The next important step will be to rationalise cane pricing in line with globally-accepted formula
Thursday, April 4, 2013, will be remembered in history as the “freedom day” for the Indian sugar sector, when the Cabinet decided to abolish the regulated release mechanism and remove the levy burden from the sugar industry. These historical decisions will not only benefit the sugar industry but also cane farmers and sugar consumers by way of better realisation, reduced costs and sustained sugar availability at reasonable prices.
The need to borrow working capital has crossed R51,000 crore for around 175 lakh tonnes of sugar stocks, only because the regulated release mechanism did not permit mills to sell as per their cash flow requirements, financial conditions and the need to clear cane price arrears of farmers. The interest burden at 14-16% to finance such huge sugar inventories was only adding to the costs. A journalist friend jokingly told me the other day that with the abolition of the regulation on sugar sales, the industry will no longer be “forced” to “hoard” sugar. I could not agree more. The R11,000 crore cane price arrears of farmers could have been lower had the mills had the freedom to encash their sugar stocks on time.
The industry’s loss of R2,800 crore annually due to the burden to supply levy sugar at a hugely discounted price will be taken over by the central government. The Rangarajan committee has also pointed out that the open market consumers were cross-subsidising the levy sugar burden. This annual savings to the industry translates into R1.25 per kilo of open market sugar sales of 225 lakh tonnes, part of which can now be shared with the consumers. Considering that the industry pays around 70% of its sugar price realisation to the farmers, the savings of R2,800 crore would give almost R2,000 crore more to the farmers. Therefore, the central government has rightfully decided to take over the financial burden of this social welfare programme. The decision to not change the retail issue price and sugar entitlement of BPL families shows the government’s continued commitment to the poor families and yet push for reforms.
Reduced costs will give small savings to the mills that can be passed on to the farmers as better cane price or to consumers as reduced prices. With freedom to plan sugar sales and cash flows, mills should recover their costs in the long run