Author Name
Admin_niti
Choose Report Type
Publication Date
Report Upload
Download
(1.37 MB)
vertical
Agriculture & Allied Sectors
PDF Text
MARCH 2020
Page | 2
Page | 3
Foreword
India is the largest consumer of sugar in the world. The sugar industry is amongst the
most important agro-based industries in the country that impact livelihood of about 5
crore farmers and their family members and 5 lakh workers directly employed with the
sugar mills. There are more than 700 installed sugar factories in the country with
crushing capacity of about 340 lakh MT of sugar and annual turnover of about Rs 80,000
crore. These numbers reflect the important role the sugar industry plays in India’s
economy. However, with sugar prices falling for a couple of years in a row while
sugarcane prices moving up over the last few years, has put the industry in serious
problems, including that of liquidity. Despite series of measures announced by the
Central Government to address these problems, the demand for more assistance has not
subsided.
Therefore, a need was felt by NITI Aayog to explore long-term solutions for the
sugarcane and sugar industry, so as to rationalise their dependence on state assistance
and encourage farm diversification to reduce adverse impact of sugarcane cultivation
on the water sector. Accordingly, a task force was constituted by NITI Aayog under my
chairmanship, which included secretaries of D/o Food and Public Distribution (D/o
F&PD), D/o Expenditure (DoE), D/o Agriculture Cooperation and Farmers’ Welfare
(D/o AC&FW), Department of Commerce (DoC), Ministry of Petroleum and Natural Gas
(M/o P&NG), Ministry of Environment, Forest and Climate Change (M/o EF&CC), Pr.
Secretary (Sugar Industry and Cane Development, Department of Government of UP),
Secretary (Co-operation, Textile and Marketing Department, Government of
Maharashtra), Dr N.R. Bhanumurthy (Professor, NIPFP), Special Secretary (KIH, NITI
Aayog), Additional Secretary (Energy, NITI Aayog) and Senior Adviser (Governance &
Research, NITI Aayog). The technical support to the task force was provided by the
Department of Food and Public Distribution. The task force also interacted with
representatives of the Indian Sugar Mills Association, National Federation of
Cooperative Sugar Factories, Confederation of Indian Industries, sugarcane farmers
from Maharashtra and Uttar Pradesh, etc., in its meetings.
The task force broadly deliberated on (i) long-term solutions to the problems faced by
sugarcane farmers and sugar industry; (ii) measures for rationalising the sugar
economy; (iii) measures to make the sugar industry less state dependent and align it
with global markets; and (iv) encourage farm diversification so as to reduce adverse
impact on the water sector. The task force has prepared this report based on its
deliberations that comprehensively cover the above-mentioned aspects and has
suggested a policy roadmap both for the sugarcane sector and sugar industry.
Page | 4
I would like to extend my gratitude to the members of the task force for their valuable
inputs and providing domain expertise. I would like to particularly acknowledge the
contributions of industry bodies, namely Indian Sugar Mills Association, All Indian
Sugar Trade Association and National Federation of Cooperative Sugar Factories Ltd. for
their inputs and providing industry perspective. In addition, I wish to place on record
my appreciation of inputs provided by Shri S.K. Vashishth, Joint Secretary, Department
of Food & Public Distribution, Shri Sandeep Poundrik, Joint Secretary, Ministry of
Petroleum & Natural Gas as well as Shri Sanjay R. Bhoosreddy, Pr. Secretary (Sugar
Industry & Cane Development Department of Government of Uttar Pradesh). I would
also like to thank Government officials and farmer-cooperative representatives from
Maharashtra and Uttar Pradesh for taking part in the deliberations of the task force.
I wish to extend my deepest gratitude to Dr Yogesh Suri, Senior Adviser (G&R), NITI
Aayog (convener of the task force), and his team for organising the task-force meetings
and facilitating the preparation of this report. I would also like to thank other officials of
NITI Aayog: Shri Neeraj Singhal, Director (G&R); Shri Desh Gaurav Sekhri, OSD; Dr S.K.
Srivastava, Agriculture Economist; Shri Ankush Das, former Young Professional; Shri
Satwik Mishra, Young Professional; and Dr Jaspal Singh, Consultant, for their inputs.
The report is expected to provide useful insights to policymakers to resolve the issues
faced by sugarcane farmers and sugar industry. The task force is hopeful that its
suggestions and recommendations will be useful in finding resolution of the recurring
problems of the sector on sustainable basis and keep balance between interests of
various stakeholders.
New Delhi
March 30, 2020
Ramesh Chand,
Member (Agriculture),
NITI Aayog,
Chairman of the Task Force
Page | 5
List of Abbreviations
Abbreviation Meaning
A2 + FL
Actual paid-out expenses incurred by farmers and imputed value of unpaid family
labour
AAY Antodaya Anna Yojana
BIS Bureau of India Standards
CACP Commission for Agricultural Costs and Prices
CCEA Cabinet Committee on Economic Affairs
CO2eq Carbon Dioxide equivalent
CPCB Central Pollution Control Board
DAC&FW Department of Agriculture Cooperation and Farmers’ Welfare
DBT Direct Benefit Transfer
DFPD Department of Food and Public Distribution
EAC-PM Economic Advisory Council to Prime Minister
EBP Ethanol Blended Petrol
FCI Food Corporation of India
FFM Flex Fuel Motorcycles
FFV Flex Fuel Vehicles
FRP Fair and Remunerative Price
GST Goods and Services Tax
I (D&R) Act, 1951 Industries (Development and Regulation) Act, 1951
ISMA Indian Sugar Mills Association
LMT Lakh Metric Tonne
MIEQ Minimum Indicative Export Quota
MoP&NG Ministry of Petroleum and Natural Gas
MSP Minimum Support Price
MSP of sugar Minimum Selling Price of sugar
MT Metric Tonne
NITI National Institution for Transforming India
OMC Oil Marketing Company
PDS Public Distribution System
PSF Price Stabilisation Fund
PSU Public Sector Undertaking
RoR Rate of Return
RSF Revenue Sharing Formula
SAP State Advised Price
SDF Sugar Development Fund
SEFASU Scheme for Extending Financial Assistance to Sugar Undertakings
SMP Statutory Minimum Price
SS Sugar Season
UP Uttar Pradesh
WTO World Trade Organisation
ZLD Zero Liquid Discharge
Page | 6
Report of the Task Force on Sugarcane and Sugar Industry
Table of Contents
List of Chapters
Ch.
No.
Particulars
Page
No.
Foreword by Prof. Ramesh Chand, Member (Agriculture),
NITI Aayog
3
List of Abbreviations 5
Executive Summary 10
I Constitution of the Task Force 17
II Overview and Background 19
III Reforms in the Sugarcane and Sugar Industry 34
IV Ethanol Blending 37
V
Saving Water by Shifting Area under Sugarcane Cultivation to
Other Crops
44
VI Observations of the Task Force 52
VII Recommendations of the Task Force 57
Annexures 64
Page | 7
List of Tables
Sl. No. Particulars
Page
No.
1 Production of sugarcane and sugar in the world (2015–16) 19
2 State-wise area under sugarcane cultivation (000 hectares) 20
3 State-wise production of sugarcane (000 tonnes) 21
4 State-wise yield of sugarcane (kgs/ha) 21
5 Sugar balance sheet for the last 5 seasons 24
6 SAP provided for sugarcane in different states of India (in ₹/qtl) 26
7 Cost of production of sugarcane in comparison to FRP/ SAP (in ₹/qtl) 27
8 Irrigation water requirement for and water productivity on sugarcane 30
9
Arrears at the end of January/ February/ March during last 5 sugar
seasons
31
10 Past sugar committees 34
11 Rangarajan committee recommendations and status 35
12 Details of ethanol supplied and blending percentages 38
13 Differential pricing mechanism for ethanol 38
14 Allocation tenders of ethanol 39
15 Ethanol blending targets 39
16 Growth rate of area production and yield of sugarcane in India 45
17 Decomposition of change in sugarcane production 45
Page | 8
List of Figures
Sl. No. Particulars
Page
No.
1
State share in production of and area under sugarcane in India during
2016–17
22
2 Demand and supply of sugar 23
3 FRP (₹ per quintal), A2+FL costs (₹ per quintal) and Recovery Rate (%) 25
4 Comparison between FRP and ex-mill prices (₹ per quintal) 26
5
International vs domestic prices of white sugar—October 2015 to June
2019 (in US$/MT)
29
6 State-wise productivity of sugarcane (2017–18) 30
7 Trends of area, production and yield of sugarcane in India 44
8.1
Sugarcane-cropped area density and stage of groundwater development
across districts of Uttar Pradesh during 2016–17
46
8.2
Sugarcane-cropped area density and stage of groundwater development
across districts of Tamil Nadu during 2016–17
46
8.3
Sugarcane-cropped area density and stage of groundwater development
across districts of Maharashtra during 2016–17
47
8.4
Sugarcane-cropped area density and stage of groundwater development
across districts of Karnataka during 2016–17
47
9
Potato-cropped area density across districts of Uttar Pradesh during
2016–17
50
Page | 9
List of Annexures
Sl. No. Particulars
Page
No.
1 Order for constituting the task force 64
2
Compatible return from another crop/crop combination with sugarcane
in Uttar Pradesh during 2018–19
66
3
Compatible return from another crop/crop combination with sugarcane
in Karnataka during 2018–19
67
4
Compatible return from another crop/crop combination with sugarcane
in Maharashtra during 2018–19
68
5
Compatible return from another crop/crop combination with sugarcane
in Tamil Nadu during 2018–19
69
6 Minutes of first meeting of the Task Force (held on 21 January 2019) 70
7 Minutes of second meeting of the Task Force (held on 30 August 2019) 75
8
Minutes
of third meeting of the Task Force with farmer representatives
from Maharashtra and Uttar Pradesh (held on 27 November 2019)
81 Page | 10
Executive Summary
Sugarcane and sugar play significant role in economy of India, trade and livelihood.
Sugar is country’s second largest agro-based industry, next to cotton. Sugarcane and
sugar industry together impact the livelihood of over 5 crore farmers and their
dependents involved in cultivating sugarcane in an area of almost 50 lakh hectares.
India is the largest consumer and the second-largest producer of sugar in the world.
Average annual production of sugarcane is around 35.5 crore tonnes which is used to
produce around 3 crore tonnes of sugar. The domestic consumption is estimated to be
around 2.6 crore tonnes in the current financial year.
Over the years, the Fair and Remunerative Price (FRP) fixed by the Government for
sugarcane on the basis of the recommendations of Commission on Agricultural Costs
and Prices (CACP) has been fairly remunerative for farmers compared to other
competing crops. The returns from sugarcane cultivation are generally 60%–70%
higher than most other crops. Additionally, sugar mills that buy sugarcane are
mandated to purchase crops from farmers within a specified radius known as the Cane
Reservation Area at the FRP. In this way, sugarcane farmers are fairly insured and
protected by Government schemes and policies against any price risk. Remunerative
and assured prices along with improvement in yield and recovery continue to attract
farmers to growing sugarcane despite ample supply and lower prices of sugar in the
market. It would not be an exaggeration to say that India has structurally become a
sugar-surplus nation.
The industry has an annual turnover of about ₹1 lakh crore and generates revenue of
₹12,000 crore for the Government exchequer. However, the sector has been facing
serious issues related to profitability as well as liquidity in the last few years due to
depressed sugar prices inadequately covering cane prices and mismatch between
sugarcane prices and sugar prices. In addition to Fair and Remunerative Price (FRP)
announced by the Central Government, some States fix State Advised Price (SAP) at
higher levels, causing strain on the financial position of the mills. The sugar mills in turn
started making lower payment as compared to the payment at SAP/FRP. This in turn led
to the accumulation of the sugarcane arrears that crossed Rs 20,000 crore for many
months during the previous two sugar seasons. The Government of India has taken
several measures to help the sugarcane producers and sugar industry; however, the
problem persists.
The basic factors in export competitiveness of sugar are the difference between the cost
of cane to sugar mills and cost of producing sugar itasn India vis-a-vis other major
sugar-producing countries of the world. The other factor is the quality of sugar being
exported from India in comparison to quality of sugar in the international markets.
Sugarcane is known to be a water-guzzling crop. On average, 1 kg of sugar requires
about 1500–2000 kg of water. Most of the country’s irrigation facilities are utilised by Page | 11
paddy and sugarcane, depleting water availability for other crops. Pressure on water
due to sugarcane cultivation in States like Maharashtra has become a serious concern,
calling for more efficient and sustainable water use through alternative cropping
pattern. This is especially important in regions where groundwater use has reached a
critical and overexploited stage or where more than 50% surface water is used for
irrigating sugarcane alone.
One of the main problems that the sugar sector faces is delay in payments by sugar mills
to sugarcane farmers. If sugar prices in the market do not correspond to sugarcane FRP,
then sugar mills are left in a distressed state, unable to make adequate profits. The
Minimum Selling Price of sugar at ₹31/kg, even though recently hiked by ₹2, does not
even cover the cost of manufacture, given the FRP that is currently ₹275 per quintal
(SAPs even higher). ISMA has represented that in 2017–18, the production cost for
sugar was ₹3,580 per quintal. At the same time, the comparable international prices
were averaging ₹2,080 per quintal.
A large number committees were set up in the past to address issues confronting
sugarcane growers and sugar manufacturers. The broad recommendations of the
committees covered areas such as: (a) price determination and distribution
mechanisms for sugar; (b) setting up of new factories; (c) amendments in various laws
with regard to the sugar industry; (d) increasing productivity of sugar industry; (e)
issues with regard to cane area reservation; (f) decontrol of sugar; (g) pollution
mitigation; (h) improving efficiency of the industry in terms of power consumption; (i)
alternate uses of sugarcane for ethanol; (j) enhancing exports; (k) support needed for
sugar mills to be more profitable, etc. What is particularly relevant to this report are the
recommendations of the committee under the chairmanship of Dr C. Rangarajan, the
then chairman, EAC-PM, in 2012. Developments since 2012 indicate that States have
been generally reluctant to undertake reforms in the context of abolition of cane area
reservation, minimum distance norms, etc.
In 2003, the Government launched the Ethanol Blended Petrol (EBP) programme
primarily to promote environment-friendly fuels (by increasing the usage of ethanol)
and reduce energy imports. The EBP programme injects liquidity into the sugarcane
sector by providing sustained demand for ethanol. This helps in the reduction of
accumulated arrears for cane farmers and permits timely payment to them. The 2018
National Policy on Biofuels broadens the scope for the raw material procurement for
ethanol production. The policy targets a 20% blending percentage by 2029–30.
Presently, the Ministry of Petroleum and Natural Gas is undertaking the EBP
programme to achieve 10% ethanol blending percentage in petrol by 2021–22. With
ethanol production capacities being set up expeditiously, creation of another 200 crore
litres in 2 years is expected, which would conceivably drive the production of ethanol to
450–500 crore liters by 2020–21. With India currently possessing over 70 lakh tonnes
of surplus sugar, there is large scope for diverting surplus cane towards ethanol
production without affecting sugar supply needed to meet domestic demand. As per Page | 12
information available in the Sugarcane (Control) Order, 1966, 1 tonne of sugarcane
yields 70 litres of ethanol, while producing one tonne of sugar is equivalent to
producing 600 litres of ethanol.
Keeping sugar Industry healthy needs major reforms, which have been analyzed and
assessed in this report. This report has been organized into 7 Chapters. Chapter 1
pertains to the constitution of the task force for analysing the issues and drafting this
report. Chapter 2 provides a detailed overview of the sugarcane sector and sugar
industry, along with a background of the historical context to challenges faced by the
sector and industry. Chapter 3 discuss the reforms and recommendations made by
various committees in the past for the sector and industry, including those of the C.
Rangarajan Committee. Chapter 4 provides a detailed analysis, context and future plans
for the Ethanol Blending Programme. Chapter 5 presents analysis of alternatives to
divert area under the cultivation of sugarcane in regions where there is water scarcity,
towards crops that are less water intensive and have been traditionally grown
successfully in the specific regions. Chapter 6 presents a summary of the observations of
the task force. Chapter 7 contain detailed recommendations of the task force in
furtherance of reforms in sugarcane and sugar.
While preparing the report, the task force referred to inputs received from various
Departments/Ministries, reports of the Commission for Agricultural Costs and Prices,
D/o Agriculture Cooperation and Farmers’ Welfare, Indian Sugar Mills Association
(ISMA), and other industry representatives. The task force also referred to the
Rangarajan Committee’s observations and recommendations, and also had detailed
deliberations with representatives of the Brazilian sugar and ethanol industry.
Based on the detailed analysis of the sugarcane and sugar sectors, deliberations held in
the task force, consultations with industry representatives and other stakeholders, the
major recommendations of the task force are as follows:
1. Pricing of Sugarcane: The falling/stagnant price of sugar in the recent years in the
backdrop of continuous rise in sugarcane prices is the main source of troubles faced
by the sugar industry in the last few years. The task force feels that to prevent the
problem of arrears for sugarcane farmers and to keep the sugar industry in sound
financial health, sugarcane prices must be linked to sugar prices. The Revenue
Sharing Formula (RSF) needs to be introduced, with a Price Stabilisation Fund to
protect farmers from receiving prices below the FRP. While the scientific formula
suggested by the Rangarajan Committee could be considered, the prices of
sugarcane may need to be adjusted slightly upwards keeping in view the
improvement in recovery rates in the last few years i.e. between the reference
period of Rangarajan Committee recommendations and the current period. Thus, in
place of 70% price of sugar and byproducts and 75% price of sugar only, the pricing
formula can be 75% of sugar and byproducts and 80% of sugar price. This formula
can be implemented prospectively say from sugar season 2020–21 or 2021–22. Page | 13
Future increases in FRP should be kept moderate. The States that have been
announcing State Advised Price, should be urged to desist from doing so unless they
are willing to bear additional costs of SAP upon themselves and not forcing the mills
to bear the load of sugarcane price above FRP.
