Saturday, November 17, 2012

Sugarcane Farmer Protests - (Hindu News Analysis-2)

Recently there were violent protests by sugarcane farmers against government's announcement of Fair & Renumerative Price (FRP) of Rs 2150 per tonne of sugarcane. The protesters were demanding an increase in FRP. 

Read the news item here (13th Nov, The Hindu)

News Analysis 

  • Sugar and Sugarcane are included in Essential Commodities and are covered under Essential Commodities Act, 1955. 
  • Sugar industry in India is highly regulated by government. The production, supply, sale and sugarcane as input for production of sugar, everything is regulated by govt.

Click on picture to enlarge
  • Cyclicality Issues in Sugar Industry

    • The above issues are magnified due to govt. regulations of SAP and levy sugar. 
  • India is the 2nd largest producer and largest consumer of sugar in the world.
  • Sugar Industry in India is a Rs 80,000 cr big industry.
  • Sugar Mills in India 
    % share of no. of mills in India
    % share of sugar production
    Private Mills
    Public Mills
    Co-operative Mills
  • Sugar industry contribution to rural economy - 50 million farmers and their dependants.  
  • Consumption pattern of Sugar in India:
    • 62% consumed by Industries(biscuits, beverages etc); 
    • 25% low income households
    • 13% high income households
[Note: Above statistics tells us 
(i) Sugar is price inelastic good, 
(ii) Providing sugar through PDS is not a prudent policy]
  • Sugar is produced primarily in 9 major states. 
  • Byproducts from Sugarcane
    • Bagasse --> electricity through a process called Cogeneration, which is Clean Development Mechanism (CDM) approved to generate carbon credits
    • Molasses --> Ethanol --> (1) Alcohol  (2) E5 Blended Fuel
    • Press Mud --> Fertilizers
[Note: E5 Blending is a term used for vehicle fuel - 5% ethanol and 95% Petrol/Diesel. At present India has E5 blending regulations]
  • C Rangarajan Committee Report on Sugar Industry recently submitted its report to PMO. It inter alia suggested following major things:
    • Retain FRP set by central govt. but scrap state level SAP
      • Farmers to initially get FRP at the time of sugarcane supply.
      • On a halfyearly basis, concerned state govt. to announce Ex-Mill Price for sugar and its byproducts. Farmers would be entitled to 70% share in the value of sugar and byproducts based on proportion of sugarcane initially supplied. If this value < FRP initially paid, no money will be paid to farmer, else if its more then the difference will be paid to farmer. 
    • Removal of levy sugar obligation for sugar mills.
      • Currently 10% of production from sugar mills goes for PDS operations of govt. of India. This sugar is purchased by govt. at a discounted rate. Rangarajan committee has suggested scrapping this policy. 
      • For PDS operations, concerned state govt. to procure sugar from Open Market purchases and central govt. to provide Rs 3000 cr subsidy to compensate state govt. for buying sugar at a higher price from market
    • Scrapping of present mechanism of regulated release of non-levy sugar, as it imposes additional costs on factories on account of inventory accumulation.
    • Command Area Regulation on Sugar mills be scrapped
      • At present sugar mills are forced to procure sugarcane only from farmers in a particular command area of that sugar mill. 
      • Also, there should be minimum of 15kms distance between two sugar mills
      • Both these policies was suggested by Rangarajan committee to be scrapped
    • The committee has also recommended dispensing with the mandatory requirement of jute packaging for sugar (JPMA, 1987).
[Note: Jute Packaging Materials Act 1987(JPMA) - Mandatory packaging in jute bags, presumably to promote jute industry. Initially cement, food grains, sugar and fertilizers were covered under JPMA, but cement(1998) and fertilizers(2001) were removed. Sugar mills are fighting to get sugar also removed from this list]
All provisions which the Rangarajan Committee recommended to be scrapped are crossed out

  • I think Rangarajan Committee report should be implemented to address concerns of farmers as well as sugar millers. 
  • Sugarcane crop pest - Woolly Aphid pest attacks - There was a serious attack by this pest in sugarcane crops of Tamil Nadu and AP in 2003-04. 

1 comment:

  1. Very good analysis can you help me to understand what will be the average price farmers can get post implementation of this recommendation.
    You can generate or help me generate price based on few assumptions (Recovery, prices of bi products, sugar, no Levy etc)


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