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Sugar Export Subsidy: A Need Of The Indian Farmer

The dues to the sugarcane farmer have accumulated to Rs. 25,000 crores or $3 billion in non-payment for their produce, as per a reply given to a question in Parliament in September of 2020

Photo Credit : Bloomberg

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It is well known Indian economy has slowed down especially during the pandemic and its aftermath. The Fast Moving Consumer Goods (FMCG) sector, which is believed to be the evergreen sector in Indian economy, is also reporting a slowdown. One of the primary reasons of the slowdown is the delayed payment of the farmer in the sugarcane industry. As per Department of Food Processing and Industry, Ministry of Consumer Affairs India is the second largest producer of sugar in the world, Brazil being the first. Also, we are the largest sugar consumer in the world, with its industrial annual output at approximately Rs.80,000 crores.

The dues to the sugarcane farmer have accumulated to Rs. 25,000 crores or $3 billion in non-payment for their produce, as per a reply given to a question in Parliament in September of 2020. Of this amount, Rs 12,994 crore alone pertains to 2019-20 cropping season. The non-payment is especially true for farmers in Uttar Pradesh, Maharashtra, and Karnataka. This is because, sugar mill owners have been saying that excess sugar production, along with decline in consumption has depressed domestic sugar prices leading to accumulation of arrears. Since the mills are unable to garner profit, they are not able to pay fair and remunerative price to sugarcane farmers. The sugar prices are neither going up, nor are we seeing an increase in consumption. The hospitality, food and beverage business has slowed down with limitation on mobility and tourism.

An obvious solution to this issue seems to be increase in export of sugarcane and sugar products. According to the World Trade Organization's “Agreement on Agriculture”, India can give subsidies on transportation, marketing, handling, and processing of sugar till 2023. However, coupling the subsidies with sugar export is easier said than done. There are multiple levels of compliance, rules, and standards that are to be adhered to, with respect to the packaging, transportation, and a onetime quantity of export. Further, the sugar production is rising in the country, with Indian Sugar Mills Association (ISMA) stating that the mills have produced 110.22 lakh tonne of sugar during the October to December period of 2020-21, as against 77.63 lakh tonne in the corresponding time of the previous year. ISMA also believes that once global prices go up, the government can export with subsidy, with Rs. 10.5/kg subsidy being a good amount.

In 2019-20 India had record sugar export of 60 lakh tonne. The high export numbers last season were possible only due to the subsidy programme offered by the government. Mills received a transport subsidy of Rs 10.4/kg of sugar exported from the government. To overcome this handicap, the Ministry of Food Processing came up with a Sugar Export Policy during 2019-2020, with a corpus of Rs. 6,268 crores. However, the policy was rejected by Ministry of Finance. Presently, the subsidy has been drastically reduced by the end of 2020, with The Cabinet Committee of Economic Affairs (CCEA) approving the subsidy at the rate of Rs 6/ kg. The mills are now reluctant to export because of the huge gap between cost of manufacturing and the current price of raw sugar in international markets. Sugar in the international markets is trading at Rs 21/ kg, while the cost of production in India is Rs 32/kg. Earlier, the competitive government subsidy bridged this gap, but the price mismatch has ruled out any export prospects as this would lead to further loss for the mill owners. It is also noteworthy that higher demand in international markets in 2019 had also seen Indian sugar mills reporting good exports numbers. But now, the central government has ruled out any extension of the massive subsidy scheme as the international sugar scenario is currently stable and Indian sugar will not fetch a good price.

Presently, state governments and individual bodies are stepping up to aid this sector. For example, the Maharashtra government had sanctioned pre-season loan to 32 sugar mills 3 months ago. The National Sugar Institute (NSI), Kanpur has approved Memorandums of Understanding MoUs to be signed with Sri Lanka, as well as SRI and Egypt in 2019. As per these MoUs, NSI will extend technical services for improvement in sugar plant efficiencies by creating value addition by utilizing by-products in an innovative manner and collaborating on research work in areas of interest. However, a larger scheme needs to be in place.

Off late, sugarcane is also being harvested for ethanol production in India. With growing government focus on ethanol generation, the price has risen by Rs.3 per litre in terms of its procurement price. In 2019, the central government had announced interest subvention for sugar mills to augment production of ethanol. But diversion of excess sugarcane to ethanol will also require capital investment and time to become widespread. To realise this potential of sugar industry, it needs to be heavily subsidised.

Thus, sugar industry has a lot of potential to increase India’s export contribution to the world. A deep dive is needed on the policy and financial front to realise these objectives.