2. Payment of Sugarcane Price to Farmers: Sugarcane is a fairly remunerative crop.
As against A2+FL cost of Rs 155 per quintal in 2018–19, the FRP fixed by the Central
Government was Rs 275 per quintal, providing a return of 77% (over A2+FL cost),
which is higher than most other competing crops. If farmers are paid 60% of the
sugarcane FRP upfront, it will cover their entire A2+FL cost and provide a little
margin over the same. It is recommended that mills should be allowed to stagger the
payment for sugarcane in following manner: 60% payment within 14 days of
delivery of sugarcane to mills; another 20% within next two weeks and balance 20%
within another one month (or upon sale of sugar whichever is earlier), so that the
entire dues for sugarcane to farmers are cleared within 2 months.
3. Diversification towards Less Water-intensive Crops: Keeping in view the urgent
need for conservation of water, the task force recommends shifting of some area
under sugarcane cultivation to less water-intensive crops, by providing suitable
incentive to farmers. The Government should target moving about 3 lakh ha area
under sugarcane, which yields about 20 lakh tonnes of sugarcane, to other crops
through this mechanism. The task force feels that a compensation of Rs.6,000 per ha
could be given as additional incentive to farmers for alternate cultivation patterns
that are less water intensive than sugarcane. The task force recommends that a new
scheme for such compensation should be launched by DAC&FW in coordination with
Ministry of Jal Shakti and can be implemented for a period of three years initially.
Besides, an alternative way of reducing supplies can also be by restricting the sale
slip to the extent of 85% of the area of the sugarcane farmers so that they are
encouraged to diversify their production on the remaining 15% to other crops.
However, this 85% limit may also not remain fixed; it should rather remain flexible
depending upon sugar demand–supply situation and export possibility going
forward. Such a mechanism could be considered for sugar season 2020–21 onwards
as there is already some decline in area under sugarcane during 2019–20.
4. Sugar and Sugarcane Development Fund: Due to stagnation and/or declining
sugar prices, the liquidity position of the mills has remained a major cause for
concern, prompting the Government to come out with various liquidity support
measures from time to time. The task force recommends a long-term solution that
requires fund of a reasonable size to provide liquidity support to the mills if such
situations emerge. It is proposed to levy cess on sugar at Rs 50 per quintal for a
period of 3 years, during which about Rs 4,500 crore would be added to the fund,
which will help provide bridge funding or act as a comfort for banks providing soft
loans to mills for improving technologies and paying dues to their farmers. Industry
also needs to be encouraged to set aside some proportion of sales/profit in the years
of high prices of sugar that can be used in times of low sugar prices when liquidity
becomes a constraint for the mills. Once the demand and supply balance is restored, Page | 14
the cess on sugar should be reduced or removed and sugar mills may be asked to
contribute to the SDF a certain percentage of sugar sales, which would be decided by
the Government of India. The task force feels that levy of cess reduces the
competitiveness of exports whenever international prices of sugar are lower than
domestic price, as is the case at present. It is, therefore, recommended that this cess
should be exempted (or refunded) for the sugar that is earmarked for exports, in
order to ensure that it does not become uncompetitive for mills who export their
mandated quota. Since the focus of the fund expands from sugar industry to
sugarcane farmers, it may be renamed as “Sugar and Sugarcane Development Fund”.
5. Ethanol Blending Programme: The task force’s recommendation is to support and
enhance the technology and adoption of ethanol blending in line with the target of
achieving 10% by 2021–22 and 20% by 2029–30 and further recommends an
interim medium-term blending target of 15% by 2024–25. Required support should
be extended to help upgrade and integrate technology and learn from Brazilian
experience of diverting raw sugarcane juice towards ethanol blending. In order to
promote ethanol production, additional measures could be considered in line with
suggestions spelt out in the National Biofuels Policy 2018. These include
classification clarity about raw material usage and extension of appropriate financial
and fiscal incentives for each category, establishment of biofuel development boards
in states, establishing updated BIS standards and a National Biomass Repository.
Suitable supply chain mechanisms, feedstock collection centres and fair price
mechanisms for the engaged community would also need to be developed in
coordination with Local Bodies, States and concerned stakeholders. Besides, on the
lines of Karnataka, other state governments should also consider removing
unnecessary restrictions on the movement of ethanol used for the blending
programme.
6. Trade Policy: While there is a need to continue to incentivize sugar for exports at
present, the task force recommends a comprehensive re-examination of export
incentives for sugar, so as to align them with India’s commitments to WTO
agreements, especially as India is required to phase out the subsidies for marketing,
ocean freight, etc., by December 2023. The Department of Food and Public
Distribution should coordinate with the Department of Commerce and work out
suitable incentive mechanism for export of sugar while keeping the implications for
exchequer to the minimum possible extent.
7. Raising the MSP of Sugar to ₹33 Per Kilogram: The task force recommends a one-
time increase in minimum sugar price to Rs 33 per kilo; as it would help sugar mills
to cover the cost of production, including interest, maintenance costs etc. Keeping in
view the emerging developments, the MSP for sugar should be reviewed after six
months of the notification.
8. Implementing Recommendations of Earlier Committees: The task force has
observed that despite major reforms recommended by the C. Rangarajan Committee
in 2012, almost none of the states implemented them. The task force recommends
that the Department of Food and Public Distribution take up the matter with State Page | 15
Governments, and come out with specific steps that may be required towards the
liberalisation of the sugar sector. However, levy/quota system on sugar need not be
abolished for the present as past experiences have indicated a sudden glut in supply
resulting in further subdued prices upon removal of the quota system.
9. Expansion of Drip Irrigation in Sugarcane Cultivation: As per the CACP’s analysis
there is a stark difference in water consumption for growing sugarcane between
Uttar Pradesh and Maharashtra and South India. The task force recommends that all
efforts should be made for adoption of drip irrigation in place of flood irrigation in
Maharashtra and States in South India. This would save almost 40%–50% of water,
which in turn could be used for other purposes. In order to promote drip irrigation,
in addition to sustained sensitization campaign, some incentive mechanisms in form
of concessional access to infrastructure could also be considered for farmers.
Various schemes for agriculture sector promoting drip irrigation should be
leveraged for the purpose. Drip irrigation will gain popularity if power supply for
irrigation is appropriately priced to discourage flood irrigation.
10. Eliminate Buffer Stock for Sugar: The buffer stock is essentially to improve the
liquidity position of the mills and does not serve much purpose in the context of food
security of the people as is the case with buffer stock of wheat and rice. If measures
proposed in this report are taken the need for having a buffer stock will disappear.
11. Recycling Bagasse: The task force recommends that incentives be provided to
sugarcane mills to recycle bagasse. In addition to being used as a biofuel, bagasse
has multiple other uses. If bagasse is not burned in high-pressure boilers it will lead
to uncontrolled burning and environmental air pollution. The funding should be
procured through soft loans from the SDF. In addition, to tackle falling prices, a
complete rethink of cogen pricing needs to happen to incentivise this industry to use
bagasse and the other biomass.
12. Promotion of Jaggery: The task force proposes that the Department of Food and
Public Distribution, in consultation with the National Sugar Institute, Kanpur, and
other stakeholders, including BIS, should develop a suitable mechanism for adoption
of advanced technology for jaggery manufacturers and set quality standards thereof.
13. Financial Assistance to Distressed Sugar Mills: Due to various administrative
impediments, many distressed sugar mills are unable to receive loans under the soft
loans scheme of the Government of India. While the task force recognises the need
for autonomy to banks in taking decisions regarding loans in line with RBI
guidelines, there is a felt need for some flexibility in providing loans to mills that are
ailing for various reasons. The Department of Financial Services may call a meeting
of relevant stakeholders and find an amicable solution to the problems of the
distressed sugar mills in availing loans from the banking sector.
14. Long-Term Pricing Formula for Ethanol: Industry has been demanding a long-
term pricing formula for ethanol to encourage setting up or capacity enhancement of
ethanol. The task force recommends that the Ministry of Petroleum and Natural Gas
should examine the suggestion in a holistic manner keeping in view the need for Page | 16
providing some indication for the pricing formula for ethanol so as to reduce
uncertainties of return on the investments being made for ethanol production.
15. Complete Restructuring of Industry: The Task force has given a range of
suggestions that are expected to go a long way towards improving the economic
viability of the industry. However, given the sensitivity of the subject, and the
criticality of reliance on sugarcane as a primary crop by nearly 5 crore farmers and
their dependents, a moderate and balanced approach has been adopted in this
report. However, serious policy distortions in sugar sector are continuing to result
into excess sugar production over domestic demand and rendered domestic prices
highly uncompetitive for trade. The fiscal and natural resource cost of interventions
in sugarcane and sugar industry are enormous and rising. Therefore, there is a need
for complete restructuring of sugar industry in a phased manner.
Page | 17
Report of the Task Force on
Sugarcane and Sugar Industry
Chapter I
Constitution of the Task Force
1.1 India is the largest consumer of sugar in the world. The sugar industry in India is
amongst the most important agro-based industries, which impact the livelihood of
about 5 crore farmers and their family members, and 5 lakh workers that are directly
employed with the mills. There are more than 700 installed sugar factories in the
countries with crushing capacity of about 340 lakh MT of sugar and an annual output of
about Rs 80,000 crore. However, with sugar prices falling and sugarcane prices moving
up over the last few years, the industry has been facing various problems, including that
of liquidity. While the Central Government has announced a series of measures to
alleviate these problems, yet the demand for more assistance has not subsided.
1.2 Therefore, a need was felt by NITI Aayog to find long-term solutions for the
sugarcane and sugar industry, so as to rationalise their dependence on state assistance
and encourage farm diversification to reduce adverse impact of sugarcane cultivation
on the water sector. Accordingly, a task force was constituted by NITI Aayog vide OM
no. 7(11)/2018-G&R dated 10.12.2018 under the chairmanship of Prof. Ramesh Chand,
Member, NITI Aayog. The composition of the task force is as under:-
i. Prof. Ramesh Chand, Member, NITI Aayog Chairman
ii. Secretary, Department Food and Public Distribution, Member
iii. Secretary, Department of Expenditure, Member
iv. Secretary, Department of Agriculture Cooperation and Farmers
Welfare, Member
v. Secretary, Department of Commerce, Member
vi. Secretary, Ministry of Petroleum and Natural Gas, Member
vii. Secretary, Ministry of Environment, Forest and Climate Change, Member
viii. Shri Yaduvendra Mathur, Additional Secretary (KIH),
NITI Aayog, Member
ix. Shri R.P. Gupta, Additional Secretary (Energy), NITI Aayog, Member
x. Principal Secretary, Sugar Industry and Cane Development
Department, Government of UP Member
xi. Secretary, Co-operation, Textile and Marketing Department,
Government of Maharashtra, Member
xii. Dr N.R. Bhanumurthy, Professor, NIPFP, Member
xiii. Dr Yogesh Suri, Senior Adviser, NITI Aayog, Member/ Convener
Page | 18
The Terms of Reference of the task force were:
a) To suggest long-term solutions to the problems faced by sugarcane farmers and
sugar industry
b) Measures for rationalising the sugar economy
c) Measures to make sugar industry less state dependent and align it with global
markets.
d) Encourage farm diversification so as to reduce adverse impact on the water
sector.
The technical support to the task force was provided by the Department of Food
and Public Distribution. The task force also invited representatives of Indian Sugar Mills
Association, National Federation of Cooperative Sugar Factories, etc., in its meetings.
The task force had three regular meetings on 21 January 2019, 30 August 2019
and 27 November 2019. Besides, smaller group discussions were held with various
stakeholders from time to time.
Page | 19
Chapter II
Background and Overview
Sugarcane and sugar are both vital for Indian economy as livelihoods of over 5 crore cane
farmers and their family members, depend on these sectors.
2. Sugarcane and Sugar: A Major Crop and Industry
2.1 The sugar industry plays a significant role in India’s agricultural economy—
sugarcane and sugar have been and continue to be important commodities of trade and
livelihood. Today, the industry is a vital cog in India’s rural development as the
country’s second largest agro-based industry, next only to cotton. It directly or
indirectly impacts the livelihoods of over 5 crore farmers and their dependents,
involved in cultivating sugarcane in an area of almost 50 lakh hectares. In addition, 5
lakh workers in sugar mills and another 10 lakh workers, through indirect means, draw
their livelihoods from the sugar industry.
2.2 India is the largest consumer and the second largest producer of sugar in the
world. Brazil has historically led the world in sugar production. However, of late, Brazil
has been diverting a large proportion of its sugarcane to the production of ethanol, and
soon India will take over the position as the world’s leading sugar producer. India’s
average annual production of sugarcane is 35.5 crore tonnes, with sugar production of
around 3 crore tonnes. Being the largest consumer of sugar, the domestic consumption
of India is estimated to be at around 2.6 crore tonnes in the current financial year.
However, the per-capita consumption of India is still slightly lower than in Europe, etc.,
at 20 kg as opposed to the latter’s average of 50–65 kg. In India, 35% of sugar is used in
household consumption and 65% goes for industrial uses, including beverages and food
manufacturing.
Table 1: Production of Sugarcane and Sugar in the World (2015–16)
Sl. No. Country Area
(Lakh ha)
% to World Production
(Crore
tonnes)
% to
World
Yield
(Tonne/ ha)
Sugar
Production
(Lakh tonnes)
1 Brazil 98.3 37.06 73.93 39.38 75.17 358.0
2 India 50.6 19.07 34.12 18.17 67.43 272.5
3 China 18.2 6.86 12.55 6.68 69.01 133.0
4 Thailand 13.2 4.98 10.01 5.33 75.74 102.0
5 Pakistan 11.3 4.26 6.38 3.39 56.48 47.0
6 Mexico 7.8 2.94 6.19 3.26 78.16 65.1
World 265.2 - 187.71 - 70.77 1723.6
Source: https://sugarcane.dac.gov.in/StatisticsAPY.pdf
2.3 Sugarcane cultivation and sugar manufacturing are marred by a complex system
of pricing, procurement, supply and regulation. The complexity is further aggravated by
state-level intervention in sugarcane pricing through the system of State Advised Prices Page | 20
(SAP). Because of the relatively high minimum price for sugarcane—the Fair and
Remunerative Price (FRP)—set by the Central Government, farmers prefer to sugarcane
despite poor competitiveness and an ample supply of the crop. Additionally, sugar mills
that buy sugarcane are mandated to purchase crops from farmers within a specified
radius known as the Cane Reservation Area at the FRP. In this way, sugarcane farmers
are fairly insured and protected by Government schemes and policies.
2.4 Both sugarcane and sugar are essential commodities and thus subject to control
through various provisions of the Essential Commodities Act, 1955. This means that the
industry is strictly regulated in terms of land demarcation for cultivation, sugarcane
price, sugarcane procurement, sugar production and sale of sugar by mills in domestic
and international markets. However, there is a debate on whether food commodities
still need to be treated as essential commodities, considering the industry’s resilience to
uncertainties.
2.5 Sugarcane cultivation trend has been varying for each state between 2014–15
and 2016–17, with some states showing an increasing rate of declining cultivation such
as Andhra Pradesh, Bihar, Karnataka, Maharashtra, Tamil Nadu and Uttarakhand. The
rest of India too has shown significant decline in sugarcane cultivation. However, states
such as Haryana and Uttar Pradesh (UP) have shown increasing or steady sugarcane
cultivation (Table 2).
Table 2: State-Wise Area under Sugarcane Cultivation (‘000 Hectares)
States 2014–15 2015–16 2016–17
Andhra Pradesh 139.0 122.0 103.0
Bihar 254.3 244.0 239.6
Haryana 97.0 93.0 102.0
Karnataka 480.0 450.0 397.0
Maharashtra 1030.0 987.0 633.3
Punjab 94.0 90.0 88.0
Tamil Nadu 263.1 252.3 218.3
Uttar Pradesh 2140.8 2169.0 2160.0
Uttarakhand 101.7 96.9 93.0
Rest of India 455.9 423.0 401.6
All India 5055.8 4927.1 4435.7
Source: Directorate of Economics and Statistics, Ministry of Agriculture and Farmers’ Welfare
2.6 In line with the cultivation area, during the periods 2014–15 and 2016–17, states
like Andhra Pradesh, Bihar, Karnataka, Maharashtra, and Tamil Nadu showed lower
production of sugarcane, in line with the rest of India output. States like Haryana, UP
and Uttarakhand showed increased output (Table 3).
Page | 21
Table 3: State-Wise Production of Sugarcane (‘000 Tonnes)
States 2014–15 2015–16 2016–17
Andhra Pradesh 9987.0 9353.0 7830.0
Bihar 14034.1 12649.3 13036.0
Haryana 7169.0 6692.0 8223.0
Karnataka 43776.0 37833.8 27378.0
Maharashtra 84699.0 73679.6 52262.4
Punjab 7039.0 6607.0 7152.0
Tamil Nadu 28092.8 25494.1 18987.6
Uttar Pradesh 133061.4 145385.0 140169.2
Uttarakhand 6165.1 5885.8 6477.0
Rest of India 28309.4 24868.9 24553.8
All India 362332.8 348448.4 306069.0
Source: Directorate of Economics and Statistics, Ministry of Agriculture and Farmers’ Welfare
2.7 Interestingly, despite a reduction in cultivation and production, states like
Andhra Pradesh, Maharashtra and Punjab have shown increasing or steady yields while
states like Karnataka and Tamil Nadu have seen declining yields. Haryana, Uttarakhand
and UP have seen increasing yields varying in degree (Table 4).
