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Sugar sector bailout costs govt Rs 10000 crore in 2.5 years

This article was posted on Jun 11, 2009 and is filed under Press Releases

NEW DELHI: The sugar economy has already cost the exchequer a whopping Rs 3300 crore plus thus far this year in high priced raw sugar imports to
the tune of 1.5 million tonnes and some quantities of white sugar.

In 2007, the sugar sector cost the economy a collosal Rs 5000 crore plus in direct and indirect subsidies which formed a bailout package, of which top sugar producer and food minister Sharad Pawar’s homestate Maharashtra alone swallowed up Rs 1340 crore plus. The humungous outgo, Rs 8500 crore plus in just a span of two and half years, was aimed at propping up the flagging sugar economy in the aftermath of a crippling sugar production glut.

The spend so far alone should be enough for the government to urgently announce the Statutory Minimum Price (SMP) for the coming sugar year and to substantially hike it markedly from the current Rs 81.18 per quintal linked to a basic recovery of 9%., especially given the sugar industry’s contention that the drastic fall in sugarcane output (from a high of 340 million tonnes in 2007-08 to a much lower 289 million tonens in 2008-09) is the key reason for the sharp drop in sugar production and the need for imports.

Yet, the government is still dragging its feet on the crucial Kharif crop support prices, inclduign that of sugarcane, in year when it is pinning its hopes heavily on a normal monsoon and good agricultural output to prop up its welfare programmes. The current sugarcane support price was fixed as far back as a 2007-08.

Infact, since 2005-06, a meagre increase o f only 2% has been allowed by the government in the SMP for sugarcane compared to a substantial 60% increase in the case of foodgrains (rice, wheat, coarse cereals, pulses), forcing farmers to sheer off sugarcane and turn to more lucrative foodgrain farming for a living.

In reality, though, the procurement price for sugarcane has shot up to the Rs 160 plus level per quintal in a market suffering from a massive shortage. Sugar production in the current season 2008-09 has declined precipitously to the low level of around 14.5 million tonnes from a high of 26.3 million tonnes in the previsou year, creating a sizeable gap of seven million tones between the annual consumption and this year’s production.

The principal reason for the decline in sugar production is the steep decline in the production of sugarcane from 340 million tonnes in 2007-08 (Oct-Sept) to only 289 million tonnes in 2008-09, according to the Indian Sugar Mills Association (ISMA). Further compounding sugarcane output shrinkage were significantly lower cane yields. Sucrose content in cane has dropped due to inadequate application of inputs, forcing sugar recovery percentage down from a level of 10. 6% in 2007-08 to only 10% this year.

“On top of decline in sugarcane production, largescale diversion of sugarcane to alternate sweeteners gur and khandsari has taken place as it normally happens in sugarcane shortage periods, driving up cane prices further. The totally deregulated gur/khandsari sector consumes as much as 40$ of the sugarcane grown in the country” an ISMA official said.

In consonance with the shorage, the cost of sugar prodcution for mills went up this year to about rs 24-25/kg ex mill northern India and slightly lower in other regions. “It is important for the governmetn to urgently initiate promotional measures to increase sugarcane cultivation and lure farmers back to growing cane. In this period, the government has imposed severe restrictions on the the sugar industry although we are highly efficient in converting sugarcane to sugar, even while leaving the gur/khandsari sector out,” he pointed out.

What is crucial is that the mess the sugar sector finds itself in today reflects the complete failure of the Central machinery to gauge the cane crop size at the season’s beginning and to take consequent appropriate steps to address the fallout. Thanks to that, in a year when the fiscal deficit has reached phenomenal levels and there is urgent need to precision-target subsidies, huge funds have been drained out of the exchequer as a result of poor commercial intelligence and research.

Heavy losses, huge cane price arrears, record production and progressive decline in sugar prices marked the 2006-07 sugar year, and in some regions even the cost of sugar cane was not recovered from sugar prices Interest subvention limited to 12% p.a, of which 5% was met out of the general budget provisions fo the Centre and the remainign 7% from the Sugar Development Fund, a sugar buffer of five million tonnes which cost Rs 1000 crore, internal transpor tsubsidy to mills between Rs 1350/tonne to Rs 1450/tonne, bank loans to the tune of Rs 1050 crore were some of the measures that marked that year’s bailout package directly and indirectly.

source: Economictimes

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