October turns sweeter for sugar

In a major break with tradition, sugar factories in the country will be producing anything between 700,000 and 800,000 tonnes of the sweetener in October, the first month of the 2017-18 season for the commodity. Never in the past, had the industry produced even half this amount in October. The development comes as a big relief for the government. The availability of around 4 million tonnes (mt) as the season’s opening stocks and the stepped up supply of new sugar this month are proving sufficient to meet the festival demand. The country is likely to use 25.06 mt of sugar this season against 24.5 mt in 2016-17. 

October is becoming a highly productive month because of the extensive work done by agricultural research institutions in developing the early season (ES) and high-yielding (HY) cane varieties suitable for the topographies of Uttar Pradesh (UP) and Maharashtra, and progressive groups such as Balrampur Chini and Dwarikesh Sugar convincing farmers in their captive crop growing zones of the benefits that will come their way if they follow the recommended “superior cane management practices.” UP and Maharashtra, which between them have around 3.4 million hectares (mh) under cane cultivation out of the country’s 5.3 mh, are appropriately found at the forefront of the campaign to prevail upon farmers to progressively migrate from traditional varieties to HY types, a good portion of which will mature in a season’s early parts. 

“Based on the strength of sustainable good October production, thanks to more and more farmers planting early maturing varieties, we have told the central government that unlike in the past an opening stock of 4 mt or thereabouts is to be considered the new normal. Our submission is found convincing since mill gate price of sugar has remained steady at Rs36-37 a kg, while at retail point it sells at Rs42 to Rs44 a kg,” says Abinash Verma, director general, Indian Sugar Mills Association (ISMA.) 

As there has been a smart turnaround in weather from back to back drought in Maharashtra and to some extent in Karnataka, sugar production in 2017-18 could, therefore, be more than the industry’s initial estimate of 25.12 mt, prices through the season should remain at current levels, according to former ISMA president O P Dhanuka. 

Maharashtra, which is to lift sugar output by 3.2 mt to 7.4 mt, will be contributing the most to India returning to a production of comfortable size from a nightmarish low of 20.1 mt in 2016-17 forcing the government to allow raw sugar imports of 800,000 tonnes in two tranches. As Maharashtra is receiving good post-monsoon rains, filling up the reservoirs, Verma sees sugar production there next season (2018-19) climbing to 9 mt. Nothing unusual about that since in 2014-15, the western state alone contributed 10.5 mt to the country’s bumper sugar production of 28.3 mt.  

UP, where Chief Minister Yogi Adityanath has promised major reforms of sugar policy, will for the second year in a row raise sugar output to 10.15 mt, thanks to farmers in growing numbers embracing ES and HY varieties. Industry trailblazer Balrampur Chini, which gets cane for its ten factories all in UP from over 450,000 farmers, claims that in the next two years the share of HY varieties will be as much as 80 per cent of the total volume to be crushed by it. Factories have realised that their campaign to get more and more farmers grow ES and HY varieties will be a success if they are able to make timely payments for supply of cane. 

Factory owners in UP are breathing easy as for the first time there is promise that the state government is inclined to adopt the cane pricing formula that prevails in Maharashtra and Karnataka. The formula approximates to sharing of revenue realised from sale of sugar in the ratio of 75:25 between farmers and factories as recommended by the C Rangarajan committee. If the industry in most other major sugar producing countries are not overwhelmed during the industry’s periodic downturn, it is because of revenue sharing with farmers. 

Dhanuka says for revenue sharing formula (RSF) to operate effectively, it is “absolutely essential to have a sufficiently large price stabilisation fund (PSF) in place. In a year of sugar market collapse when, according to RSF, payments to be made to growers for cane supplies will fall short of fair and remunerative price (FRP), money is to be drawn from PSF to compensate growers.” 

An ISMA survey of eight seasons starting 2009-10 shows that in three years, farmers would have needed support from PSF had RSF been in operation. The PSF is to be built by way of a suitable cess on sugar, sparing the government of any financial burden. Once all the cane growing states have embraced RSF, India will automatically migrate to one nation one sugarcane price much like GST. The time is opportune to introduce RSF since sugar prices, both at mill gates and retail points, have remained stable at levels allowing factories to quickly settle cane bills. 

Even while the country will be producing enough sugar this season to take care of domestic requirements and still leave a reasonable closing balance, Tamil Nadu and Karnataka will once again have to contend with low crushing capacity utilisation. Because of the below average standing crop, sugar production in Karnataka will be 2.3 mt, a far cry from over 4 mt in 2015-16. Tamil Nadu’s production is to dip to 600,000 tonnes from 1.012 mt in 2016-17. 

The options available for improving capacity use of factories in the two southern states are: allow them to import raws, as was done last season, or give them access to raws in surplus states such as Maharashtra and UP for making white sugar. Industry officials argue that imports in a year of good production could only depress domestic sugar prices, which will once again lead to piling up of cane dues by mills causing distress to growers. In the prevailing circumstances, New Delhi should consider giving transport subsidy for moving raws from surplus zones to Tamil Nadu and Karnataka. That will work to the advantage of the country’s sugar economy.  

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