Table 4: State-Wise Yield of Sugarcane (Kgs/Ha)
States 2014–15 2015–16 2016–17
Andhra Pradesh 71849 76664 76019
Bihar 55179 51837 54415
Haryana 73907 71957 80618
Karnataka 91200 84075 68962
Maharashtra 82232 74650 82524
Punjab 74883 73411 81273
Tamil Nadu 106788 101059 86995
Uttar Pradesh 62155 67029 64893
Uttarakhand 60608 60772 69645
Rest of India 62100 58798 61144
All India 71511.0 70720.0 69001
Source: Directorate of Economics and Statistics, Ministry of Agriculture and Farmers’ Welfare
2.8 The top 4 sugarcane-cultivating States of India are UP, Maharashtra, Karnataka
and Tamil Nadu—in that order, with Bihar ranking fifth. Figures 1 and 2 below provide
data on sugarcane production and the area under cultivation, respectively, for 2016–17,
where the top four sugarcane-producing states accounted for almost 80% of the
country’s production. In relation to this, it is unsurprising that almost 80% of the gross-
cropped area under sugarcane in India fell within the top four States. UP is by far the
largest sugarcane producer, producing 46% of the country’s total cane output. In
comparison, this is almost three times the second-largest sugarcane-producing state.
Page | 22
Figure 1: State Share in Production of and Area under Sugarcane in India during 2016–17
Source: Directorate of Economics and Statistics, Ministry of Agriculture
2.9 In total there are about 530 functioning sugar mills across the country, two-
thirds of which are privately owned entities. Private sugar mill ownership is widespread
in UP. The remaining sugar mills run as cooperatives, whereby the farmers are
collective owners of those mills. This kind of sugar-mill ownership is prevalent in
Maharashtra.
2.10 The sugar industry has been successful by commercially utilising the crop for
economic purposes and creating immense value in the rural economy. The industry has
an annual turnover of about ₹1 lakh crore and generates revenue of ₹12,000 crore for
the Government exchequer.
The current scenario of the sugar industry
2.11 Sugarcane and sugar production in India have moved on a cyclical upward trend.
In a sugar cycle of roughly 5 years, the industry usually experiences over-production for
3 to 4 years followed by low production for a year or two. Until a few years ago, the crop
exhibited strong cobweb behavior. The industry experiences such surpluses in
production because farmers prefer to cultivate this crop. This preference arises from
the high rate of return (RoR) received by sugarcane farmers as well as the certainty of
finding an assured buyer for their produce. The returns on cultivating sugarcane are
60%–70% more than most other crops. Sugarcane farmers also get the full promised
price that has been fixed by the Government, which is not the case for most other crops
and since there is no middleman between a sugar mill and sugarcane farmer, the
sugarcane farmers continue to be keenly interested in growing sugarcane, even though
payments due to them by the ex-mills get delayed. Despite payment delays, in most
cases, sugarcane farmers receive at least two thirds the amount for their produce in a
timely manner. It is also important to note that the sugarcane crop is sturdy and can
withstand fluctuations in weather. Compared to many other crops, cane farmers have to
put in little effort by way of inputs and manhours in growing their crops and therefore,
it is often considered the ‘lazy crop’. Page | 23
2.12 During a typical sugar cycle (1 October to 30 September), the one or two years of
slump in the production are a result of falling prices due to excess supply of sugar in the
market during peak seasons. In these years of slump, payments that are due from sugar
mills to sugarcane farmers start to accumulate as arrears due to decreased demand.
This leads to farmers shifting their cultivation to other crops, which is usually just for a
year or two. When the demand for sugar picks up again, resulting in increase in sugar
prices due to lesser supply, sugarcane farmers are prompted to return to cultivating
sugarcane the following year. In this regard, the surplus of sugar produced during the
boom years usually gets used up in the shortage year(s). This reflects a self-correcting
mechanism of the industry. In other years, shortages in sugar supply may result due to
droughts or other natural or economic reasons. In 2016–17, Maharashtra and
Karnataka experienced critical droughts that resulted in a national decline of sugar
production.
Figure 2: Demand and Supply of Sugar
Source: ISMA (figures in lakh tonnes)
2.13 The balance sheet of sugar over the last five seasons and current season (October
2019–September 2020) is given in the Table 5. It can be seen that the opening balance
of sugar during 2019–20 is significantly high at 142 lakh tonnes and despite a lower
production estimate at 280 lakh tonnes (compared to 331 lakh tonnes in the previous
year), the year is expected to end at a closing stock level of around 102 lakh tonnes. This
is expected to continue to put pressure on domestic prices in the near term.
127
193
284
264
145
183
244
263
251
244
283
251
203
322
330
280
85
40 43
110
105
35
50
59
66
93
75
91
78
39
107
142
185
185
199
219
229
213
208
226 228
242
256
248 245
254
260 260
0
50
100
150
200
250
300
350
Production Opening Balance Internal Consumption Page | 24
2.14 Regardless of the few shortage years now and then, India structurally has
become a sugar-surplus nation. Sugarcane farmers are getting more and more attracted
to growing sugarcane with higher assured prices (which has nearly doubled since 2009)
as well as assured marketing. Consequently, sugarcane production is on a growth
trajectory for the last ten years, ever since the concept of FRP for sugarcane was
introduced. This in itself has become a major concern, resulting in surplus stocks in
warehouses time and again.
Sugarcane Pricing Policy
2.15 The Sugarcane (Control) Order, 1966, issued under Section 3 of the Essential
Commodities Act, 1955, empowers the Central Government to fix cane prices payable by
mills to sugarcane farmers. Under this provision, the Central Government fixed a
Statutory Minimum Price (SMP) for sugarcane, the basis of which was similar to that of
the Minimum Support Price (MSP) for 24 other commodities. In 2009–10, the
Government switched to the FRP model for the pricing of sugarcane, which considers
additional cost factors that were not earlier considered. This gives growers a
substantial-enough incentive to cultivate sugarcane. The FRP is currently based on
recovery of 10% sugar from the sugarcane, having gone up from 8.5% in 2009–10 in
line with varietal improvement in the crop. Currently, the FRP of sugarcane is Rs 275
per quintal, which is 80%–90% more than the A2+FL cost of cultivation.
2.16 The present FRP, which is fixed at Rs 275 per quintal at 10% recovery, is subject
to a premium of Rs 2.75 for every 0.1% increase in the recovery, over and above 10%
recovery. Further, a reduction in FRP at the same rate for each 0.1% decrease in the
recovery rate till 9.5% is also built into the pricing mechanism. For mills where the
Table 5: Sugar Balance Sheet for the Last 5 Seasons and Current Season (Qty in Lakh Tonnes)
Particulars 2014–15 2015–16 2016–17 2017–18
2018–19
(estimated)
2019–20
Carry-over stocks with sugar mills
from previous season
72. 13 90.00 77.10 39.62 107 142
Production of sugar
284.63
251.21 202.27 322 331.33 280
Imports - - 5.00 2.5 -
Estimated total availability 356.76 341.21 284.37 364.12 438.3 422
Estimated releases/dispatches for
internal consumption
256.00 247.61 245.00 250 260 260
Exports against ALS/AAS obligation
and OGL
12.00 16.50 - 10 37(MIEQ) 60
(estimated)
Total estimated releases/dispatches 268.00 264.11 244.75 260 298 320
Estimated closing stocks with sugar
mills at the end of season
88.76 77.10
39.62 107 140.3 102
Source: Department of Food and Public Distribution Page | 25
recovery rate is 9.5% or below, the FRP is fixed at Rs 261.25 per quintal, in order to
protect farmers and their families, on account that one of the reasons for low recovery,
along with quality of cane, may also be due to efficiency of mills.
Figure 3: FRP (₹ Per Quintal), A2+FL costs [at Recovery Rate] (₹ Per Quintal), C2 costs
[at Recovery Rate] (₹ Per Quintal) and Recovery Rate (%)
Source: Sugarcane Price Policy Reports, CACP, Ministry of Agriculture and Farmers’ Welfare
2.17 It is important to note that the FRP of sugarcane accounts for around 80%–90%
price of sugar of equivalent quantity. Since 2009–10, the FRP has increased by about
111% (in 10 years). The Commission for Agricultural Costs and Prices (CACP), in their
sugarcane pricing policy report, also stated that the net return on cultivating sugarcane
is 200%–250% higher than cotton and wheat. Even if the two crops are added,
sugarcane profitability rule is much higher.
2.18 On the other hand, the Central Government has of late started Minimum Selling
Price (MSP) for sugar. Currently, the MSP of white/refined sugar is at ₹31/kg
considering the components of FRP of sugarcane and minimum-cash-conversion cost of
the most efficient mills. This was increased from ₹29/kg on 14 February 2019 by the
Department of Food and Public Distribution following representations from mills
regarding inability to make reasonable returns on this cost and to pay cane dues to
cultivators timely. The cost of sugarcane, as mentioned earlier, accounts for a high
proportion of the price of sugar, as the price of sugar has remained depressed for many
years in a row. Until June 2018, the problem of inability to pay had become so grave that
the sugarcane arrears rose to a whopping ₹22,000 crore. Adding to this, State
93.69
120.44 122.88
132 134
145
155 156
170
210
220
230 230
255
275 275
129.76
184.82
193.13
203 203 202
217
220
9.2
9.3
9.4
9.5
9.6
9.7
9.8
9.9
10
10.1
0
50
100
150
200
250
300
2012-132013-142014-152015-162016-172017-182018-192019-20
Recovery rate A2+FL FRP C2 Page | 26
Governments are also at liberty to fix their own prices for sugarcane. In States such as
UP, Bihar, Haryana, Punjab and Tamil Nadu, the SAP has been fixed at a level higher
than the central FRP, creating further problems for mills to financially sustain
themselves in these SAP-regime States. Tamil Nadu has discontinued announcing SAPs
whereas for other States viz. UP, Bihar, Haryana and Punjab, FRPs range between Rs
300 to Rs 325 per quintal compared to Central FRP of Rs 275 per quintal (Table 5).
Figure 4: Comparison between FRP and Ex-Mill Prices (₹ Per Quintal)
Source: ISMA
Table 6: SAP Provided for Sugarcane in Different States of India (in ₹/qtl)
Name of State
SAP for Sugar Season
2013–14 2014–15 2015–16 2016–17 2017–18 2018–19
Uttar Pradesh 280 280 280 305 315 315
Haryana 295 305 305 315 325 335
Punjab 280 295 295 290 300 300
Uttarakhand 285 280 280 307 315 317
Tamil Nadu 240 240 285 285 285 As per Revenue
Sharing
Formula
All India FRP 210 220 230 230 255 275
Source: ISMA
2.19 Since sugarcane has a very short shelf life, the responsibility of procurement of
cane is on the sugar mills that are mandatorily expected to pay the FRP on purchase
upfront. Additionally, other crops that are under the MSP can be sold at prices higher
than the MSP itself. However, with regard to sugarcane, the absence of shelf life prompts
them to sell their produce at any price prevailing in the cane-crushing season
irrespective of demand and supply forces.
Page | 27
Table 7: Cost of Production of Sugarcane in Comparison to FRP/ SAP (in ₹/qtl)
States
2018–19 2019–20
A2 + FL C2 FRP/ SAP A2 + FL C2 FRP/ SAP
Andhra Pradesh 184 268 275 192 277 275
Haryana 335
Karnataka 122 170 275 126 179 275
Maharashtra 136 176 275 146 191 275
Punjab 300
Tamil Nadu 199 241 275 214 262 275
Uttar Pradesh 165 243 315 157 231 315
Uttarakhand 134 217 317 139 234
India 155 217 275 156 220 275
Source: Sugarcane Price Policy Reports, CACP, Ministry of Agriculture and Farmers’ Welfare
2.20 These measures of excess FRP and even higher SAP has rendered the sugarcane/
sugar industry out of sync with many other agri-commodities in the Indian market. The
high price of sugarcane promotes the production of sugar far in excess of national
requirement. More often than not, the sugar industry gets saddled with high
inventories, leading to fall in prices below the cost of production and high carrying costs
and spoilage of sugar stocks, thus driving the industry to sickness. The sugarcane
farmer, rather than benefiting from the high administered prices of sugarcane, suffers
distress caused by resource crunches with ex-mills as they are unable to make timely
payments for the crop. While the recovery remains reasonably high, the pressure on the
mills and the delays in payments to the farmers make this situation untenable in the
long run. The problem of arrears started occurring from 2010–11 and became a cause
for major concern in 2014–15 and subsequently from 2017–18 onwards.
Sugar as an Export Commodity
2.21 India, in a typical sugar cycle, produces excess sugarcane/ sugar every 3 to 4
years. Exports can be a viable option for disposal of this excess production. However,
many a time it becomes difficult for the Indian sugar industry to compete in the
international markets because most of the overseas markets are already captured by
other sugar-surplus-producing countries. For Indian sugar to be competitive enough, a
thorough analysis and understanding of international market is needed. The basic
factors in export competitiveness of sugar are the difference between the cost of cane
and cost of producing sugar in India vis a vis other major sugar-producing countries of
the world. The other factor is the quality of sugar being exported from India in
comparison to the quality of sugar in the international markets.
2.22 As per the details provided by the Indian sugar industry, cane prices on average
account for about 70%–75% of the cost of sugar. In Brazil, Thailand and Australia, the
cane price per ton was USD 25.11, 27.45 and 24.05, respectively, while in India it was
USD 42.30 (in 2017–18 sugar season). This makes nearly a 65% difference in cost price.
As a result, the total cost of producing sugar in India turns out to be ₹36 per kilo as
compared to ₹18.50 globally. Additionally, as mentioned earlier, the global sugar Page | 28
industry is mostly a captured market. Brazil is the leading exporter to the Americas
while China, Thailand and Australia have conquered the markets of Asia and Africa. For
India to enter such a competitive market will be a mammoth task considering its high
prices. As seen in Figure 4, while the FRP has doubled since 2009–10, the average ex-
mill price of sugar has barely changed in the last decade.
2.23 As a result, the export of sugar to dispose excess sugar stocks in the country is
not a viable solution in the short term. Certain solutions to boost exports as
recommended by the industry include provision of Government support in terms of
subsidy/assistance and providing mandatory quota for exports. However, the task force
feels that the sugar exports of India can only be competitive once the internal problems
of the Indian sugar industry are resolved. This is with respect to overall production cost,
pricing policy, alternative uses of cane, returns to mills, etc. These points will be further
discussed later in the report.
2.24 Figure 5 below illustrates India’s white sugar prices in comparison to that of
international prices. As of June 2019, white sugar prices in India were 60% higher than
comparable international prices. This resulted in Indian sugar being uncompetitive
internationally. Owing to India’s high cost of sugarcane and eventual production of
sugar, ex-mill sugar prices are higher even than international retail prices. Basis this, it
has been difficult for Indian sugar to compete in the international market without
Government support. The Government has been providing export subsidies in order to
export sugar. In 2018–19, almost 40 lakh tonnes of sugar were exported valued at US$
1.36 billion. The present year’s target is at 50 lakh tonnes. However, representatives of
the sugar industry have requested the Government to set a higher target. Export
subsidies for sugar have benefitted Indian exporters to an extent, but this has resulted
in other sugar-exporting countries like Brazil voicing their concerns to the World Trade
Organisation (WTO) against excessive Government support being provided to boost
sugar shipment from India. Australia and Guatemala have also shared their concerns.
For improving sugar exports, support by the Government to India’s sugar industry will
have to be cognizant of and compliant with the guidelines of WTO agreements to avoid
any breaches.
Page | 29
Figure 5: International vs. Domestic Prices of White Sugar—October 2015 to June
2019 (in US$/MT)
Source: Department of Food and Public Distribution
Sugarcane, Its Cultivation and Climatic and Water Requirements
2.25 Sugarcane in India is produced in two distinct agro-climatic regions: tropical and
subtropical. The former includes Northern States like UP, Bihar, Haryana and Punjab
and the latter includes Western, Southern and Central states Maharashtra, Andhra
Pradesh, Tamil Nadu, Karnataka, Gujarat, Madhya Pradesh, Goa, Pondicherry and
Kerala. Sugarcane is ideal for the Indian climate and requires temperatures between 20
to 40 degrees Celsius to grow.
2.26 Sugarcane is planted in three distinct seasons, i.e. autumn (September to
October), spring/Eksali (January to March) and summer/Adsali (July to August). In
tropical regions, the crop is cultivated all year round as these regions do not experience
many extremes in weather conditions. However, in subtropical regions, where winters
are very cold and summers are very hot, the most productive months for sugarcane
cultivation span only 4–5 months in a year. In this region the crop is planted either in
the spring or autumn months. In tropical regions such as Maharashtra and Karnataka it
can also and is usually cultivated in July–August (Adsali). The duration of the sugarcane
crop in India ranges between 10 and 18 months, however, the 12-month crop is most
common. The Eksali crops usually take 12 months to be harvested, the autumn crops
take 13–15 months, while Adsali crops take 15–18 months.
2.27 The two agro-climatic regions on account of differences in soil, weather and
other environmental conditions also experience differences in sugarcane productivity
and water requirement for the crop. The state with the highest productivity of
sugarcane is Kerala at 116.2 tonnes/ha, followed by Tamil Nadu at 90.1 tonnes/ha, both
of which fall in tropical regions. In contrast, the productivity of sugarcane in subtropical
regions like UP, Bihar and Punjab are only 72.7, 67.9 and 81.0 tonnes/ha respectively.
