The Hindu Business Line : Sweeten sugar policy environment

As the world’s second largest producer and consumer of sugar, India has a huge stake in the sugar sector. The contribution of Indian sugar industry – the country’s second largest agro-processing industry – to the economy is significant. The industry’s importance may be gauged from the fact that it comprises nearly 600 mills in the private, public and cooperative sectors,with capital employed totalling Rs 60,000 crore and annual turnover of Rs 40,000-50,000 crore.

The sugar sector provides direct employment to over six lakh persons and nearly 4.5 crore farmers are engaged in cane cultivation and related activities. Total payment to cane growers is around Rs 30,000 crore a year. It generated considerable revenue in the form of excise duty and other taxes.

In approximately 5 million hectares, India produces about 300 million tons of sugarcane. Nearly 20-25 per cent of cane output is utilised for traditional sweeteners (gur and khandsari) and the rest for sugar.

Sugar is one of the few exceptional industries on which the government still exercises control. Restrictions at the input and output ends have generally discouraged large flow of fresh investment and modernisation. The industry is generally characterised by government control (levy system and free-sale quota), cyclical nature of cane output and hence sugar production as also fragmented capacities that deny scale economies.

Consumption demand for sugar, like any food product, has been growing at a robust pace as a result of rising incomes and demographic pressure. Worldwide, the sugar sector economics has been undergoing changes in recent years.

Cane is currently used as food, feed, fuel and fertiliser. Rising energy prices (especially crude) boost production of bio-ethanol (to be blended with gasoline). For the last two years, sugar production in the country has taken a beating with a fall in acreage and cane output. From being an exporter, India has turned into an importer of sugar.

The Government has opened up raw and white sugar imports duty-free. This has set the global sugar markets on fire. International sugar market is highly distorted. There are restrictions on market access, high tariffs and other barriers. Sugar subsidy granted by developed countries is an estimated $5 billion. In addition, there is large flow of speculative capital. Currently, the Indian sugar industry is passing through a tough time. Political patronage,unwarranted controls and failure to build capacity to stay competitive have enervated the industry.

For cane growers quality-based pricing is necessary. Reduction of water intensity of the cane crop is another priority; so is the challenge of breaking the cyclical nature of cane output.

For the industry to become truly competitive there are some imperatives: Remove production, trading and export restrictions; encourage forward sales; aggressively enter brand marketing; examine value-addition possibilities; explore e-commerce for disintermediation; and most important, rationalise cane prices across the country.