General

Sugar industry is an important agro-based industry that impacts rural livelihood of about 50 million sugarcane farmers and around 5 lakh workers directly employed in sugar mills. Employment is also generated in various ancillary activities relating to transport, trade servicing of machinery and supply of agriculture inputs. India is the second largest producer of sugar in the world after Brazil and is also the largest consumer. Today Indian sugar industry’s annual output is worth approximately Rs.80,000 crores. There are 732 installed sugar factories in the country as on 31.07.2017, with sufficient crushing capacity to produce around 339 lakh MT of sugar. The capacity is roughly distributed equally between private sector units and cooperative sector units.

SUGARCANE PRICING POLICY

With the amendment of the Sugarcane (Control) Order, 1966 on 22.10.2009 and 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) after consulting the State Governments and 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:-

1. cost of production of sugarcane;
2. return to the growers from alternative crops and the general trend of prices of agricultural commodities;
3. availability of sugar to consumers at a fair price;
4. price at which sugar produced from sugarcane is sold by sugar producers;
5. recovery of sugar from sugarcane;
6. *the realization made from sale of by-products viz. molasses, bagasse and press mud or their imputed value;
7. **reasonable margins for the growers of sugarcane on account of risk and profits
8. (* inserted vide notification dated 29.12. 2008)
9. (**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.

Accordingly, FRP for 2017-18 sugar season has been fixed at Rs. 255 per qtl. linked to a basic recovery of 9.5% subject to a premium of Rs.2.68 per qtl for every 0.1 percentage point increase above that level.

The FRP of sugarcane payable by sugar factories for each sugar season from 2009-10 to 2017-18 is tabulated below:-

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 has been shown in Annexure-I to this Chapter

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

Sugar was distributed through the Targeted Public Distribution System (TPDS) by the States/UTs at subsidized prices for which the Central Government was reimbursing @ 18.50 per kg of sugar distributed by the participating State Governments /UT Administrations. 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 that it is imperative 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, CCEA in its meeting held on 3.5.2017 has 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. They will be provided 1 kg of sugar per 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.

Pursuant to the above decision, revised guidelines for reimbursement of sugar subsidy to States/UTs for distribution of sugar under PDS for AAY families have also been issued.

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 Blended Petrol 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 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 was 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.

SCHEME FOR EXTENDING FINANCIAL ASSITANCE TO SUGAR UNDERTAKINGS (SEFASU-2014)

The Government on 3.1.2014 notified a Scheme for Extending Financial Assistance to Sugar Undertakings (SEFASU-2014) envisaging interest free loans by bank as additional working capital to sugar mills, for clearance of cane price arrears of previous sugar seasons and timely settlement of cane price of current sugar season to sugarcane farmers. Rs. 6484.77 crore has been disbursed under the scheme. Interest burden on this loan, for five years is borne by the Government through Sugar Development Fund.

SOFT LOAN TO SUGAR MILLS TO FACILITATE CLEARANCE OF CANE PRICE ARREARS

A scheme was notified on 23.6.2015 to provide soft loan to sugar mills to facilitate clearance of cane price arrears of current sugar season 2014-15. Rs. 4213 cores have been disbursed under the scheme. Interest subvention during moratorium period of one year was borne by the Government. About 32 lakh farmers have been benefitted.

MINIMUM INDICATIVE EXPORT QUOTAS (MIEQ).

With a view to improving domestic sugar price sentiments, the Government fixed indicative export targets for each mill proportionate to their sugar production so as to evacuate 4 mMT of sugar stocks. No export subsidy or incentive is offered and the industry is expected to export at prevailing international prices and absorb the losses so incurred. It is expected that with stock evacuation, domestic sugar prices would increase and reach levels more supportive of cane prices. These are the Minimum Indicative Export Quotas (MIEQ). The industry can export greater quantities, and is at liberty to export raw, white or refined sugar depending on global market demand. The Quotas have also been made tradable. However, since sugar prices have rallied in recent past and current price levels are compatible with FRP of cane (Rs.230/qtl) notified for the current sugar season, it is no longer required to promote export of sugar. Hence, MIEQ has been withdrawn w.e.f. 08.06. 2016. With a view to assess the performance of sugar mills on export of sugar under MIEQ during the intervening period i.e. from 01.10.2015 till the date of withdrawal of MIEQ, the export targets of the mill have been revised vide order dated 19.09.2016.

PRODUCTION SUBSIDY

The Government vide notification dated 2.12.2015 had also extended production subsidy @ Rs. 4.50 per quintal to sugar mills to offset cost of cane and facilitate timely payment of cane price dues of farmers for the sugar season 2015-16. Consequent upon sugar prices reaching substantially high levels enabling operational viability of the sugar industry, the Central Government had withdrawn production subsidy scheme vide notification dated 19.05.2016. Since the production subsidy scheme was withdrawn before time, the Central Government had decided to disburse the performance based production subsidy for cane crushed during 2015-16 sugar season till the tenancy of the scheme vide notification dated 12.09.2016.

IMPOSITION OF STOCK HOLDING & TURNOVER LIMITS ON DEALERS OF SUGAR

With a view, to keep the sugar prices at reasonable level and to ensure smooth supply of sugar for consumers, the Central Government imposed stock holding and turn over limits on sugar vide Gazette notification dated 29.4.2016. The directions were issued that no dealer of sugar shall hold any stock for a period exceeding thirty days from the date of receipt by him of such stock and shall not keep sugar in stock at any time in excess of the quantities mentioned against each: -

Kolkata and extended area: Dealer who bring sugar from outside West Bengal: 10000 Qtls; and in other places – 5000 Qtls.Further the period of stock holding and turnover limits on dealers of sugar has been extended upto 28.10.2017. State Governments/UTs have been advised to enforce this order to prevent any speculative and hoarding tendencies.

IMPOSITION OF STOCK HOLDING LIMITS ON SUGAR MILLS:

In order to keep a check on price of sugar and to ensure adequate supply of sugar to consumers at a reasonable price, the Central Government had also imposed stock holding limits on producers of sugar for the month of September & October 2016 vide order dated 08.09.2016 as per the following

(a) September, 2016 - 37% of the total sugar available with them during 2015-16 sugar season.

(b) October, 2016 - 24% of the total sugar available with them during 2015-16 sugar season”.

ENSURING AVAILABILITY

• Although, the production of sugar during current sugar season 2016-17 is comparatively lower than the previous year due to severe drought in parts of the country including Maharashtra and Karnataka; however, with the estimated carry over stock of 77.10 Lakh MT and estimated current season’s production, the total availability of sugar would be sufficient to meet domestic consumption requirement.

• To conserve sugar in the country for ensuring availability of sugar at reasonable price, the Government has also imposed 20% basic customs duty on export of sugar.

• Further in order to remove regional production imbalance in the country and to ensure availability of sugar at reasonable price, duty free import of 5 Lakh MT of raw sugar has been allowed in the current sugar season 2016-17.

Annexure-I

Implementation of Recommendations of Dr. Rangarajan Committee