338.67
458.38
542.21
0.00
100.00
200.00
300.00
400.00
500.00
600.00
700.00
800.00
Oct Dec Feb Apr
June Aug
Oct Dec Feb Apr
June Aug
Oct Dec Feb Apr
June Aug
Oct Dec Feb Apr
June
2015-162016-172017-18 2018-19
International Indian Ex-Mill Indian Retail Page | 30
Figure 6: State-Wise Productivity of Sugarcane (2017–18)
Unit: metric ton/hectare
3rd advance estimates for sugar season 2017–18. March 2018; Vol. 49, No.7
Source: Issued by the Department of Agriculture and Farmers’ Welfare via Directorate of Sugar
Development
2.28 Sugarcane is known to be a water-guzzling crop. It requires anywhere between
1500–3500mm of rainfall depending on the region. In subtropical regions sugarcane
requires around 2000 mm of rainfall while in tropical regions it requires up to 3500
mm. On average, 1 kg of sugar requires about 1500–2000 kgs of water. This shows that,
like paddy, sugarcane is a water-intensive crop. About 70% of the country’s irrigation
facilities are utilised by paddy and sugarcane, depleting water availability for other
crops.
The water requirements of sugarcane are mostly met through irrigation, mainly
groundwater. Even then, water requirements of sugarcane are different for different
states as can be seen in the table below.
Table 8: Irrigation Water Requirement for and Water Productivity on Sugarcane
State Irrigation Water Requirement
(cm)
Physical Water Productivity
(kg/cubic meter)
Bihar 37.5 7.74
Uttar Pradesh 57.2 9.6
Uttarakhand 57.2 9.6
Andhra Pradesh 202.5 2.91
Maharashtra 206.3 (pre-season) 5.94
243.8 (Adsali)
Karnataka 256 4.53
Tamil Nadu 297 14.01 Page | 31
Source: NABARD
Sugarcane Arrears
2.29 One of the main problems that the industry faces is delay in payments by sugar
mills to sugarcane farmers. Sugarcane FRP accounts for about 70% of the price of sugar,
sugar mills are left in a distressed state and unable to make adequate profits when
sugar prices are low. This leaves them with little to no resources to purchase sugarcane
in succeeding years.
Table 9: Arrears at the End of January/ February/ March during last 5 Sugar
Seasons
Months 2013–14 2014–15 2015–16 2016–17 2017–18 2018–19
As on 31
January
12249 12285 5447 9403 13932 22164
As on 28
February
17516 16364 13768 10015 16490 20159 (as on
22.02.2019)
As on 31
March
18648 20099 13530 9526 19780 N.A.
Source: DFPD
2.30 The table above indicates that the problem has become so stark that cane arrears
have crossed the ₹20,000 crore. In February, the Cabinet Committee on Economic
Affairs (CCEA) announced soft loans for sugar mills to be given by banks up to ₹10,540
crores to facilitate clearing of sugarcane arrears along with interest subvention, up from
7%–10%, for a year that will be borne by the Centre.
Buffer Stocks for Sugar
2.31 In order to alleviate the problem of the industry on account of surplus
production and depressed sugar prices, one of the important measures taken by the
Government is the creation of a buffer stock for sugar. Unlike the buffer stocks of wheat
and rice, which are maintained by the Government (through FCI), the buffer stock of
sugar is collectively maintained by the mills themselves. The Government reimburses
the mills for the maintenance of this buffer stock on the basis of interest and
storage/insurance expenses at 12% and 1.5% per annum, respectively, on the value of
actual sugar or actual expenditure, whichever is lower.
2.32 The scheme was launched in June 2018 with a buffer stock of 30 LMT of sugar for
the period 1 July 2018 to 30 June 2019 for 2017–18 SS. Cabinet has recently approved a
buffer stock of 40 LMT from 1 August 2019 to 31 July 2020 for 2018–19 SS. The total
cost amounted to Rs 1175 crore for 2017–18 SS and is expected to cost Rs 1674 crore in
2018–19 SS, considering the cost of production of sugar at Rs 31,000/MT on 40 LMT of
buffer stock.
Page | 32
2.33 This reimbursement is termed as buffer subsidy, which is paid on a quarterly
basis and transferred directly to farmers on behalf of mills against cane price dues. Any
balance amount is credited to the mills. The scheme, inter alia, helps to improve the
liquidity position of sugar mills and enable them to clear their cane-price arrears.
However, the Department of Food and Public Distribution is authorised to withdraw or
make changes in the scheme if deemed necessary.
Efforts Made by the Government of India in Recent Years
2.34 Over the past several years, the Government of India has taken numerous
measures to help the sugarcane producers and sugar industry. These include the
following:
i) Extended working capital loans with interest subvention under the Scheme for
Extending Financial Assistance to Sugar Undertakings (SEFASU 2014) as well as
the soft loan scheme.
ii) Provided incentive for exporting raw sugar in the sugar years 2013–14 and
2014–15.
iii) Facilitated supply of ethanol under Ethanol Blended Petrol (EBP) programme by
fixing the remunerative price.
iv) Provided performance-based production subsidies at Rs 4.50 per quintal of cane
crushed for sugar season 2015–16 payable to farmers against their cane dues
contingent on mills undertaking export and supplying of ethanol.
v) Aided sugar mills at Rs 5.50/quintal of cane crushed for sugar season 2017–18 to
offset the cost of cane amounting to about Rs 1540 crore. In 2018–19 SS further
assistance to sugar mills was provided at Rs 13.88/quintal amounting to a total
of Rs 4163 crore.
vi) Created buffer stock of 30 LMT in the 2017–18 sugar season for which the
Government will reimburse the carrying cost of Rs 1175 crore towards
maintenance of buffer stock. For 2018–19 sugar season, the buffer stock is to be
increased to 40 LMT at a reimbursement cost of Rs 1674 crore.
vii) Extended soft loans of Rs 6,139 crore in 2017–18 SS through banks to the mills
for setting up new distilleries and installation of incineration boilers to augment
ethanol production capacity for which the Government will bear interest
subvention of ₹1332 crore. A further extension of soft loans in 2018–19 SS of
about Rs 10,540 crore was provided for which interest subvention was at 7% for
one year, amounting to Rs 738 crore.
viii) To prevent cash loss and to facilitate sugar mills to clear cane dues of farmers in
time, the Government has fixed a minimum selling price of sugar at Rs 29/kg for
sale at factory gate in domestic market, below which no sugar mill can sell sugar
(since raised to Rs 31/kg).
ix) Notified the new National Policy on Biofuels, 2018, under which sugarcane juice
has been allowed for the production of ethanol. Further, the Government has
fixed the remunerative price of ethanol produced from C-Heavy molasses and B- Page | 33
Heavy molasses/sugarcane juice separately for supply under EBP during ensuing
ethanol season 2018–19.
x) Every year export targets were fixed by allocating mill-wise Minimum Indicative
Export Quota (MIEQ). For 2018–19 SS, the MIEQ is 50 lakh tonnes.
xi) Assistance to sugar mills was extended for defraying expenditure towards
internal transport, freight, freight and other charges to facilitate export of sugar.
In 2018–19 SS this assistance amount to Rs 1375 crore.
xii) Increase in customs duty on import of sugar from 50% to 100%.
2.35 Further, the Government has also taken numerous policy measures to address
the problems of the sugar sector from time to time. These have helped keep the losses
and arrears to a minimum. However, there is a need to address the fundamental
problems faced by the industry so that the repeated and piece meal interventions are
not deemed necessary in the long run. Some of these recommendations are discussed
later in this report.
Page | 34
Chapter III
Reforms in the Sugarcane and Sugar Industry
Sugarcane and sugar have been analyzed closely several times from a reform perspective.
With the understanding that the entire sector required significant changes to avoid a
situation similar to the current challenges, several committees had been appointed that
made a variety of recommendations that have only been occasionally and varyingly
implemented.
3. Past Committees to Tackle the Problems of Sugar of the Government of
India
3.1 There are several problems faced by the sugar industry today. To tackle these
problems, the Government of India had taken several steps to ensure that the sugar
industry functions smoothly. The Central Government had also constituted various
committees/working groups from time to time for studying the problems of the sugar
industry and making appropriate recommendations to address their difficulties. In the
past 25 years, the following committees/groups had been set up:
Table 10: Past Sugar Committees
Sl. No. Committee/Group Year Name of the Chairman
1 The High-Powered Committee on Sugar
Industry
1996 Shri. B.B. Mahajan, the retired Food
Secretary
2 Committee on Revitalisation of Sugar
Industry
2004 Shri. S.K. Tuteja, the then Food
Secretary
3 Groups of Experts on Sugar 2007 Dr. Y.S.P. Thorat, retired Chairman,
NABARD
4 High-Powered Committee on
Cooperatives
2009 Shri. Shivajirao G. Patil
5 Committee on Regulation of Sugar in
India
2012 Dr. C. Rangarajan, the then
Chairman, EAC-PM
6 Working Group on Sugarcane
Productivity and Sugar Recovery in the
Country
2013 Shri. T. Jacob, the then JS-Food
Source: https://www.researchgate.net
3.2 The broad recommendations of all the committees in general include (a) price
determination and distribution mechanisms for sugar; (b) setting up of new factories;
(c) amendments in various laws with regard to the sugar industry; (d) increasing
productivity of the sugar industry; (e) issues with regard to cane-area reservation; (f)
decontrol of sugar; (g) pollution mitigation; (h) improving the efficiency of the industry
in terms of power consumption; (i) alternate uses of sugarcane for ethanol; (j)
improvement of exports; (k) support needed for sugar mills to be more profitable, etc.
3.3 What is particularly relevant to this report are the recommendations of the
committee under the chairmanship of Dr. C. Rangarajan, the then chairman, EAC-PM. It Page | 35
was constituted in 2011 to look into all issues of deregulation in the sugar industry. The
Rangarajan Committee submitted its report to the Government in October 2012 with 8
broad recommendations. They were (1) removal of levy sugar, (2) dispensing of
regulated release mechanism of non-levy sugar, (3) abolition of cane-area reservation
system and bonding, (4) doing away with minimum distance norms for sugar mills, (5)
liberalisation of sugar trade, (6) market determination of prices of byproducts with no
earmarked end-use allocations, (7) rationalisation of sugarcane pricing, and (8) taking
out sugar from the purview of Jute Packaging Materials Act, 1987. The details of the
recommendations and the status of implementation are given in the following table:
Table 11: Rangarajan Committee Recommendations and Status
Sl.
No.
Issue Recommendation Status
1 Cane-Area
Reservation
Over a period of time, states should
encourage development of market-
based long -term contractual
arrangements, and phase out cane
reservation area and bonding. In the
interim, the current system may
continue.
States have been requested to consider the
recommendations for implementation as
deemed fit. So far, none of the States have
taken action, current system continues.
There is no reservation of area in
Maharashtra
2 Minimum
Distance
Criteria
It is not in the interest of development
of sugarcane farmers or the sugar
sector, and may be dispensed with as
and when a state does away with cane
reservation area and bonding.
States have been requested to consider the
recommendations for implementation as
deemed fit. So far, none of the States have
taken action, current system continues
3 Sugarcane
Price
Revenue
Sharing
Based on an analysis of the data
available for the byproducts (molasses
and bagasse/cogeneration), the revenue
sharing ratio has been estimated to
amount to roughly 75% of the ex-mill
sugar price alone.
States have been requested to consider the
recommendations as deemed fit. So far
only Karnataka and Maharashtra have
passed state Acts to implement this
recommendation.
4 Levy Sugar Levy sugar may be dispensed with. The
states which want to provide sugar
under PDS may henceforth procure it
from the market directly according to
their requirement and may also fix the
issue price. However, since currently
there us an implicit cross-subsidy on
account of the levy, some level of
Central support to help states meet the
cost to be incurred on this account may
be provided for transitory period.
Central Government has abolished levy on
sugar produce after 1
st October, 2012.
Procurement for PDS operation is being
made from the open market by the
states/UTs and Government is providing a
fixed subsidy @ ₹18.50 per kg for
restricted coverage to AAY families only
who will be provided 1 kg sugar per family
per month.
5 Regulated
Release
Mechanism
This mechanism is not serving any
useful purpose, and may be dispensed
with.
Release mechanism has been dispensed
with. Page | 36
Sl.
No.
Issue Recommendation Status
6 Trade Policy As per the Committee, trade policies on
sugar should be stable. Appropriate
tariff instruments like a moderate
export duty not exceeding 5 per cent
ordinarily, as opposed to quantitative
restrictions, should be used to meet
domestic requirements of sugar in an
economically efficient manner.
Import and export of sugar is free without
quantitative restrictions, but subject to
prevailing rate of custom duty. Import duty
has been enhanced from 25% to 40% w.e.f.
29.4.2015; which has now been enhanced
to 50% w.e.f. 10.07.2017.
Custom duty @ 20% has been imposed on
export of sugar vide Department of
Revenue’s notification no. 37/2016 dated
16.06.2016.
7 Byproducts There should be no quantitative or
movement restrictions on by products
like molasses and ethanol. The prices of
the byproducts should be market-
determined with no earmarked enduse
allocations. There should be no
regulatory hurdles preventing sugar
mills from selling their surplus power to
any consumer.
Excise duty on potable alcohol/ liquor is a
major source of revenue for the State
Govts. Restriction on movement of ethanol
and levying of taxes and duties on it by
State Governments continue to be an
impediment in successful implementation
of EBP. The Department of Industrial Policy
and promotion has now amended the
I(D&R) Act, 1951 vide notification No. 27 of
2016 dated 14.5.2016. With this
amendment, the States can legislate,
control and/or levy taxes and duties on
liquor meant for human consumption only.
Other than that i.e. denatured ethanol,
which is not meant for human
consumption, will be controlled by the
Central Government only. With the
amendment of I(D&R) Act, 1951 not only
the movement of fuel grade ethanol will
become smoother but the industry will be
encouraged to produce more ethanol
thereby increasing the blending percentage
with petrol further.
8 Compulsory
Jute Packing
May be dispensed with. The compulsory packaging of sugar in jute
bags has been relaxed further. Only 20% of
the production is to be mandatorily packed
in jute bags.
Source: Department of Food and Public Distribution Annual Report 2018–19
3.4 It can be seen that while some of the major recommendations of the Rangarajan
Committee have been implemented, some others were left to the State Governments to
decide. Developments since 2012 indicate that States have been generally reluctant to
undertake reforms in the context of abolition of cane-area reservation, minimum
distance norms, etc. Besides, not all States have done away with the concept of SAP.
Also, a major recommendation regarding the pricing of sugarcane linked to 70% of the
value of sugar and byproducts or 75% of ex-mill price of sugar has also not been
implemented. There is a need for a continuous dialogue with the State Governments
that are yet to implement major reform measures. Page | 37
Chapter IV
Ethanol Blending
Encouraging the production of ethanol and the early implementation of Ethanol Blending
Programme can be quite encouraging for the sugar industry and Brazil’s experiences
testifies the same.
4. Ethanol Blending
4.1 With the production of sugarcane and the stock of sugar growing every year,
strategies to divert excess cane production have been sought. One prime strategy that is
being implemented is of using sugarcane for the production of ethanol and diverting it
away from sugar production. Ethanol, which is an agro-based product and an important
renewable fuel, is naturally obtained from the fermentation of sugarcane molasses (a
byproduct of sugar production). Ethanol being an eco-friendly fuel source can be mixed
with gasoline to create different blends of fuel and, when the blend is used to run
machines, emits lesser environmental pollution. Harnessing the excess sugarcane for
ethanol production will not only help divert excess stocks but also benefit the sugar
industry and the economy in several other ways.
4.2 In 2003, the Government launched the Ethanol Blended Petrol (EBP) programme
primarily to promote environment-friendly fuels (by increasing the usage of ethanol)
and reduce energy imports. The programme, in general, was conceptualised with
multiple objectives in mind. By increasing the usage of biofuels, it aims to control
carbon emissions while also conserving foreign exchange and reducing import
dependency. More specifically, the EBP programme injects liquidity into the sugarcane
sector by providing a sustained demand for ethanol. Thus, it helps in the reduction of
accumulated arrears and permits timely compensation for cane farmers. Beginning in
2003 as a pilot project, the EBP programme has now been extended to the entire
country (with the exception of the Union Territories of Lakshadweep and Andaman and
Nicobar Islands). It is implemented through a network of 186 depots of Oil Marketing
Companies (OMCs), drawing ethanol from 179 distilleries with an installed ethanol-
producing capacity of 305 crore litres.
4.3 The erstwhile National Policy on Biofuels (2009) permitted the procurement of
non-food feedstock like molasses, celluloses and lignocellulosis. Until 2017–18 ethanol
for EBP programme came from molasses, allowing utilisation of a byproduct of the
sugar industry. The present outputs of molasses allow for the production of
approximately 300 crore litres of alcohol/ethanol, which is targeted at 10% blending.
However, the actual is only 5%–6%. Of this, EBP currently uses between 120–50 crore
litres and requires purity levels of 99.6%. The 2018 National Policy on Biofuels
broadens the scope for the raw material procurement for ethanol production. The
policy targets a 20% blending percentage by 2029–30.
Page | 38
4.4 Various measures have been undertaken by the Government of India to
encourage the domestic production of ethanol. These include amendments to the
Industries (Development and Regulation) Act, 1951, to legislate exclusive Central
control over denatured alcohol, reduction of the Goods and Services Tax (GST) levied on
ethanol for EBP to 5%, reintroduction of the administered price mechanism, expansion
of the programme and opening up alternate production routes. The government has
also adopted different pricing methods to boost the supplies of ethanol for the EBP
programme. However, the level of ethanol blending has remained low. The table below
shows the quantities of ethanol supplied and the blending percentages subsequently
achieved by OMCs.
