified Sugar Price (Control) Order, 2018. Under the provisions of said order, Government has fixed Minimum Selling Price (MSP) of white/refined sugar at Rs. 29/kg for sale by sugar mills at the factory gate for domestic consumption. MSP of sugar has been fixed taking into account the components of Fair & Remunerative Price (FRP) of sugarcane and minimum cash conversion cost of the most efficient mills.

SCHEME FOR ASSISTANCE TO SUGAR MILLS FOR SUGAR SEASON 2018-19

In order to help sugar mills to clear cane dues of farmers, the Government on 5.10.2018 has notified a scheme to provide financial assistance @ of Rs. 13.88 per quintal of cane crushed in sugar season 2018-19 to sugar mills to offset the cost of cane. The total expenditure on this account would be about Rs.4163 cr. which will be borne by Government. To ensure payment of sugarcane dues of farmers, the assistance would be credited directly into the accounts of farmers on behalf of sugar mills against cane price dues payable to farmers against FRP including arrears relating to previous years and subsequent balance, if any, would be credited to mill’s account.

SCHEME FOR CREATION AND MAINTENANCE OF BUFFER STOCK, 2018

In order to maintain demand supply balance in the domestic market and to stabilize sugar prices thereby improving liquidity of sugar mills enabling them to clear cane price arrears of farmers, Government has created a buffer stock of 30 LMT of sugar for one year w.e.f. 01.07.2018. The Government will reimburse carrying cost of Rs 1175 cr to sugar mills for maintaining such buffer stock. The subsidy shall be credited to a no-lien bank account opened by the sugar mill. From this no-lien account, banks shall directly remit the funds into the accounts of farmers on behalf of sugar mills against cane price arrears and subsequent balance, if any, would be credited to mills’ account.

SCHEME FOR DEFRAYING EXPENDITURE TOWARDS INTERNAL TRANSPORT, FREIGHT, HANDLING AND OTHER CHARGES TO FACILITATE EXPORT DURING THE SUGAR SEASON 2018-19

Government on 5.10.2018 has notified a scheme for extending assistance to sugar mills by defraying expenditure towards internal transport, freight, handling and other charges to facilitate export during the sugar season 2018-19 @ Rs. 1000/MT for the mills located within 100 kms from the ports, @ Rs. 2500/MT for the mills located beyond 100 kms from the port in the coastal states and @ Rs. 3000/MT for mills located in other than coastal states or actual expenditure, whichever is lower. The total expenditure on this account would be about Rs.1375 cr. which will be borne by Government. To ensure payment of sugarcane dues of farmers, the assistance would be credited directly into the accounts of farmers on behalf of sugar mills against cane price dues payable to farmers against FRP including arrears relating to previous years and subsequent balance, if any, would be credited to mill’s account.

ETHANOL BLENDED PETROL PROGRAMME (EBP PROGRAMME)

Ethanol is an agro-based product, mainly produced from a by-product of the sugar industry, namely molasses. In years of surplus production of sugarcane, when prices are depressed, the sugar industry is unable to make timely payment of cane price to farmers. The Ethanol Blending Programme (EBP) seeks to achieve blending of Ethanol with motor sprit with a view to reducing pollution, conserve foreign exchange and increase value addition in the sugar industry enabling them to clear cane price arrears of farmers.

The Central Government has scaled up blending targets from 5% to 10% under the Ethanol Blending Programme (EBP). The procedure of procurement of ethanol under the EBP has been simplified to streamline the entire ethanol supply chain and remunerative ex-depot price of ethanol has been fixed. To facilitate achieving of new blending targets, a "grid” which networks distilleries to OMC depots and details quantities to be supplied has been worked out. State-wise demand profile has also been projected, keeping in view distances, capacities and other sectoral demands. Excise duty has also been waived on ethanol supplies to OMCs for EBP by sugar mills during 2015-16 (up to 10 August, 2016).

