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Sugar industry in Maharashtra based on co-op model
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Friday, 16 February, 2018, 08 : 00 AM [IST]
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Shagun Sachdeva
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Our whole economy, up and down the state, is based on food processing, distribution, getting food products – to the world - Jack Lavin, president, Javlin Partners, LLC.)
Introduction
Indian economy was primarily an agrarian economy, which has made a lot of evolution in its agriculture and food sectors over the last few decades. Ever since the introduction of Green Revolution in the Indian agriculture sector, the Indian agriculture system has improved dramatically. No wonder how the food sector has undergone massive improvement in terms of better food processing methods and advancement in the food technology. Additionally, it presents many facets ranging from the conventional labour-intensive food industry to the modern food processing activities.
Underlining the significance of Indian food industry, it has emerged as the high-growth and high-profit sector owing to its immense potential for value addition, precisely, within the food processing category. The Indian food processing industry has also become an attractive FDI destination including FDI inflows of US$40 billion in 2015-2016, thanks to the Indian economic policies, which are designed to attract significant capital inflows into the country on a sustained basis and allow technology sharing between the economies.
Moreover, steady FDI inflow is complemented with the strengthening of the market forces such as demand and supply fundamentals including an abundance of raw material, cost-competitiveness, and policy support acting as supply-side factors and product innovation, higher penetration of organised retail, rising export opportunities, and better preservation and packaging techniques supporting the demand.
Sugar Industry in India: Regulatory Framework and Major Issues Involved
The growth of the sugar industry in India is none other than the tales of adventure and conquest. Modern sugar processing industry in India dated back to 1930 and started with the fiscal protection including the grant of tariff protection to the sugar industry. In 1935-36, the sugar production went up from 1.20 lakh tonne to 9.34 lakh tonne under the dynamic leadership of the private sector, and the year 1950-1951 marks the advent of the industrial revolution and the government laying down targets of sugar production and consumption. In the year 2010-2011, the number of sugar mills had grown to 527 mills with the production capacity of 239.807 million tonne.
Indian sugar production has grown at a CAGR of 5% over the last 46 years.
The domestic sugar market in India is one of the largest markets in the world, in terms of volume and therefore remains a key growth driver of the growing world sugar consumption, which is growing above the Asian and world consumption growth average. According to the USDA Foreign Agricultural Service, India is the largest sugar consumer and the second-largest sugar producer.
The sugar industry is amongst the few industries that have successfully supported the rural economy and leads to inclusive growth. The industry aims to use the rural resources efficiently to meet the large domestic demand for sugar and by generating surplus energy to meet the increasing energy needs of India.
Additionally, it has become the mainstay of the alcohol industry. The sector generates employment opportunities for over 50 million farmers and their families and delivers value addition at the farm side. The sugar industry in India is based on the principles of co-operation with the responsibility to transform the rural life. Since the installation of sugar co-operatives in rural areas, the socio-economic life of agriculturists has undergone a massive change. Sugar production in India is expected to increase by 18% to reach 25.8 MMT in 2017-2018.
Considering the trade policies of the Indian sugar industry, an export duty of 20% has been imposed on sugar and regulated by the department of revenue in 2016. Also, in June 2016, raw sugar imported under Advance Authorisation Scheme shall be exempted from the export duty of 20%. Whereas, import policy for sugar includes 40% import duty on all types of sugar. The applied duty on sugar was increased from 25% to 40%, from April 2015.
When it comes to sugar and cane prices in India, they are highly regulated, leading to high fluctuations in supply and demand factors. Since 2015, sugar prices have rallied by more than 58%, and are expected to remain stable, given tight supplies in the current year. Since October 2016, international sugar prices are lower than the domestic prices, and the prevailing domestic sugar prices encourage the mills to distribute locally, keeping Indian sugar exports less competitive.
The sugar processing sector offers a number of transformational opportunities and has the potential to cater to the large and growing domestic sugar consumption and support power producers and ethanol blending programme. All the untapped transformational opportunities have to be complemented with the appropriate business and regulatory initiatives. But we need to question how realistic are these opportunities, what are the results achieved from regulatory changes in key sugar geographies and what are the potential risks involved in implementing new policies.
All these issues need to be addressed to unlock the opportunities and lay out a roadmap by integrating all the stakeholders involved including farmers, millers, consumers, and the government. The roadmap should not only take care of the benefits to be incurred by the farmers in terms of minimising risks, high economic profit-driven growth, and collaboration between farmer and miller but also cover the set of policies, which are self-sufficient in meeting domestic demand, pay attention to social welfare of stakeholders, greater contribution to nation’s energy requirement, and will eventually result in achieving high economic growth.