Table 12: Details of Ethanol Supplied and Blending Percentages
Ethanol Supply
Year
Tendered Qty
(crore Lit)
Qty Allocated
(crore Lit)
Qty Supplied
(crore Lit)
Blending %age
PSU OMCs
2012–13 103.0 32.0 15.4 0.67%
2013–14 115.0 70.4 38.0 1.53%
2014–15 128.0 86.5 67.4 2.33%
2015–16 266.0 130.5 111.4 3.51%
2016–17 280.0 80.7 66.5 2.07%
2017–18 313.0 161.04 150.5 4.22%
2018–19* 329.0 268.6# 94.1 (*30.04.19) 6.10%
Source: Ministry of Petroleum and Natural Gas
# Out of this contracted quantity is 237.6 crore litres
4.5 As is evident from the table above, the quantity of ethanol supplied has been
significantly lower than the tendered quantity. This is largely due to supply-side
constraints, which include limited distillation capacity and availability of molasses.
4.6 The 2018 National Policy on Biofuels seeks to address these issues. A National
Biofuel Coordination Committee has been set up under the policy. It hopes to resolve
the lack of raw material availability by expanding the base of raw materials to include B
molasses, sugarcane juice and damaged foodgrains unfit for human consumption. This
measure aims to help OMCs achieve higher blending targets. Presently, the Ministry of
Petroleum and Natural Gas (MoP&NG) is undertaking the EBP programme to achieve
10% ethanol blending percentage in petrol by 2021–22. A differential pricing
mechanism for ethanol based on its source material has been introduced, as shown
below. Public sector OMCs follow an order of priority for ethanol procurement: from
100% sugarcane juice, B heavy molasses/ partial sugarcane juice, C heavy molasses, and
damaged foodgrains, in this particular order.
Table 13: Differential Pricing Mechanism for Ethanol
Source Material for Ethanol Production Price Paid to Suppliers (Ex-Mill)
100% sugarcane juice Rs. 59.19*
B heavy molasses/partial sugarcane juice Rs. 52.43
C heavy molasses Rs. 43.46
Damaged food grains / Other sources Rs. 47.13
*This price will be paid only to those sugar mills that divert 100% sugarcane juice for production of
ethanol thereby not producing any sugar
Source: Ministry of Petroleum and Natural Gas Page | 39
4.7 Public sector OMCs follow an order of priority for ethanol procurement: from
100% sugarcane juice, B heavy molasses/ partial sugarcane juice, C heavy molasses, and
damaged foodgrains, in this particular order. Until April 2019, OMCs have allocated
268.6 crore litres of ethanol procurement via EOI/tenders. The allocation of tenders
from different feedstocks is as shown below and supplies of given quantities have
started for the Ethanol Supply Year 2018–19. The task force feels there is significant
scope to enhance allocation of ethanol produced through 100% sugarcane juice route.
Table 14: Allocation Tenders of Ethanol
Raw Material for Ethanol Production Allocated Quantity (Crore litres)
100% sugarcane juice 2.10
B heavy molasses/partial sugarcane juice 49.67
C heavy molasses 194.85
Damaged foodgrains/Other sources 22.01
Total 268.63
Source: Ministry of Petroleum and Natural Gas
4.8 Attempts to incentivise ethanol production have been made via an interest
subvention scheme, namely: the scheme for augmenting and enhancing ethanol
production capacity. The scheme is jointly monitored by MoP&NG and the Department
of Food and Public Distribution (DFPD). So far, the DFPD has approved (in-principal)
114 proposals for a maximum loan amount of ₹6,139.08 crore, for granting interest
subvention. The Government of India has also allocated additional funds for the scheme.
These proposals are estimated to add another 200 crore litres of ethanol production
capacity. The procurement of ethanol from grain surplus projected by the Ministry of
Agriculture and Farmers’ Welfare has also been approved.
4.9 The amendment of the IDR Act also aims to smoothen inter- and intra-state
movement of ethanol by giving the Central Government exclusive control over it. The
possibility of higher blending, beyond 10%, in ethanol-surplus states of Uttar Pradesh
and Maharashtra is also being explored to avoid the movement of ethanol across the
country. For this, the Bureau of Indian Standards has already notified E-20 Standards.
The targets of ethanol blend percentage and estimates of the quantity of ethanol
required for blending in petrol is as under:
Table 15: Ethanol Blending Targets
Ethanol Supply Year Targeted Ethanol
Blend %age
Estimated Required Quantity
of Ethanol in crore lit
2018–19 6.0% 225
2019–20 7.0% 280
2020–21 8.5% 360
2021–22 10.0% 450
Source: Ministry of Petroleum and Natural Gas
Page | 40
4.10 By mandating OMCs to procure ethanol under the EBP programme at fixed
prices, the Government has effectively been subsidising the sugar industry. This is due
to the higher price of domestically produced ethanol vis-a-vis the price in the
international market.
4.11 Despite the above measures, a major challenge for the successful implementation
of the EBP programme remains ensuring the cooperation of its multiple stakeholders.
So far, only 11 states have implemented the amendments to the IDR Act. Several
important states like Delhi, Uttar Pradesh, Haryana, Rajasthan, and West Bengal, etc.,
continue to levy excise controls and trade duties that hinder the smooth
implementation of the EBP programme. While participation of ethanol suppliers and
OMCs is being facilitated, automobile manufacturers have expressed concerns over
material compatibility and drivability performance of higher ethanol blends when used
in vehicles. The task force recommends that modalities need to be worked out at the
earliest between MoP&NG and the different State Governments where the
implementation of amendments of IDR Act can begin. It is very important for Uttar
Pradesh to be on board as it is a state prominent in sugar and ethanol production. For
states such as Uttar Pradesh and Maharashtra that witness excess production, higher
blending target can be fixed.
4.12 The Cabinet approved the National Policy on Biofuels, 2018 which seeks to
expand the scope of raw material for ethanol production by allowing the use of
sugarcane juice during surplus sugar production phase. The EBP programme as
mentioned above is an important component of the policy as ethanol is a major biofuel,
which is renewable in nature, non-polluting and an indigenous energy source.
4.13 In a Cabinet Committee on Economic Affairs (CCEA) meeting held on 6 June
2018, it was inter alia decided to extend financial assistance to sugar mills for
enhancement and augmentation of ethanol-production capacity. This was in an effort to
check the already-mentioned excess sugar production that is witnessed two to three
times every sugar cycle. Under this new scheme, there would be no maximum cap on
loan given by banks to sugar mills to enhance their ethanol production by way of
installation of incineration boilers to existing distilleries, installation of new distilleries
and any other method approved by the Central Pollution Control Board (CPCB) to
achieve Zero Liquid Discharge (ZLD). Expansion of the ethanol production capacity of
existing distilleries would be allowed. The preference of sugar mills having no distillery
was removed. The basis of this scheme is the EBP programme.
4.14 Sugar mills, under this scheme, were asked to submit proposals on how they plan
to enhance and augment their ethanol production. Proposals were to be submitted to
the Department of Food and Public Distribution (DFPD) and these proposals would be
reviewed on the basis of (1) performance of ethanol supply under EBP programme, (2)
payment of cane price dues to farmers, (3) timely filing of monthly online return in
proforma II as prescribed by the directorate of sugar and vegetable oils, (4) compliance Page | 41
of various directives issued by DFPD after 6 June 2018 and (5) availability of molasses
for the project, to name a few.
4.15 A total of 268 proposals were received, out of which 114 had no pending
Government dues attached. Interest subvention totaling ₹1,332 crore was approved for
these 114 proposals, for approved loan amount of ₹6,139 crore. Out of those proposals
that were yet to be approved, 20 were green-field projects where concerned sugar mills
were yet to commence sugar production while most of the remaining had pending
Government dues.
4.16 On 7 March 2019 the CCEA chaired by the Prime Minister approved interest
subvention for all 268 proposals, which amounted to ₹2,790 for a total approved loan
amount of ₹12,900 crore. In addition, ₹1,332 crore was already approved by CCEA in
June 2018. It was also decided to extend soft loans by banks to further optimise the
ethanol production capacity amounting to ₹2,600 crore. These are primarily for
molasses-based stand-alone distilleries to augment capacity through installation of
incineration boilers and other methods in the existing distilleries for achieving Zero
Liquid Discharge. In addition, interest subvention of ₹565 crore for additional
equipment as well as for setting up of new stand-alone distilleries for ethanol
production will be covered by the Government.
4.17 This decision of the Government will not only help in reaching the target
objectives of the National Policy on Biofuels but will also help in reducing excess sugar
inventories by diverting molasses and sugarcane juice for ethanol production. This will
greatly help the sugar industry during surplus years and improve liquidity of sugar mills
by way of revenue through ethanol supply under EBP. It will thereby facilitate them to
clear cane price dues of farmers. The expected impact of the decision by the
Government is to:
improve liquidity of sugar mills by way of value addition to their revenues from
supply of ethanol
reduce sugar inventories
facilitate timely clearance of cane price dues of farmers
achieve 10% blending target of EBP
generate employment through the setting up of new distilleries, including expansion
of existing distilleries
4.18 Reforms that have taken place in this area include the Government having fixed
ethanol blend standards at 20%. With ethanol production capacities being set up
expeditiously, creation of another 200 crore litres in 2 years is expected, which would
conceivably drive the production of ethanol to 450–500 crore liters by 2020–21. In
2017–18 (December–November), it has been estimated that approximately 4.5%
blending had been achieved. For 2018–19, it has been estimated that 10% blending
requires 330 crore litres of ethanol, with contracts entered into for 260 crore litres
(almost 8% blend levels), including 50 crore liters from cane juice/B-molasses, for the Page | 42
first time. With India currently possessing over 70 lakh tonnes of surplus sugar, there is
significant potential for diverting surplus cane towards ethanol production. As per
Sugarcane (Control) Order, 1966, 1 tonne of sugarcane yields 70 litres of ethanol, while
producing one tonne of sugar is equivalent to producing 600 litres of ethanol.
4.19 Accordingly, the task force recommends that the target of 20% blending be
achieved expeditiously. Any impediments to this process be looked at seriously by the
Government and rectified to make it seamless. A mid-term target of 15% blending may
also be considered for 2024–25 in addition to 10% target for 2021–22 and 20% for the
year 2029–30.
The Brazil experience
4.20 As mentioned earlier, Brazil has focused more on diverting a large proportion of
its sugarcane produce towards ethanol production. Brazil has found a viable solution to
meet its energy requirements through ethanol as its cost of production is very low and
reduces dependence on imports of oil and natural gas. This section will briefly discuss
Brazil’s experience in diverting sugarcane to ethanol production and what India can
learn and take back from this experience.
4.21 Brazil is the largest producer of sugar with over 70,000 sugarcane growers and
376 sugar mills providing employment to about 7.73 lakh citizens and indirect
employment to about 20.3 lakh. In 2018–19, approximately 62 crore tonnes of
sugarcane was crushed. The total sugar value chain generated revenue worth US$ 40
billion, which was approximately 2% of the country’s GDP. In 2018, foreign revenue
from the industry came to US$ 7.4 billion, which partly came from exports of sugar of
2.9 crore tonnes.
4.22 Brazil has taken great leaps in the utilisation of its sugarcane to produce ethanol
in a profitable manner. The main reasons for Brazil’s venture into the ethanol economy
are to (1) generate income and diversify the rural economy, (2) diversify fuel mix to
create market balance, (3) mitigate climate change and reduce air pollution, (4) enhance
energy security through reduction of oil dependence, and (5) create value for the
industry. It produces approximately 3,300 crore litres of ethanol, making it the world’s
second largest producer of ethanol (only falling behind United States). The bio-
electricity generated through ethanol came to around 2.6 crore megawatt-hours,
supplying electricity to about 1.2 crore households. The energy provided by sugarcane
products represented 17% of Brazil’s energy matrix. It helped cut down nearly 52 crore
tonnes of carbon dioxide–equivalent (CO2eq) emissions.
4.23 The country has also taken great strides in promoting the use of ethanol in
vehicles. In 2003, Brazil launched Flex Fuel Vehicles (FFV) which have the ability to run
on more than one type of fuel, for example gasoline blended with ethanol or methanol.
FFVs are designed in such a way that both fuels can be stored in the same tank. Brazil is
the largest market for FFVs followed by USA, Canada and Sweden. A large proportion of Page | 43
its cars run on hydrous ethanol. The anhydrous ethanol is blended with gasoline. Since
2015, it is mandated that 27% of ethanol be blended with gasoline. In 2009 Flex Fuel
Motorcycles (FFM) were launched. As of now, 19 automakers produce more than 200
FFV models while 14 models of FFMs are produced. 97% of vehicles produced in Brazil
are FFVs while 32% of FFMs contribute to the motorcycle fleet. In total 74% of all
vehicles in Brazil are run on Flex Fuels while 24% run on gasoline and the remaining
2% on ethanol.
4.24 In the coming years, Toyota and Nissan have announced plans to launch Hybrid
Flex Fuel and e-Biofuel Cell Vehicles, respectively. The former has an FFV engine as well
as a combustion engine with an electric powertrain. The latter is a battery-powered
vehicle which uses bioethanol as a fuel cell. Both companies are planning to launch their
models in Brazil, which is a popular market for low emission cars, which is without a
doubt targeting for the future.
4.25 In order to control fuel prices, the Brazilian Government switches to alternatives
between gasoline and ethanol. At times when gasoline prices go up, people opt for
ethanol and vice versa, thereby creating a self-correcting mechanism. Brazil, however,
has the ability to lower its ethanol prices to affordable rates because its sugarcane
industry is run through the market mechanism. This means that there is no minimum
price at which sugarcane has to be purchased. In India’s case, the Government cannot
reduce ethanol prices, because sugarcane has an FRP, which is reasonably priced high.
In this case, the price of ethanol has to cover the cost by ex-mills in purchasing the
sugarcane from farmers.
4.26 To emulate Brazil’s best practices as such in the ethanol economy is not feasible
for India as the context is completely different. India can, however, learn from Brazil in
terms of making mandatory blending and utilising this blended fuel in vehicles.
Launching FFVs in India could be a wise move, which could run parallel to the
promotion of electric vehicles considering the potential market that is available for
automobile companies. Additionally, India instead of fixing a mandatory blending rate
for ethanol should have a flexible system wherein the rate of blending can change as per
the excess stock of sugar of any particular year. In this way, the volatility in the prices of
sugar can be kept in control.
Page | 44
Chapter V
Saving Water by Shifting Area under Sugarcane Cultivation to other Crops
The task force feels there is a significant scope for encouraging sugarcane farmers to
diversify away from sugarcane plantation, which will be extremely beneficial for sugar as
well as water economy in the long run.
5. Saving Water by Encouraging Farmers to Diversify to other Crops
5.1 Keeping in view that the sugarcane industry needs major reforms and radical
solutions, this task force is proposing a solution that involves incentivising farmers in
specific regions to divert cultivation away from sugarcane to other crops that require
less water and are suitable for the proposed areas. This will positively impact the
economy by reducing excess supply of sugarcane and the burden on sugar mills, and
save water. This would require the Central or State Governments to incentivize and
subsidise the diversification away from sugarcane. A detailed analysis of the proposal is
set out below.
Figure 7: Trends of Area, Production and Yield of Sugarcane in India
5.2 Figure 7 gives an overview of trends in sugarcane area, yield and production
since 1966. It can be observed that area and production of sugarcane increased sharply
during mid1980s to 2000 and again after 2005–06. The sharpest increase in trends is
observed after 2016–17, after a steep decline in area and production from 2015–16.
Page | 45
Table 16: Growth Rate of Area Production and Yield of Sugarcane in India
Time Period Growth Rate (%)
Area Production Yield
1999-2000 to 2008-09 1.22 0.94 -0.28
2009-10 to 2018-19 0.89 1.42 0.52
1999-2000 to 2018-19 1.07 1.62 0.55
5.3 Table 15 shows that from 1999–2008, sugarcane yield follow small decline,
however, at the same time, production grew at 0.94 per cent per annum due to an
increase in area (1.22 per cent) of sugarcane. Since 2000 both the yield as well as the
area has been growing, which accelerated growth in sugarcane production to 1.62 per
cent per year.
Table 17: Decomposition of Change in Sugarcane Production
Time Period Production
Change (000
ton)
Yield effect
(%)
Area effect
(%)
Interaction
(%)
1999-2000 to 2008-09 -29838 90.2 10.7 -1.0
2009-10 to 2018-19 111352 32.9 59.1 8.0
1999-2000 to 2018-19 81514 15.2 87.6 2.9
5.4 Table 16 gives us a broad overview on how the production of sugarcane is
impacted by yield, area and interaction. From 1999–2000 to 2008–09 a decline of
sugarcane production had been witnessed. This decline in production is mainly
attributed to the yield effect as noticed in Table 1, wherein the yield of the crop had
slumped in that decade. The next decade production had risen considerably with a vast
increase in the crop’s yield and the area under cultivation. The area under cultivation
seems to have had the highest impact on sugarcane production this particular decade.
The overall increase in production from 1999–2000 to 2018–19 can be predominantly
attributed to the increase in land under cultivation of sugarcane. With an assurance of
promising returns from the cultivation of the crop scores of farmers over the years
began to abandon their traditional crops in an attempt to shift to something more
lucrative, and therefore began cultivating sugarcane. As mentioned in the preceding
chapters, despite the arrears to farmers being a critical issue of the sector, there is a
high level of assurance that these farmers would eventually be paid their dues over
time.
Page | 46
Figure 8.1: Sugarcane Cropped Area Density and Stage of Groundwater Development
across Districts of Uttar Pradesh during 2016–17
Figure 8.2: Sugarcane Cropped Area Density and Stage of Groundwater Development
across Districts of Tamil Nadu during 2016–17
Page | 47
Figure 8.3: Sugarcane Cropped Area Density and Stage of Groundwater Development
across Districts of Maharashtra during 2016–17
Figure 8.4: Sugarcane Cropped Area Density and Stage of Groundwater Development
across Districts of Karnataka during 2016–17
Page | 48
5.5 Sugarcane cultivation may continue in districts where groundwater exploitation
is at a safe level. Diverting around 10% sugarcane area in semi critical, 15% in critical
and 20% in overexploited districts to other less water-intensive crops through
appropriate incentives and disincentives will make significant effect on water resources.