The results have been quite encouraging, with supplies doubling every year. In the year 2013-14, ethanol supplied for blending was only 38 crore litres, whereas in 2014-15, under the modified EBP supplies increased to 67 crore litres. In the ethanol season 2015-16, the ethanol supply has been historically high and has reached 111 crore litres achieving 4.2% of blending. In the ethanol season 2016-17, out of 80 cr litre contracted about 66.51 cr litre has been supplied.

Further, in the ethanol season 2017-18, agreement have been signed for supply of 164 cr litres, out of which about 147 crore litres have been supplied so far.

STEPS TAKEN FOR AUGMENTATION OF ETHANOL PRODUCTION CAPACITY FOR INCREASING SUPPLY OF ETHANOL UNDER ETHANOL BLENDING PETROL PROGRAMME

In order to augment ethanol production capacity and thereby also allow diversion of sugar for production of ethanol, in principal approval has been granted for extension of soft loan of Rs. 6139 crores through banks to the mills for setting up new distilleries/ expansion of existing distilleries and installation of incineration boilers or installation of any method as approved by Central Pollution Control Board for Zero Liquid Discharge for which Government will bear interest subvention of Rs. 1332 crore. About 114 sugar mills are likely to be benefitted as a result of this measure and ethanol production capacity of sugar mills in the country is likely to be enhanced by about 200 crore litres per annum in the coming 3 years.

Further with a view to support sugar sector and in the interest of sugarcane farmers, the Government has fixed the remunerative ex-mill price of ethanol derived from C-heavy @ Rs. 43.46/litre. For the first time the Government has also fixed ex-mill price of ethanol derived from B-heavy molasses at Rs.52.43/litre; and from 100% sugarcane juice at Rs.59.13 per litre for those mills who will divert 100% sugarcane juice for production of ethanol thereby not producing any sugar. This will also improve the liquidity of sugar mills thereby enabling them to clear cane price arrears of farmers.

REVIEW OF EXISTING SYSTEM FOR DISTRIBUTION OF SUGAR THROUGH PDS TO ANTYODAYA ANNA YOJANA (AAY) FAMILIES:

Sugar was being distributed through the Targeted Public Distribution System (TPDS) by the States/UTs at subsidized prices for which the Central Government was reimbursing them @ 18.50 per kg. The scheme was covering all BPL population of the country as per 2001 census and all the population of the North Eastern States / special category/ hilly states and Island territories. The National Food Security Act, 2013 (NFSA) is now being universally implemented by all 36 States/UTs. Under the NFSA, there is no identified category of BPL; however, the Antyodaya Anna Yojana (AAY) beneficiaries are clearly identified. The Government of India has reviewed the Sugar Subsidy Scheme and has decided to give access to consumption of sugar as a source of energy in diet, for the poorest of the poor section of the society i.e. AAY families. Accordingly, it has been decided that the existing system of sugar distribution through PDS may be continued as per the following:-

(i) The existing scheme of supply of subsidized sugar through PDS may be continued for restricted coverage of AAY families only, providing 1 kg of sugar per AAY family per month.

(ii) The current level of subsidy at Rs. 18.50 per kg provided by the Central Government to States/UTs for distribution of sugar through PDS may be continued for the AAY population. The States/UTs may continue to pass on any additional expenditure on account of transportation, handling and dealers’ commission etc. over and above the retail issue price of Rs. 13.50 per kg to the beneficiary or bear it themselves.

14 States/UTs are participating in the revised scheme and 6 more states are likely to participate in the current financial year.

INCREASE OF IMPORT DUTY:

In order to prevent any unnecessary import of sugar and to stabilize the domestic price at a reasonable level, the Central Government has increased custom duty on import of sugar from 50% to 100% in the interest of farmers w.e.f. 6.2.2018.

