FRP for Sugarcane and Sugar Industry in India | 04 Aug 2022

Why in News?

The Cabinet Committee on Economic Affairs has hiked Fair and Remunerative Price (FRP) of sugarcane for sugar season 2022-23 (October - September) by Rs 15 per quintal.

• The Centre has also announced a premium of Rs 3.05 per quintal for each 0.1% increase in recovery of sugar over and above 10.25% and reduction in FRP by Rs 3.05 per quintal for every 0.1% decrease in recovery.
• Recovery rate is the amount of sugar that sugarcane fetches and higher the quantum of sugar derived from sugarcane, greater the price it fetches in the market.

How are the Prices of Sugarcane Determined?

• The Prices of Sugarcane are Determined by the Central Government (Federal Government) and the State Governments.
• Central Government: Fair and Remunerative Price (FRP)
  • The Central Government announces Fair and Remunerative Prices which are determined on the recommendation of the Commission for Agricultural Costs and Prices (CACP) and announced by the Cabinet Committee on Economic Affairs (CCEA).
    • CCEA is chaired by the Prime Minister of India.
  • The FRP is based on the Rangarajan Committee report on reorganising the sugarcane industry.
• State Government: State Advised Prices (SAP)
  • The SAP is announced by the Governments of key sugarcane producing states.
  • SAP is generally higher than FRP.

What is the Status of the Sugarcane Sector in India?

• Largest Producer:
  • India is the largest producer of Sugarcane in the World.
    • India has surpassed Brazil in the sugar production in the current sugar season 2021-22.
  • Factors like policies that incentivize production, including a minimum price, guaranteed sales of sugarcane and public distribution of sugar, have helped India become the largest producer.
  • However, factors like rainfall deficit, depleting groundwater table, delayed payment to cane farmers, lower net income (for the farmer) compared to other crops, labour shortage and increasing cost of labour, followed by Covid-19 pandemic are challenging the entire sugar sector.
• Second Largest Exporter:
  • India is the Second Largest exporter of Sugar after Brazil.
  • India apart from meeting its requirement for domestic consumption has also consistently exported sugar which has helped in reducing the fiscal deficit.
  • About 100 LMT of sugar has been exported till August.2022 in the current sugar season 2021-22 & exports are likely to touch 112 LMT.
• Becoming Self-Sustainable:
  • Earlier, sugar mills were dependent primarily on the sale of sugar to generate revenues. Surplus production in any season adversely affects their liquidity leading to accumulation of cane price arrears of farmers.
  • However, in the past few years the sugar industry has become self-sustainable.
    • Since, 2013-14 about Rs. 49,000 crore revenue generated by sugar mills from sale of ethanol to Oil Marketing Companies (OMCs).
    • In the current sugar season 2021-22, about Rs. 20,000 cr revenue is being generated by sugar mills from the sale of ethanol to OMCs,
  • The measures taken by the Central Government and FRP enhancement have encouraged farmers to cultivate sugarcane and facilitated continued operation of sugar factories for domestic manufacturing of sugar.

Why is the Government Encouraging Sugar Production?

• The government wants to reduce its Import Bill on Crude Oil by cutting oil imports and blending ethanol with Petrol under the Ethanol Blended with Petrol programme.
  • Currently, India’s 85% requirement of crude oil is met through imports.
• Also, to reduce pollution & to make India Atma Nirbhar in petroleum sector, Government is encouraging sugar mills to divert excess sugarcane to ethanol which is blended with petrol, which not only serves as a green fuel but also saves foreign exchange on account of crude oil import.
  • In the current sugar season 2021-22, about 35 LMT of sugar is estimated to be diverted & by 2025-26 more than 60 LMT of sugar is targeted to be diverted to ethanol, which would address the problem of excess sugarcane as well as delayed payment issue because farmers would get timely payment.
• The government has fixed a target of 10% blending of fuel grade ethanol with petrol by 2022 & 20% blending by 2025.

What are the Challenges Associated with the Sugar Industry?

• Pricing Controls: In order to plug the demand-supply mismatch, the union & state governments have been controlling sugar prices through various policy interventions like export duty, imposition of stock limit on sugar mills, change in meteorology rule etc.
  • However, the government control of pricing is populist in nature and this often leads to price distortion.
  • This has triggered that sugar cycle oscillating between massive surplus and severe shortage.
• High Input and Low Output Cost: The falling/stagnant price of sugar in recent years in the backdrop of continuous rise in sugarcane prices is the main source of troubles faced by the sugar industry in the last few years.
  • Due to this, the government grappled with large cane arrears while the industry survived on periodic government funded bail-outs and subsidies.
  • It is because of the unviability of the business, no new private investments are being done in the sugar industry.
• Unviability Sugar Exports: Indian exports are unviability as the cost of producing sugar (thanks to high cane price) is way above the international sugar price.
  • The government sought to bridge the price gap by providing export subsidies, but this was promptly contested by other countries in the WTO.
  • Further, India under WTO’s agreement on agriculture has been allowed to continue with the subsidies till December 2023. The fear is what will happen post-2023.
• Dismal Performance of India’s Ethanol Programme: Blending ethanol with petrol for use as auto fuel, was first announced in 2003, but the problem never took off.
  • The poor pricing of ethanol supplied for blending, periodic shortages of sugar and competing demand from the potable alcohol sector.

Way Forward

• There is a need to deploy remote sensing technologies to map sugarcane areas.
  • Despite the importance of sugarcane in the water, food and energy sectors in India, there are no reliable sugarcane maps for recent years and in time series.
• Research and development in sugarcane can help address the issues like low yield and low sugar recovery rates.
• The Rangarajan Committee has suggested a Revenue Sharing Formula to fix cane price factoring in the price of sugar and other by-products.
  • Further, in case the cane price, arrived at by the formula, drops below what the government considers as a reasonable payment, it can bridge the gap from a dedicated fund created for the purpose and a cess can be levied to build up the fund.
• The government should encourage ethanol production. It will bring down the country’s oil import bill and help in diversion of sucrose to ethanol and to balance out the excess production of sugar.

Source: TH