5.6 In Figure 8.1, which shows sugar cultivation and groundwater exploitation in UP,
we can see that there is a predominant sugar belt in the northern reaches of the State.
The District of Saharanpur is a prime sugar producer; however, its groundwater is
overexploited. Similar such districts in the State include Ghaziabad and Shravasti, which
are also prime sugar producers but experience groundwater exploitation. A substantial
shift in area under sugarcane cultivation to other less-intensive water-consuming crops
is needed in these districts.
5.7 Similar change is needed in Tamil Nadu (Figure 8.2), wherein a large proportion
of sugarcane cultivators are in districts where the groundwater is overexploited such as
Krishnagiri, Vellore, Dharmapuri, Salem, Namakkal, Perambalur, Thanjavur, Tiruppur
and Dindigul.
5.8 Maharashtra, which is the second largest producer of sugarcane in the country,
does not rely significantly on groundwater but on other sources like rainfall and canal
irrigation from reservoirs and dams for sugarcane cultivation. For cultivation of
sugarcane in Maharashtra about 3500mm of rainfall are required due to differences in
yield compared to other states. Therefore, the Figure 8.3 does not fully explain regions
where, in Maharashtra, sugarcane cultivation is to be diverted. However, through
literature, it is a well-known fact that large portions of central and western Maharashtra
experience drought and water shortage. In Figure 8.3, areas with the highest
concentration of sugarcane cultivation are in the southern reaches of Maharashtra
region or Pune Division. The climate and water conditions are fairly better here
compared to other regions of Maharashtra for sugarcane as a result of regular rainfall
along with several other sources of water for sugarcane cultivation such as rivers and
canal irrigation. However, for the Marathwada and Vidharba regions (Aurangabad,
Amaravati and Nagpur Divisions), which have a sizeable number of sugarcane farmers,
the water availability is critically low. For many months in a year, these regions
experience drought and critical water shortages. However, farmers continue to grow
sugarcane as it fetches them an assured price unlike other crops. Sugarcane in drought
seasons fetches higher returns than other crops such as cotton. Therefore, many
farmers here grow sugarcane as insurance and for the fact that it requires minimal
inputs. Additionally, a number of sugar mills have also been set up in the Marathwada
region in the past few years adding to more reason for a farmer to cultivate sugarcane.
This water-guzzling crop almost accounts for 70% of the water consumed for
agriculture in Marathwada and Vidharba. The State has, however, already taken action
with regard to curbing the development of new sugar mills in the regions to discourage
farmers from growing sugarcane. The task force recommends further steps with regard
to improvement of water-management techniques and drip irrigation in these regions, Page | 49
not only to improve the availability of water for sugarcane but also to ensure that water
is available to cultivate other crops. The sugarcane issue in Maharashtra is complex and
will have to be dealt with in a comprehensive and multi-faceted manner. It is important
to note that considering the level of rainfall required for the cultivation of sugarcane,
most areas of Marathwada and Vidharba would not be conducive to sugarcane
cultivation had the Government policies not incentivized it.
5.9 Karnataka is another State that experiences extreme droughts in some parts and
also has a complex sugarcane problem. Much like Maharashtra, sugarcane cultivation is
also concentrated in a few specific areas, that is, the northwestern region of the state, in
districts such as Belgaum, Bagalkot, Bijapur and Gulbarga and also in southern districts
of Mandya and Mysore. The remaining sugarcane cultivators are scattered sparsely in
the drought-prone areas across the State. Ironically, districts that cultivate sugarcane on
a large scale also experience droughts and problems of payment of arrears from mills. In
this regard, it is recommended that the State Government strategically select sugarcane
cultivators from those identified all over the State by the task force and encourage the
cultivation of alternative crops.
5.10 The strategy to divert sugarcane cultivation to other crops may be difficult with
regard to the rate of return that cane farmers receive. The per hectare net returns (over
A2+FL cost) on sugarcane for UP, Karnataka, Maharashtra and Tamil Nadu are ₹81,090
(based on SAP), ₹1,13,590, ₹1,20,527 and ₹1,05,846 (based on SAP), respectively. In
Uttar Pradesh, net returns per hectare on sugarcane are 3.3, 10.5, 3.1, 2.9 and 10.9 times
the return from paddy, maize, bajra, wheat and gram respectively. As sugarcane
occupies area throughout the year the proper comparison of net return should be done
with crop rotation i.e. crop sequence followed in one year. Even this comparison shows
that net return from sugarcane is much higher than the sum of net returns from rice and
wheat or any other combination of kharif and rabi crop. In the remaining three states,
the returns on sugarcane are higher compared to other crops/sequence. [Annexure-2]
5.11 The task force feels that a major reason for the problems of the sugar industry is
the high production of sugarcane in the country relative to the current demand for
sugar. It would be desirable that sugarcane farmers are incentivized to move to other
crops at least in the water-stressed areas. Overall, the Government could target about 2
crore tonnes of sugarcane (current production 34 crore tonnes) into other crops.
5.12 Further, specific recommendations for diversion can be analyzed on the basis of
yield and recovery rate on sugarcane, which is unique for every State. The task force
suggests a combination of crops to be grown in order to replace sugarcane. For example,
with regard to UP, diverting from sugarcane to paddy + potato would give as high
returns as sugarcane does. The same is the case of some other combination that
includes potato. However, the only issue is that potato and sugarcane do not grow in the
same areas, as can be seen in Figure 9 and compared with Figure 7.1. It may be due to
unfavorable climatic conditions or other factors that needs exploration. Another Page | 50
important factor that put a great barrier in promoting area under potato cultivation is
price. No minimum or ensured price is announced in case of potato. Most of the time
prices have slumped for potato at the time of its harvesting season. As seen in the
relevant Table, if farmers avail season price then they have very low net return. On the
other hand, if they get a price of 1.5 times on cost A2+FL cost, the net return goes up and
it mirrors approximately the sugarcane return in Uttar Pradesh.
Figure 9: Potato Cropped Area Density across Districts of U.P. during 2016–17
5.13 In this case an alternative crop combination will have to be worked out where
there is some overlap in cultivation regions. Other options in UP which provide
reasonable returns includes paddy + wheat and bajra + wheat as set out in Annexure-2
of this report. In Maharashtra sugarcane could be replaced by Tur + Onion, Cotton +
Onion or Soybean + Onion combinations. With regard to Karnataka and Tamil Nadu,
replacing sugarcane with any other crop is uneconomical and therefore entails that a
higher compensation package would have to be given to farmers. The decision in
diversion of choice of crop mix will have to be decided by the State Governments.
5.14 Based on the above analysis, a suitable combination of crops may be incentivised
to promote the diversion from sugarcane, and consequently, sugar. As the stocks of
sugar each year vary, the quantity of diversion of sugarcane required will have to be
decided on the basis of the opening stock of sugar of any particular year. For example,
let's assume that as per estimates of sugar for 2017–18 we have a production of 3.07
crore tonnes, opening stock of 1.07 crore tonnes and consumption of 2.6 crore tonnes.
The opening balance for 2018–19 would be 1.54 crore tonnes. Assuming that
consumption and production remain the same at 2.6 crore tonnes and 3.07 crore
tonnes, the excess unused sugar would amount to 1.74 crore tonnes. The diversion of
sugar will therefore need to be carried out as per these estimates each year, also
keeping in mind that a minimal reserve stock as opening balance for the succeeding
year will be required.
Page | 51
5.15 The task force feels that this mechanism may continue for the next 4–5 years till
the sugar economy stabilises and significant proportion of EBP targets are achieved.
However, if there is a sharp surge in sugar prices in the interregnum period (due to a
steep fall in sugarcane production due to droughts or turning of sugar cycle), the
scheme may be discontinued.
Page | 52
Chapter VI
Observations of the Task Force
The task force observed the numerous challenges facing the sugarcane and sugar sector,
and within its remit make important observations and recommendations to help reform
the sectors.
6. Easing the Liquidity Constraints on Farmers and Mills
6.1 One of the primary challenges that the sugar and sugarcane industry currently
faces is that at the existing wholesale prices of sugar and FRP/ SAP of sugarcane, sugar
mills are unable to generate enough liquidity to be able to make upfront payments to
the farmers for sugarcane, and then recover the cost through sales of sugar. According
to Industry sources market price of sugar is not in in sync with FRP/SAP to generate
adequate profit for sugar mills to fully pay FRP/SAP. As per the guidelines, mills must
make payments to the farmers within 15 days whereas their realisation of sugar sales is
staggered through the year. An innovative solution is therefore required to allow the
mills to have liquidity as well as support, and at the same time, the payments made to
farmers will need to be staggered such that 60% may be paid up front, and the balance
40% will be paid in installments depending upon the sale of sugar. Meanwhile, to
ensure that farmers are not inconvenienced due to the staggered payment of the
remaining 40%, adequate arrangements through the banking sector may be made with
some support from the Government through the Sugar Development Fund (SDF).
6.2 The SDF was established in 1982, through an act of Parliament. It is currently
used to grant loans to the sugar mills for facilitating their rehabilitation and
modernisation; Bagasse-based co-generation power projects; production of anhydrous
alcohol or ethanol from alcohol; conversion of existing ethanol plant into ZLD plant; and
development of sugarcane. The loans are provided at a concessional rate of 2% below
the prevailing bank rate. Further, SDF also covers:
i. defraying expenditure for the purpose of building up and maintenance of a buffer
stock of sugar
ii. internal transport and freight charges to the sugar factories on export shipments
of sugar
iii. financial assistance to sugar factories towards interest on loan given in terms of
any scheme approved by the Central government from time to time
iv. marketing and promotion service for raw production
v. interest subvention on scheme for extending soft loan to sugar mills
vi. production subsidy to sugar mills to offset cost of cane and facilitate timely
payment of cane price dues to farmers
6.3 To ensure that the farmers and mills are not unduly burdened, the task force
suggests that farmers may be paid 60% of the value of their sugarcane by the mills
within 15 days of receipt of the sugarcane, which covers entire cost of sugarcane
production and also provides small net income to producers. Remaining 40% payment Page | 53
should be staggered in a way that balances the interests of farmers as well as sugar
mills. However, it must be ensured that entire dues of farmers are cleared within a
period of 2 months.
6.4 The Task Force observed that to ease the overall pressure on mills and farmers
in the current scenario of the sugar industry, the primary focus of the SDF should be to
bridge the gap and compensate the farmers in times of excess supply of sugar, at least
until sugarcane season 2021–22 by when ethanol production is expected to ease the
pressure of excess supply of sugar on its market prices.
6.5 To fund the SDF it is proposed that the Government of India levy a cess of ₹50
per quintal on sugar that is intended to be sold in the domestic market to help build a
central fund of ₹1250 crore annually. This would provide bridge funding or act as a
comfort for banks providing soft loans to mills in order to allow the mills to improve
technologies and pay the farmers their due. Once the demand and supply balance is
restored, the cess may be reduced or removed, and sugar mills may be asked to
contribute to the SDF a certain percentage of sugar sales, which will be decided by the
Government of India. It is recommended that this cess be exempted (or refunded) for
the sugar that is earmarked for exports, in order to ensure that it does not become
uncompetitive for mills who export their mandated quota. Under this mechanism cess
should not be imposed when domestic prices are higher than international prices in
order to ensure that this intervention doesn’t lead to mills becoming uncompetitive for
their export quota.
One-Time Increase in Minimum Selling Price (MSP) of Sugar
6.6 Beside liquidity being a constraint for mills, the Minimum Selling Price of Sugar
at ₹31/kg, even though recently hiked by ₹2, does not even cover the cost of
manufacture, given the FRP, which is at a reasonably high floor of ₹275 per quintal
(SAPs even higher). In 2017–18, the production cost for sugar was ₹3,580 per quintal
(ISMA data). At the same time, the comparable international prices were averaging
₹2,080 per quintal. Thus, there is limited scope for alleviating the problems by way of
exports. One way of improving the liquidity situation of mills is to further raise the
Minimum Selling Price of sugar to Rs 33 per kg. Since the average consumption of sugar
per household per month is about 3.5 kg, the monthly impact on a household budget
shall be marginal and can easily be absorbed. In any case the Department of Food and
Public Distribution already has a scheme for providing subsidised sugar through PDS
system. The marginal increase in price shall not impact the demand for sugar as it is less
price elastic. At the same time, this can significantly help mitigate the stress on sugar
mills.
Reducing the Stress on Water Resources through Crop Diversion
6.7 India is facing serious water shortages affecting millions of people. Currently,
600 million Indians face high to extreme water stress and about two lakh people die
every year due to inadequate access to safe water. By 2030, the country’s water demand Page | 54
is projected to be twice the available supply, implying severe water scarcity for
hundreds of millions of people and an eventual 6% loss in the country’s GDP. As per the
report of the National Commission for Integrated Water Resource Development of the
Ministry of Water Resources, the water requirement by 2050 in high use scenario is
likely to be a milder 1,180 BCM, whereas the present-day availability is 695 BCM. The
total availability of water in the country is predicted to be lower than the projected
demand.
6.8 The task force examined interventions that make India’s water use in growing
sugarcane more efficient and sustainable through alternative acreage allocation. This is
especially important in regions where groundwater use has reached critical and
overexploited stage or where more than 50% surface water is used for irrigating only
sugarcane. Chapter 5 provide a detailed analysis of scope and need for improving
sustainable use of water by shifting some area from sugarcane cultivation to other
crops. This wil require appropriate action from Central and State Governments.
6.9 The task force feels that policy instruments like procurement of sugarcane at
FRP and other crops at MSP can also be potentially utilised for encouraging sugarcane
farmers to diversify into alternate crops, especially in water-stressed areas. An
additional incentive of ₹6,000 per hectare per year for three years can be considered for
farmers provided they reduce cultivation of sugarcane and divert their plantation to a
crop that is less water intensive.
6.10 One method to reduce area under sugarcane is to restrict cane purchase slips by
mills to farmers up to a total of 85% of farm area of current year from the next year.
This would likely ensure that farmers grow some other crops in the 15% area currently
under sugarcane cultivation. This could be more feasible for farmers cultivating in
larger land parcels. However, the 85% limit may also have to remain flexible keeping in
view the changing developments on demand–supply front and export possibility. Some
guidelines, including enforcement mechanism, may have to be developed for the same.
Ethanol Blending
6.11 The report include a detailed chapter on ethanol blending that provide in depth
analysis of ethanol blending and draws recommendations of this task force. EBP is
broadly a major reform to help reduce the pressure on mills saddled with excess
production of sugar while leading to a product that will help reduce oil import demand.
Currently, India imports approximately 82% of its crude oil requirements and this
dependence needs to be reduced. This is also critical to reduce the current account
deficit. The lessons from Brazil are that ethanol blending may help divert the sugar
surplus while at the same time reduce dependence on crude oil imports. The
Government of India has set a 10% ethanol-blending target by 2022, and 20% by 2029–
30. The SDF is being utilised to help upgrade and update technology for mills to be able
to manufacture ethanol. Care should be taken to ensure that ethanol technology
considers not just manufacture from molasses, but also from raw sugarcane juice to Page | 55
enhance efficiency and not waste time and resources in two levels of manufacture: from
sugarcane to sugar byproducts (molasses) and then to ethanol. A premium has also
been declared for ethanol produce from sugarcane/sugar. Over 90-crore liters of
ethanol making capacity is expected in the country by 2020. Brazil is reported to be ated
to be utilising 65% of its sugarcane directly for ethanol production.
6.12 Sugar industry has been demanding to prepone 20% ethanol blending target and
also have a higher targets (in excess of 10%) for the near future. However, the
automobile industry has expressed concern regarding increase in blending without
requiring some re-engineering of vehicles. A balance is, therefore, required between the
interests of sugar and automobile industry.
Implementation of Recommendations of the Rangarajan Committee
6.13 The task force observed that despite major reforms recommended by the C.
Rangarajan Committee in 2012, in terms of the Cane Area Reservation, minimum
distance between mills, cane pricing, and others, almost none of the States have
implemented these reforms. A detailed analysis and status report on the various
committees’ recommendations, including that of the C. Rangarajan Committee, were
discussed in an earlier chapter. The Department of Food and Public Distribution may
ascertain the reasons for not implementing the same in consultation with State
Governments.
Pricing of Sugarcane
6.14 Internationally, cane price ranges from 60%–66% of revenue from sugar and/or
byproducts, in countries such as Brazil, Kenya, Thailand, as per a presentation made by
ISMA to the task force. Further, the Rangarajan Committee had recommended a
Revenue Sharing Formula (RSF) for the sugar sector. It has been stated that based on
historical data in India and international practices, cane price should be pegged at 70%
of revenue from sugar and primary byproducts or at 75% of revenue from sugar alone
(giving 5% weightage to byproducts). CACP, in its report of the price policy for
sugarcane for 2019-20 sugar season, also favoured pricing sugarcane as per RSF
recommended by the Rangarajan Committee. CACP has indicated that only two states
viz. Maharashtra and Karnataka have implemented RSF. CACP has further indicated that
based on RSF, it is possible that cane price payable to the farmers becomes lower than
FRP. In such cases, the difference between FRP and RSF determined price may be
reimbursed to farmers through a Price Stabilisation Fund (PSF). PSF, on the other hand,
may be created by imposing sugar tax on soft drinks/beverages as has been done in
many developed and some developing countries. In periods of high sugar price, part of
the surplus generated under RSF can be retained and deposited in the PSF. Other option
can be dual pricing of sugar for industrial and household sector. With discontinuation of
levy obligation for sugar, sugar mills may also be asked to contribute to PSF. For
creating and managing PSF, CACP has suggested setting up a separate committee.