WITHDRAWL OF CUSTOM DUTY ON EXPORT OF SUGAR:

Custom duty @ 20% was imposed on export of sugar vide Department of Revenue’s notification no. 37/2016 dated 16.06.2016. Keeping in view of production of sugar, stock position and market price sentiments, the Government of India has withdrawn the custom duty on export of sugar vide notification no. 30/2018 dated 20.03.2018

Implementation of Recommendations of Dr. Rangarajan Committee

Issues

Gist of Recommendations

Status

Cane Area Reservation

Over a period of time, states should encourage development of such market-based long-term contractual arrangements, and phase out cane reservation area and bonding. In the interim, the current system may continue.

States have been requested to consider the recommendations for implementation as deemed fit. So far, none of the States have taken action, current system continues. There is no reservation of area in Maharashtra

Minimum Distance Criteria

It is not in the interest of development of sugarcane farmers or the sugar sector, and may be dispensed with as and when a state does away with cane reservation area and bonding.

States have been requested to consider the recommendations for implementation as deemed fit. So far, none of the States have taken action, current system continues.

Sugarcane Price :Revenue Sharing

Based on an analysis of the data available for the by-products (molasses and bagasse / cogeneration), the revenue-sharing ratio has been estimated to amount to roughly 75 per cent of the ex-mill sugar price alone.

States have been requested to consider the recommendations for implementation as deemed fit. So far only Karnataka & Maharashtra have passed state Acts to implement this recommendation.

Levy Sugar

Levy sugar may be dispensed with. The states which want to provide sugar under PDS may henceforth procure it from the market directly according to their requirement and may also fix the issue price. However, since currently there is an implicit cross-subsidy on account of the levy, some level of Central support to help states meet the cost to be incurred on this account may be provided for a transitory period.

Central Government has abolished levy on sugar produce after 1st October, 2012. Procurement for PDS operation is being made from the open market by the states/UTs and Government is providing a fixed subsidy @ Rs. 18.50 per kg for restricted coverage to AAY families only who will be provided 1 kg of sugar per family per month.

Regulated Release Mechanism

This mechanism is not serving any useful purpose, and may be dispensed with.

Release mechanism has been dispensed with.

Trade Policy

As per the committee, trade policies on sugar should be stable. Appropriate tariff instruments like a moderate export duty not exceeding 5 per cent ordinarily, as opposed to quantitative restrictions, should be used to meet domestic requirements of sugar in an economically efficient manner.

Import and export of sugar is free without quantitative restrictions, but subject to prevailing rate of custom duty. Import duty has been enhanced from 25% to 40% w.e.f. 29.4.2015; and 50% w.e.f. 10.07.2017 which has further now been enhanced to 100% w.e.f. 06.02.2018.

Custom duty @ 20% has been imposed on export of sugar vide Department of Revenue’s notification no. 37/2016 dated 16.06.2016.

Keeping in view of production of sugar, stock position and market price sentiments, the Government of India has withdrawn the custom duty on export of sugar vide notification no. 30/2018 dated 20.03.2018.

By-products

There should be no quantitative or movement restrictions on by products like molasses and ethanol. The prices of the by-products should be market-determined with no earmarked end-use allocations. There should be no regulatory hurdles preventing sugar mills from selling their surplus power to any consumer.

Excise duty on potable alcohol/ liquor is a major source of revenue for the State Govts. Restriction on movement of ethanol and levying of taxes and duties on it by State Governments continue to be an impediment in successful implementation of EBP. The Department of Industrial Policy and promotion has now amended the I (D&R) Act, 1951 vide notification No. 27 of 2016 dated 14.5.2016. With this amendment, the States can legislate, control and/or levy taxes and duties on liquor meant for human consumption only. Other than that i.e. de-natured ethanol, which is not meant for human consumption, will be controlled by the Central Government only. With the amendment of I(D&R) Act, 1951 not only the movement of fuel grade ethanol will become smoother but the industry will be encouraged to produce more ethanol thereby increasing the blending percentage with petrol further.

Compulsory Jute Packing

May be dispensed with.

The compulsory packaging of sugar in jute bags has been relaxed further. And only 20% of the production is to be mandatorily packed in jute bags.