Sugar

How does Government control Sugar industry?

• There is a lot of control by the government both state and centre over the sugar industry.
• To look at this one must look into the production lineup of sugar.
• Let us understand the sugar producing process first.
• This simple diagram will explain the process

Now the government control on the major aspects can be visualized easily. So the control by government at every stage is:

Stage #1: Crops and Farmer

The farmers must sell their produce to the nearest mill. And just the converse of this, the sugar mills have to purchase sugarcane from reserved areas.

Stage #2: Sugar Mills:

Distance	Mills must have a distance of 15kms between them.
Pricing of Sugar	The mill owners must compensate the farmers according to 2 different norms for giving them the sugarcane – FRP and SAP.(explained below).
Pricing of Other products	The other products such as Molasses, Bagasse, Press Mud are very useful side products of sugar industry. Their remuneration to the farmer is not fixed and varies with the time.
Levy of Sugar	The mill owners must give 10% of their production to the central government which they use to supply to the state governments for their state Public Distribution Systems (PDSs).
Packaging	The sugar must be packaged in jute bags. (this is done to promote labour intensive jute industry.)
Market	The market is also heavily government controlled. The export and import of sugar is decided by the government depending upon the domestic demand.

Before going into the recommendations of the committee let us look at the difference between FRP and SAP.

What is FRP and SAP?

• The FRP and SAP are prices set by the different governments at which the mill owners will reimburse the farmers.
• This is the minimum price that they pay to the farmers for the sugarcane.

FRP	SAP
Fixed Remunerative Package	State Administered Price
Central Government issues price.(Has no voice)	State government issues price(Has most voice).
Generally lower.	Generally higher.(To fulfill the votebank issues as sugarcane farmers form a large votebank).

When the state government issues its SAP then the mills in the state are bound to pay by that amount only. This was held valid in a Supreme Court judgment in 2009.

Rangarajan Committee:Recommendations

Remembering the earlier diagram of the sugar process and the government control, the Rangarajan committee report recommendations can be easily mapped.

Government Control	Recommendation	Remarks
Sugar crop area	Do away with reserved area. Give farmer option to trade with any mill.	Empowering the farmer to do better business.
Mill distance	Do away with minimum distance between mills.	To enable competition.
Pricing of Sugar	1. Give the farmers FRP price at the 1st stage and do away with SAP.2. Share 70% of the sold value of sugar+molasses+bagasse+press mud at the 2nd stage.	Double stage strategy to have better cash flow to mills.Putting proper system for remuneration.
Packaging	Do away with the jute packaging	Can save about 1000 crores.
Levy of Sugar	Do away with the 10% sale to the central government. Instead, pass on the subsidy to state government, which can buy the sugar from the market and give it subsidized.	Can ease central subsidy tension. The levy savings is about 2000 crores.
Market	Ease the market control of government on export and import.	The move is to help India(17% of world production) to enable its exports(only 4% of world export), but leaving it all to the market is risky.

• This is similar to many other committees formed by the government to recommend the sugar industry decontrol. Committees under Mahajan (1998), Tuteja (2004), Thorat (2009) and Nandakumar (2010) had similar recommendations.
• So most probably these recommendations will also bite the dust like others.