Buffer Stocks on Sugar Page | 56
6.15 To reduce problems related to excessive production of sugar and its effect on
prices, the Government of India has launched a buffer stock scheme so as to improve the
liquidity position of sugar mills and reduce uncertainties of demand and supply of
sugar. From 1
July 2018 to 30
June 2019, the Government had created a buffer stock of
30 LMT costing Rs 1175 crore for its maintenance. For sugar season 2018–19, the
Government has accepted the creation of a new buffer stock of 40 LMT from 1 August
2019 to 31 July 2020, which would cost Rs 1674 crore.
6.16 Reimbursement to sugar mills for maintenance of buffer stocks has helped
provide liquidity to them and reduce cane arrears. However, the task force feels that the
buffer stocks of sugar are only notional in nature and not in sync with Government
policies regarding food security (as in case of wheat and rice).
6.17 Though reimbursement to sugar mills for maintenance of sugar stocks reduce
cane arrears, it acts as an incentive for over-production in the long run. In addition to
the above, the maintenance charges given to mills act as an additional expense on the
Government exchequer as these stocks are usually resold in the market the following
year by the mills. There is need to take a holistic view of these stocks and mechanism for
continuation of this scheme.
Making Use of Sugarcane Bagasse
6.18 A high proportion of bagasse obtained as a byproduct of producing sugar is used
as captive power by generating heat in sugar mills. This reduces external energy
dependence of these sugar mills. The task force has observed that a large proportion of
bagasse from the sugar industry is poorly recycled. Efforts need to be made in better
utilising this in more productive ways. For every 10 tonnes of sugarcane crushed, 3
tonnes of wet bagasse is collected. Wet bagasse is called so as it contains moisture
content between the range of 48%–52%. Once dried, the dry bagasse has higher value to
the industry and the economy in terms of net calorific value.
6.19 The power purchase rates for Co-gen are determined by States and have been
steadily declining to worrying levels. The current revision of PPA unit price of electricity
has eliminated any new bagasse power plant in the country. Existing power plants will
have to continuously suffer as they have to operate to feed steam and power to the
sugar plant. This industry has also suffered due to significantly late payments in the past
for power that has been produced and sold. The positive environmental impact of
bagasse and other biomass-based plants must be considered in policy setting and the
Central government must exercise influence over States in this regard.
Greater Thrust on Jaggery
6.20 With changing lifestyles, it has been observed that people’s preference for white
sugar is stagnating or even marginally declining. At the same time jaggery is emerging
as an important alternative item whose demand is increasing. This is also visible in the
fact that jaggery demands higher prices in the market compared to white sugar.
However, the production of jaggery is not done in a scientific manner as in the case of Page | 57
sugar. There are no proper standards in place for the production and quality of jaggery.
The task force feels an urgent need to promote jaggery, including by improving
technology for the production and specification of quality standards. Page | 58
Chapter VII
Recommendations of the Task Force
A. Pricing of Sugarcane
7.1 The falling/stagnant price of sugar in the recent years in the backdrop of a
continuous rise in sugarcane prices is the biggest problem faced by the industry. In the
last ten years, the prices of sugarcane have almost doubled whereas the price of sugar
has hardly risen much. As a result, the industry has been facing problems of financial
viability, accumulation of unsold stock and liquidity constraints prompting them to
approach the Government for help time and again. The Government too, in the interest
of sugarcane farmers, has been announcing various packages from time to time.
However, the fundamental problem remains unaddressed. With sugarcane having a
fairly stable yield, quite remunerative returns and assured market, farmers remain
attracted to plant sugarcane notwithstanding the fact that there is hardly any growth in
the demand for sugar in the country or any major scope for exports. On the contrary,
being a water-intensive crop, the social costs of planting sugarcane are even higher,
resulting in reduced water availability for other crops or human consumption.
7.2 While fixing the FRP of sugarcane, domestic supply and demand and the
international price of sugar should also be factored in. Going forward increases in
sugarcane prices are hardly justified in the prevailing domestic and international
market scenario. This is also important to bring in some parity in profitability of
sugarcane with other competing crops.
7.3 The States that have been announcing State Advised Price above FRP, may be
requested to desist from doing so unless they are willing to bear additional costs upon
themselves and not forcing the mills to bear the enhanced price.
7.4 It has been stated that internationally, cane price is determined as per a formula
which considers percentage of revenue realized from sugar and/or byproducts. This
ranges on average from 60% to 66%. The Rangarajan Committee had also
recommended a Revenue Sharing Formula (RSF) for the sector. The Committee had
recommended based on historical data in India and international practices, that cane
price should be pegged at 70% of revenue from sugar and primary byproducts or at
75% of revenue from sugar alone (giving 5% weightage to byproducts). CACP, for the
last 4 years, also recommended RSF, in a manner whereby- FRP will be the minimum
price the farmers will get, so that the cane price payable by mills is at or above RSF. If
the price is below FRP, then the gap is to be filled up through the revamped SDF created
by the Government.
7.5 Due to the cyclical nature of sugar production and prices thereof, some
mechanism is required to ensure stability in returns from cultivation. At the same time,
it needs to be ensured that the industry is not subjected to major losses that would Page | 59
harm the interests of farmers in the long run. The task force feels that to prevent the
problem of arrears for sugarcane farmers and to keep the sugar industry in good health,
sugarcane prices must be linked to sugar prices. Keeping cane prices at 70% of revenue
realised from sugar and its byproducts or 75% of the revenue realised from sugar alone,
as per the Rangarajan Committee, can be a way out to address the woes of the sugar
industry. However, given the low ex-mill prices of sugar at present, switching over to
that formula involves a steep decline in sugarcane prices, which may not be feasible.
7.6 The task force suggests adoption of the Rangarajan formula for pricing of
sugarcane, which is considered a scientific way of sugarcane pricing based on the
recovery rate linked to the prices of sugar and its byproducts. However, the prices of
sugarcane may need to be adjusted slightly upwards keeping in view the improvement
in recovery rates in the last few years i.e. between the reference period of Rangarajan
Committee recommendations and the current period. Thus, in place of 70% price of
sugar and byproducts and 75% price of sugar only, the pricing formula can be 75% of
sugar and byproducts and 80% of sugar price. This formula can be implemented
prospectively, say from sugar season 2020–21 or 2021–22.
7.7 In the years of high sugar prices, adopting the RSF formula for pricing of
sugarcane would be a big boost for sugarcane farmers. However, given the present low
level of sugar prices, RSF is expected to result in sugarcane prices going below FRP. The
task force feels that this can be addressed by creating a Price Stabilisation Fund to
compensate farmers in the years of low prices of sugar. The difference in RSF-based
price and FRP should be transferred directly into the bank accounts of farmers through
the DBT mode. The modalities of this fund should be worked out by NITI Aayog in
consultation with the Department of Food and Public Distribution.
7.8 It may be mentioned that currently, the adoption of RSF has been left to the
States to implement and most have not accepted the same so far, except Tamil Nadu.
The task force feels that the Department of Food and Public Distribution may take the
initiative to facilitate implementation of the Rangarajan Committee formula for pricing
of sugarcane across all States.
B. Payment for Sugarcane to Farmers
7.9 As stated earlier, sugarcane is a fairly remunerative crop. As against A2+FL cost
of Rs 155 per quintal in 2018–19, the FRP fixed by the Government was Rs 275 per
quintal providing a return of 77% (over A2+FL cost), which is higher than most other
competing crops. As per quick calculations, at ex-mill sugar price of Rs 31 per kg,
assuming 10% recovery, FRP of Rs 210 per quintal can only be supported. The task
force feels that if farmers are paid 60% of the sugarcane price upfront, it will cover their
entire A2+FL cost and provide a little margin over the same.
7.10 The task force, therefore, recommends that mills should be allowed to stagger
the payment for sugarcane in following manner: 60% payment within 14 days; another Page | 60
20% within next two weeks and balance 20% within another one month (or upon sale
of sugar, whichever is earlier), so that the entire dues are cleared within 2 months.
C. Diversification towards Less Water-Intensive Crops
7.11 In accordance with the analysis presented in Chapter 5 of this report, the task
force recommends shift in some area under sugarcane cultivation, to less water-
intensive crops. As per estimates, 1 kg of sugar requires about 1500–2000 kgs of water.
About 70% of the country’s irrigation water is are utilised by paddy and sugarcane,
depleting water availability for other crops. The task force feels that the Government
should target moving of about 3 lakh ha under sugarcane into other crops. This will
correspond to about 20 lakh tonnes of sugarcane (total production around 310 lakh
tonnes). Different crop combinations have been suggested in Chapter 5 and these should
be considered for implementation in water-stressed areas. In order to encourage
farmers to diversify into other crops, suitable financial incentives should be provided to
them to compensate for reduction in income due to change in cropping pattern from
sugarcane to some other crop(s). Further, it is important to consider modern agronomic
practices that, amongst other things, ensure efficient use of water. Hence, wide row
spacing like trench planning, spaced row planning, single bud planting, pit planting may
also be encouraged.
7.12 To begin with, an amount of Rs 6,000 per ha per year could be considered as the
incentive for such compensation. For an area of 3 lakh hectares the budgetary
requirement will not be very high. However, there would be significant gains for the
sugar economy as sugar production will go down by around 20 lakh tonnes, improving
demand–supply balance. At the same time, this move would be a significantly beneficial
in water conservation, especially in the stressed areas. The task force recommends that
a new scheme for such compensation should be launched by DAC&FW in coordination
with Ministry of Jal Shakti and can be implemented for a period of three years initially. A
greater thrust should also be made on organic farming techniques to cultivate
sugarcane by analyzing best practice models.
7.13 An alternative way of reducing supplies can also be by providing sale slip to the
extent of 85% of the area of the sugarcane farmers so that they are encouraged to
diversify their production on remaining 15% area to other crops. However, this 85%
limit should not remain fixed; it should rather remain flexible depending upon sugar
demand-supply situation and export possibility going forward. Such a mechanism could
be considered for sugar season 2020–21 onwards as there is already downward
pressure in terms of sugarcane production during 2019–20.
D. Sugar and Sugarcane Development Fund
7.14 Due to stagnant and/or declining sugar prices, the liquidity and financial position
of the mills has remained a major cause for concern, prompting the Government to
come out with various support measures from time to time. The task force feels that the
piecemeal approach in addressing these issues is not desirable. There is a need for a Page | 61
fund of a reasonable size to provide liquidity support to the mills in such situations of
emergency.
7.15 Though the original mandate of the Sugar Development Fund (SDF) was to
provide loans for modernisation of mills, over a period of time the scope of the fund has
been expanded to provide general liquidity support to mills in the wake of sharp fall in
sugar prices. These include defraying expenditure for maintenance of buffer stock of
sugar, reimbursement of internal transport/freight charges on exports, interest
subvention scheme, and production subsidy and so on. The fund has served a useful
purpose and avoided formal budgetary support from the exchequer. In this backdrop, it
is also noted that sugar is a cyclical industry and there will always be years of surplus
and shortfalls with prices of sugar downwards or upwards with sharp swings in certain
situations. In this backdrop, it would be desirable to have a fund of fairly large size,
which can support these initiatives from time to time.
7.16 With the introduction of GST, the levy of cess on sugar was withdrawn as a result
of which fresh accretions to the Sugar Development Fund declined. In order to continue
to encourage sugar mills to modernise, including diversification to produce more
ethanol, there is a need to continue SDF with a larger mandate. At the same time to
improve accretions to the fund, it is proposed to levy cess on sugar @ Rs 50 per quintal
for a period of 3 years, during which about Rs 4,500 crore would be added to the fund
that will help provide bridge funding or act as a comfort for banks providing soft loans
to mills in order to allow the mills to improve technologies and pay the farmers their
due. At the same time, the industry also needs to be encouraged to set aside some
proportion of sales/ profit in the years of high prices of sugar which can be used in
times of low sugar prices when liquidity becomes a constraint for the mills. Once the
demand and supply balance is restored, the cess on sugar should be reduced or
removed and sugar mills be asked to contribute to the SDF a certain percentage of sugar
sales, such percentage to be decided by the Government of India. Since the focus of the
fund expands from sugar industry to sugarcane farmers, it may be renamed as “Sugar
and Sugarcane Development Fund”.
E. Ethanol Blending Programme
7.17 The task force’s recommendation is to support and enhance the technology and
adoption of ethanol blending in line with the target of achieving 10% by 2021–22 and
20% by 2029–30. The task force further recommends an interim medium-term
blending target of 15% by 2024–25. Every possible support mechanism be enabled to
help upgrade and integrate technology, including through learning from best practices
in Brazil, to progress towards diverting raw sugarcane juice towards ethanol blending.
This will also help reduce the oil deficit for India and save precious foreign exchange.
Therefore, the recommendations of Chapter 4 may be adopted to ensure progress
towards 20% blending in an enhanced and expeditious manner for long-term supply of
sugarcane to ethanol production. Any impediments to this process be addressed by the
Government at the earliest. In order to promote ethanol production, additional Page | 62
measures could be considered in line with suggestions spelt out in the National Biofuels
Policy 2018. These include classification clarity about raw material usage and extension
of appropriate financial and fiscal incentives for each category, establishment of biofuel
development boards in states, establishing updated BIS standards and a National
Biomass Repository. Suitable supply chain mechanisms, feedstock collection centres
and fair price mechanisms for the engaged community would also need to be developed
in coordination with Local Bodies, States and concerned stakeholders. The task force
also proposes to curtail unnecessary restrictions that prevent the movement of ethanol
between states. Following Karnataka’s decision, all the State Governments should also
consider removing unnecessary restrictions on the movement of ethanol used for the
blending programme, which will significantly benefit the sector.
F. Trade Policy
7.18 There is a need for a comprehensive re-examination of export incentives for
sugar, so as to align them with India’s commitments to WTO agreements. The manner in
which incentives are being given at present does not seem to be in compliance with
WTO guidelines. As per WTO commitments, India does not have any scheduled export
subsidy entitlements and can benefit only under special and differential treatment
provision. This means that, as per Nairobi Ministerial Declaration of the WTO, India
cannot provide export subsidies and any export promotion measures of equivalent
effect on agricultural products. However, under special and differential treatment
provision of the Uruguay Round Agreement on Agriculture, India can provide
reductionist export subsidies in a way to gradually phase them out by 2023.
7.19 While there is a need to continue to incentivise sugar for exports, the task force
recommends a comprehensive re-examination of export incentives for sugar, so as to
align them with India’s commitments to WTO agreements, especially as India is
required to phase out the subsidies for marketing, ocean freight, etc., by December
2023. The Department of Food and Public Distribution may coordinate with the
Department of Commerce and work out a suitable incentive mechanism for the export
of sugar while keeping the implications for the exchequer to the minimum possible
extent.
G. Raising the MSP of Sugar to ₹33 Per Kilogram
7.20 The task force recommends a one-time increase in Minimum Sugar Price to Rs 33
per kilo, as it would help sugar mills to cover the cost of production, including interest,
maintenance costs, etc. Further, it will allow sugar valuation to increase by a further Rs
2 per kilo, giving additional liquidity to sugar mills from the current stocks and further
production. The impact on retail prices of sugar shall be marginal that can be absorbed
by the consumers. With this, the task force feels there should be a minimal need to
extend the applicability of smaller schemes for production subsidy, interest subvention
and so on. A review of MSP should be made after six months of its notification.
H. Implementing Recommendations of Earlier Committees Page | 63
7.21 The task force has observed that despite major reforms recommended by the C.
Rangarajan Committee in 2012, which included the Cane Area Reservation, minimum
distance between mills, cane pricing, and others, almost none of the states have
implemented these reforms. The task force recommends the Department of Food and
Public Distribution should take up this matter with State Governments, to ascertain the
reasons for not implementing the recommendations and come out with specific steps
required towards liberalisation of the sugar sector. However, levy/quota system on
sugar need not be abolished for the present as past experiences have indicated a sudden
glut in supply resulting in further subdued prices upon removal of quota system.
I. Expansion in Use of Drip Irrigation in Sugarcane Cultivation
7.22 Sugar cane being a very water water-intensive crop require lot of irrigation in
areas where rainfall is not high. As per CACP’s analysis there is a stark difference in
water consumption for growing sugarcane between Uttar Pradesh and Maharashtra and
South India. For instance, one kg for sugarcane cultivation in UP consumes 1044 liters
while in Maharashtra it consumes 2086 liters. In South Indian states, the water
consumption for sugarcane cultivation is similar to that of Maharashtra. Therefore, the
task force recommends that all efforts be made to ensure that farmers in Maharashtra
and South India use the drip irrigation method for the cultivation of sugarcane. This
would save almost 40%–50% of water, which in turn could be used for other crops and
increase sugarcane yield by 30%. In order to promote drip irrigation, in addition to
sustained sensitization campaign, some incentive mechanisms in form of concessional
access to infrastructure could also be considered for farmers. Various schemes for
agriculture sector promoting drip irrigation could be leveraged for the purpose. Drip
irrigation will gain popularity if power supply for irrigation is appropriately priced to
discourage flood irrigation.
J. Eliminate Buffer Stock for Sugar
7.22 The buffer stock is essentially to improve liquidity position of the mills and does
not serve much purpose in the context of food security of the people as in the case of
maintenance of buffer stock of wheat and rice by the Government. If the Minimum
Selling Price of sugar is enhanced to Rs 33 per kg in addition to other measures taken by
the Government and those proposed in this report, the task force feels there is no major
justification for continuation of this scheme in its current form.
K. Recycling Bagasse
7.23 The task force recommends that incentives be provided to sugarcane mills to
recycle bagasse. In addition to being used as a biofuel, bagasse has multiple other uses.