Sugar Processing in Maharashtra
Maharashtra is the most industrialised state in India and, undoubtedly, has been the largest contributor to the national economy. The state, which is a pioneer in small-scale industries and boasts of the largest number of Special Export Promotion Zones has continued to maintain its leading position in the industrial sector in the country. It is one of the largest producers of sugarcane and pomegranate in the country, and in 2015-2016, production of sugarcane stood at 72,089,000 tonne. Sugarcane is produced mostly in 13 districts of Maharashtra, and the production varies from state to state.
Maharashtra is the second-largest producer of sugarcane after Uttar Pradesh and is the largest producer of sugar followed by Uttar Pradesh. This is owing to the higher sugar recovery rate in Maharashtra and more diversion of sugarcane to khandsari and gur production in Uttar Pradesh. The sole reason for high recovery rate in Maharashtra is due to the arrangement where sugar mills themselves prepare a harvesting schedule depending on the maturity of cane and requirement in the mill and arrange for harvesting and transportation of cane.
Sugarcane is a water-intensive crop, and with water becoming increasingly scarce, especially in Maharashtra, as the state has experienced severe droughts in the last 2-3 years, has affected the cane productivity. The sugarcane acreage in Maharashtra is estimated to be dropped by 4.2% from 10.30 lakh ha in 2014-2015 to 9.87 lakh ha in 2015-2016 and yield is also expected to fall by 11%.
Various initiatives and efforts are being made to curb the productivity issue arising from water scarcity. Various recommendations from the concerned authority were made such as cane productivity to be optimised not only per unit of land, but also per unit of water and taking up drip irrigation in sugarcane, which will save almost 40% to 50% water along with boosting the sugarcane productivity by 25% to 50%.
Efforts have been made to create a collaborative relationship between sugar mills and farmers where millers are encouraged to provide additional assistance to farmers for installation of drip irrigation in sugarcane production.
The state has also implemented Revenue Sharing Formula (RSF) which states that the sugarcane price paid to the farmers is determined based on the value of sugar, including the value of the by-products such as the value of bagasse, the value of molasses, the value of pressmud and harvesting & transporting cost. Therefore, actual mill profits are distributed amongst members as cane price. There are various benefits attached to the cooperative model such as it gives price signal to farmers since the cane price is linked to milling profits and there are low arrears as the final cane price depends on mill realisation.
Pricing and Trade Policy
Favourable policies in Maharashtra are conducive and backed by the constructive regulatory framework for the generation of eco-friendly power as well as regarding support for private investments. The forecast of a relatively larger sugarcane crop, improved sugar recovery rate (11% to 11.3%), and general expectations that sugar prices will remain strong leading to higher sugar production in the coming year.
The sugar industry is influenced by the state government policy. For instance, the growth of sugar industry in Maharashtra, which is based on co-operative model, is the result of the favourable policy adoption by state government regarding the prices of sugar and sugarcane. The state government policy support in terms of liberalising and reducing its intervention in the pricing policy has improved the price recovery for sugarcane farmers across Maharashtra. In May 2015, the Government of Maharashtra approved a subsidy of US$16.7 per tonne (up to the extent of 800,000 tonne) for the export of raw sugar.
The Government of Maharashtra has also suggested to CACP Commission to fix a premium over and above normal SMP for sugar-rich varieties in order to encourage the sugarcane growers to grow such varieties. Various initiatives have also been taken by the government as well as other organisations, which has helped in increasing the awareness about organic farming of sugarcane.
In November 2015, Maharashtra sugar mills signed an agreement with the neighbouring markets such as Sri Lanka and Bangladesh for exporting 2 lakh MT of white sugar. The deal was made by the state government in September 2015; Maharashtra exported around 4 million tonne of sugar during 2015-2016.
Conclusion
In order to improve the productivity at the state level, recommendations have been proposed and it ranges from modern scientific cultivation practices, improved sugarcane sets, use of bio-control agents, and farm mechanisation. The sugar industry in Maharashtra has tremendous opportunity to evolve, and the rationalisation of regulations will not only protect the interest of stakeholders but also enable a sustainable growth for the industry. Evolution of regulations has attracted investments in the sector, and the significant inflows of investments have paved the path of transformation. These investments allow the stakeholders to leverage the available opportunities and drive the sector growth.
Various efforts have also been made to cut growers’ cost of cultivation, improve yield and profitability, and diversification of sugar mills into other value-added activities. These value-added activities ranging from co-generation and ethanol production to electricity generation as a source of renewable energy, which is likely to result in augmenting the revenue streams.
(The author is senior research analyst, food & beverages,
agriculture & consumer goods. She can be contacted at Shagun.sachdevv@gmail.com)
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