Since bagasse is a valuable and cheap source of captive energy to a sugar mill, they need
to install state-of-the-art dryers to ensure that they extract maximum energy from
bagasse. If bagasse is not burned in high-pressure boilers it will lead to uncontrolled
burning and environmental air pollution. This funding may be procured through soft
loans from the SDF. Thus a complete rethink of cogen pricing is needed needs to Page | 64
incentivise this industry to use bagasse and other biomass of cane. Positive incentives
will assist in reducing the massive air population problem we face as a nation.
L. Promotion of Jaggery
7.24 With increased incidences of diabetes and a reduced preference in people for
white sugar, there is a case for greater encouragement to the gur industry. On one side,
industry needs to adopt better technology for the production of gur, on the other, there
is a need for adopting proper standards. The task force proposes that the Department of
Food and Public Distribution, in consultation with the National Sugar Institute, Kanpur,
and other stakeholders, including BIS, develop a suitable mechanism for adoption of
advanced technology by gur manufacturers and quality standards thereof.
Manufacturers of this alternative of sugar should also be brought under the formal
sector so as to have access to credit. This would allow these manufacturers to gradually
expand and create a shift in demand from sugar to a healthy and more organic
commodity such as gur. This alternative also has immense potential to be exported.
M. Providing Financial Assistance to Distressed Sugar Mills
7.25 It has been reported in the past that various administrative impediments prevent
many sugar mills from receiving loans under the soft loans scheme of the Government
of India. This is resulting in friction and uneven growth of sugar mills and their inability
to clear their dues to farmers. While the task force recognises the need for autonomy to
banks in taking decisions regarding loans in line with the RBI guidelines, there is a felt
need for some flexibility in providing loans to mills which are ailing for various reasons.
It is suggested that the Department of Financial Services may call a meeting of relevant
stakeholders and find a solution to the problems of the distressed sugar mills in availing
loans from the banking sector.
N. Long-Term Pricing Formula for Ethanol
7.26 Industry has been requesting the Government to provide a long-term pricing
formula for ethanol to encourage setting up or capacity enhancement of ethanol. The
task force recommends that the Ministry of Petroleum and Natural Gas may examine the
suggestion in a holistic manner keeping in view the need for providing some indication
for pricing formula for ethanol so as to reduce uncertainties of investments being made.
O. Complete Restructuring of Industry
7.27 The Task force has given a range of suggestions that are expected to go a long
way towards improving the outlook of the industry. However, given the sensitivity of
the subject, and the criticality of reliance on sugarcane as a primary crop by nearly 5
crore farmers and their dependents, a moderate and balanced approach has been
adopted in this report. However, serious policy distortions in sugar sector are resulting
into excess sugar production over domestic demand and rendered domestic prices
highly uncompetitive. The fiscal and natural resource cost of interventions in sugarcane
and sugar industry are enormous and rising. Therefore, there is a need for complete
restructuring of sugar industry in a phased manner. Page | 65
Page | 66
Annexures Page | 67
Annexure 1: Order for Constituting the Task Force
No. 7(11)/2018-G&R
Government of India
NITI Aayog
(Governance & Research Vertical)
Sansad Marg, New Delhi
Dated: 10
th
December, 2018
OFFICE MEMORANDUM
Subject: Constitution of Task Force on Sugarcane and Sugar Industry
The undersigned is directed to refer to the above subject and to say that a need
has been felt to find long term solution for sugarcane and sugar industry so as to
rationalise their dependence on state assistance while at the same time encourage farm
diversification to reduce adverse impact on the water sector. The composition of the
Task Force shall be as under:-
i. Prof. Ramesh Chand, Member NITI Aayog Chairman
ii. Secretary, Department Food & Public Distribution Member
iii. Secretary, Department of Expenditure Member
iv. Secretary, Department of Agri. Cooperation and Farmers
Welfare Member
v. Secretary, Department of Commerce Member
vi. Secretary, Ministry of Petroleum & Natural Gas Member
vii. Secretary, Ministry of Environment, Forest & Climate
Change Member
viii. Shri Yaduvendra Mathur, Additional Secretary (KIH),
NITI Aayog Member
ix. Shri R. P. Gupta, Additional Secretary (Energy), NITI Aayog Member
x. Principal Secretary, Sugar Industry & Cane Development
Department, Govt. of UP Member
xi. Secretary, Co-operation, Textile and Marketing Department,
Govt. of Maharashtra Member
xii. Dr. N R Bhanumurthy, Professor, NIPFP Member
xiii. Dr. Yogesh Suri, Adviser, NITI Aayog Member Secretary
2. The Terms of Reference of the Task Force shall be as under:
a. To suggest Long-term solutions to the problems faced by sugarcane Farmers and
sugar industry
b. Measures for rationalising the sugar economy
c. Measures to make sugar industry less state dependent and align it with global
markets.
d. Encouraging farm diversification so as to reduce adverse impact on the water
sector. Page | 68
The technical support to the Task Force would be provided by the Department of
Food and Public Distribution. The Task Force may also invite representatives of Indian
Sugar Mills Association, National Federation of Cooperative Sugar Factories, etc. in the
meetings as also co-opt additional members as may be deemed necessary.
This issues with the approval of the Vice Chairman, NITI Aayog.
-sd-
(Neeraj Singhal)
Director
Ph. No. 23096742
To,
Members of the Task Force
Copy to:
1. PS to Vice Chairman, NITI Aayog
2. PPS to Members (RC/VKS/VP), NITI Aayog
3. Sr. PPS to CEO, NITI Aayog
4. PPS to AS(KIH)/ AS(Energy), NITI Aayog
5. PA to Adviser (G&R), NITI Aayog
Page | 69
Annexure 2: Compatible return from another crop/crop combination with sugarcane in Uttar
Pradesh during 2018-19
Crop
Cost of cultivation
(Rs./ha.)
GVO
(Rs./ha)
Net
Return
(Rs/ha)
Sugarcane
Return over
other crops/
crop
combination
A2 A2+FL C2 at
FRP
at
SAP
Sugarcane (FRP) 61607 84776 124794 144803 60027 - -
Sugarcane (SAP) 61607 84776 124794 165865 81090 - -
Paddy 31680 43022 58823 67282 24260 2.5 3.3
Maize 13198 23542 32561 31291 7749 7.7 10.5
Bajra 12084 18883 27404 45403 26520 2.3 3.1
Wheat 22096 28259 43205 56703 28444 2.1 2.9
R&M 16804 26700 41762 48440 21740 2.8 3.7
Gram 14796 19802 30599 27212 7410 8.1 10.9
Potato (A2+FL*1.5) 89868 101107 134700 151661 50554 1.2 1.6
Potato (FHP Season) 89868 101107 134700 93881 -7226 - -
Potato (FHP annual) 89868 101107 134700 164733 63626 0.9 1.3
Paddy + Wheat 52704 1.1 1.5
Maize + Wheat 36193 1.7 2.2
Bajra + Wheat 54964 1.1 1.5
Paddy + R&M 46000 1.3 1.8
Maize + R&M 29490 2.0 2.7
Bajra + R&M 48260 1.2 1.7
Paddy + Gram 31669 1.9 2.6
Maize + Gram 15159 4.0 5.3
Bajra + Gram 33929 1.8 2.4
Paddy + Potato (A2+FL*1.5) 74813 0.8 1.1
Maize + Potato (A2+FL*1.5) 58303 1.0 1.4
Bajra + Potato (A2+FL*1.5) 77073 0.8 1.1
Paddy + Potato (FHP Season) 17034 3.5 4.8
Maize + Potato (FHP Season) 523 114.7 154.9
Bajra + Potato (FHP Season) 19294 3.1 4.2
Paddy + Potato (FHP annual) 87886 0.7 0.9
Maize + Potato (FHP annual) 71375 0.8 1.1
Bajra + Potato (FHP annual) 90145 0.7 0.9
Source: Estimates based on Cost of Cultivation Survey Data, Directorate of Economics & Statistics, M/o OF
Agriculture & Farmers’ Welfare
Page | 70
Annexure 3: Compatible return from another crop/crop combination with sugarcane in
Karnataka during 2018-19
Crop
Cost of cultivation (Rs./ha.) GVO (Rs./ha) Net
Return
(Rs/ha)
Sugarcane
Return over
other crop/
crop
combination
A2 A2+FL C2
Sugarcane (FRP) 83615 103335 144354 216926 113590
Paddy 45514 56633 75356 90510 33877 3.4
Maize 28215 33566 43835 56497 22931 5.0
Arhar (Tur) 21921 26142 36157 45287 19144 5.9
Ragi 26696 34131 42173 46226 12095 9.4
Jowar 13970 17405 23473 21846 4441 25.6
Gram 20229 22612 31099 34096 11483 9.9
Safflower 10984 12460 17552 30931 18471 6.1
Paddy + Jowar 38318 3.0
Maize + Jowar 27372 4.1
Arhar (Tur) + Jowar 23585 4.8
Ragi + Jowar 16536 6.9
Paddy + Gram 45360 2.5
Maize + Gram 34414 3.3
Arhar (Tur) + Gram 30627 3.7
Ragi + Gram 23578 4.8
Paddy + Safflower 52348 2.2
Maize + Safflower 41402 2.7
Arhar (Tur) + Safflower 37615 3.0
Ragi + Safflower 30566 3.7
Source: Estimates based on Cost of Cultivation Survey Data, Directorate of Economics & Statistics, M/o OF
Agriculture & Farmers’ Welfare
Page | 71
Annexure 4: Compatible return from another crop/crop combination with sugarcane in
Maharashtra during 2018-19
Crop
Cost of cultivation (Rs./ha.) GVO
(Rs./ha)
Net
Return
(Rs/ha)
Sugarcane
Return over
other crop/
crop
combination
A2 A2+FL C2
Sugarcane (FRP) 132579 155680 200878 276207 120527
Arhar (Tur) 41572 54693 77175 84047 29353 4.1
Cotton 54830 65875 83590 85027 19152 6.3
Soybean 25932 29769 37745 36437 6668 18.1
Wheat 34169 42667 55217 45724 3057 39.4
Gram 28272 32656 45310 51282 18626 6.5
Onion (A2+FL*1.5) 109436 129044 173700 193567 64522 1.9
Onion (FHP Season) 109436 129044 173700 104865 -24180 -5.0
Onion (FHP annual) 109436 129044 173700 235033 105989 1.1
Arhar (Tur) + Wheat 32410 3.7
Cotton + Wheat 22208 5.4
Soybean + Wheat 9724 12.4
Arhar (Tur) + Gram 47979 2.5
Cotton + Gram 37777 3.2
Soybean + Gram 25294 4.8
Arhar (Tur) + Onion (A2+FL*1.5) 93876 1.3
Cotton + Onion (A2+FL*1.5) 83674 1.4
Soybean + Onion (A2+FL*1.5) 71190 1.7
Arhar (Tur) + Onion (FHP Season) 5174 23.3
Cotton + Onion (FHP Season) -5028 -24.0
Soybean + Onion (FHP Season) -17512 -6.9
Arhar (Tur) + Onion (FHP annual) 135342 0.9
Cotton + Onion (FHP annual) 125141 1.0
Soybean + Onion (FHP annual) 112657 1.1
Source: Estimates based on Cost of Cultivation Survey Data, Directorate of Economics & Statistics, M/o OF
Agriculture & Farmers’ Welfare Page | 72
Annexure 5: Compatible return from another crop/crop combination with sugarcane in Tamil
Nadu during 2018-19
Crop
Cost of cultivation
(Rs./ha.)
GVO
(Rs./ha)
Net
Return
(Rs/ha)
Sugarcane
Return over
other crop/
crop
combination
A2 A2+FL C2 at FRP at SAP
Sugarcane (FRP) 143718 170908 207808 267043 96136
Sugarcane (SAP) 143718 170908 207808 276754 105846
Paddy 49374 59330 76159 88439 29109 3.3 3.6
Maize 51476 62846 79533 96163 33318 2.9 3.2
Bajra 28137 33731 45189 66105 32375 3.0 3.3
Jowar 11032 14429 20989 24867 10438 9.2 10.1
Sesamum 20724 30232 39402 32432 2201 43.7 48.1
Cotton 62803 89908 109145 106639 16731 5.7 6.3
Groundnut 60159 76899 94546 88688 11789 8.2 9.0
Moong 18254 21722 28260 38642 16919 5.7 6.3
Ragi 22598 28905 35311 56926 28021 3.4 3.8
Urad 21020 25549 34649 34459 8910 10.8 11.9
Paddy + Paddy 58218 1.7 1.8
Paddy + Maize 62427 1.5 1.7
Paddy + Jowar 39547 2.4 2.7
Maize + Jowar 43756 2.2 2.4
Source: Estimates based on Cost of Cultivation Survey Data, Directorate of Economics & Statistics, M/o OF
Agriculture & Farmers’ Welfare
Page | 73
Annexure 6: Minutes of 1
st meeting of the Task Force
F.No. 7(11)/2018-G&R
Government of India
National Institute for Transforming India
(Governance & Research Vertical)
Subject: Minutes of the first meeting on the Task Force on Sugarcane & Sugar Industry,
held under the chairmanship of Prof. Ramesh Chand, Member, NITI Aayog on
21.1.2019 in Conference Room No. 228, NITI Aayog
A meeting of the Task Force on Sugarcane and Sugar Industry was held under the
Chairmanship of Prof. Ramesh Chand, Member NITI Aayog on 21st January 2019 at 3.00 PM in
Committee Room No. 228, NITI Aayog. The meeting was held to find long term solutions for
sugarcane and sugar industry so as to rationalise their dependence on state assistance while at
the same time encourage farm diversification to reduce adverse impact on the water sector. The
list of participants is given in the Annexure.
1. Dr. Yogesh Suri, Senior Adviser (G&R), NITI Aayog welcomed the participants to the first
meeting of the Task Force. After a quick round of introductions, he gave a brief background
of the meeting and requested the chairman of the Task Force to make his opening remarks.
2. Prof. Ramesh Chand, Member, NITI Aayog highlighted that over the last few years, the
sugar sector has been facing a number of challenges. In order to alleviate the problems of
the industry especially in clearing sugarcane arrears, the Government has announced
various packages in form of interest subvention, production assistance, export incentives,
and so on. However, there is a need to have a long term solution for the sector so that the
dependence on Government does not become a recurring feature. He observed that India
has been producing 30% sugar in excess of the domestic demand. This can also be
attributed to better recovery from sugarcane and introduction of new varieties of crop.
Therefore, a plan to handle the issue of excess production need to be conceptualised. The
first option is to consider exporting the surplus sugar. However, exports also have their
limitations in the backdrop of declining global prices. Resultantly, there is build-up of stocks,
farm distress and a host of other challenges for the sector. He added that second option is to
divert the sugarcane for production of ethanol, for which steps are already being taken.
3. The Chairman added that sugarcane has much higher profitability of about 69% when
compared to rice-wheat crop (in rotation during the year) and 62% compared to wheat-
cotton rotation. This is one major reason why the area under sugarcane cultivation has been
expanding. He suggested that one option before the Committee could be to look at a ‘set
aside’ scheme wherein some incentive could be considered for farmers for not growing
sugarcane. This would require advance planning and making proper estimates of the
production and consumption pattern. He indicated that if 30% of sugarcane area is to be
diverted, introduction of such a scheme could cost about ₹ 9,200 crore. However, the
country would benefit from reduction in subsidy/ incentive outgo to the sugar/ sugarcane
sector and large quantities of water can be saved as sugarcane is considered a water
guzzling crop.
4. Shri R. P. Gupta, AS (Energy), NITI Aayog pointed out that the persistent rise in sugarcane
support prices attract farmers and encourage them to increasingly engage in sugarcane Page | 74
cultivation. This may be one of the reasons for overproduction in the sugar sector. He
suggested that if the States decide to continue hiking the procurement price of sugarcane
over and above the Central Government determined Fair & Remunerative Price (FRP), then
the Central Government may not be held responsible for bailing out the sugar sector time
and again.
5. Shri Avinash Verma, Director General, Indian Sugar Mills Association, in his
presentation, gave a broad overview of the industry in terms of number of mills (530),
production (31 million tonnes), consumption (26 million tonnes), annual turnover (₹ 1 lakh
crore), area under cultivation (5 million ha), number of farmers (25-30 million) and
employment (5 lakh workers). He pointed out that about 65% of production goes to bulk
consumers and only 35% goes directly to households. He added that the sugar industry in
India is experiencing a bumper production, and the closing balance on 30
th September 2019
is expected to be around 124.2 lakh tonnes, the highest ever seen in the sector in India.
Except in 4 financial years (due to drought in certain parts), sugarcane has always witnessed
an excess production in the past 15 years. He thanked the Government for putting in place
various measures for the sector and added that these may not be enough and more steps
may still be required.
6. Highlighting the problems of the sector, DG, ISMA highlighted that the FRP of sugarcane has
doubled since 2009-10. Thus, while the cost of inputs have gone up substantially, the ex-mill
sugar prices have been fluctuating in line with the inventory and is often below the cost of
production of sugar. He mentioned that sugar industry is paying 90-95% of its revenue to
farmers in form of FRP/ SAP, whereas as per Rangarajan Committee recommendations, FRP
should be around 70-75% of the revenue of the sugar industry. He reiterated that compared
to competing crops such as paddy and wheat, the returns from sugarcane farming are
substantially higher, thereby incentivising farmers to grow more sugarcane. This is resulting
in major distortion in farm economics. Further, sugarcane is also attractive as it requires
less efforts/ input costs, no middlemen and there is always an assured buyer in the form of
the sugar mills. He indicated that if an international comparison is made with world leaders
like Thailand, Brazil and Australia, it is found that India pays the highest cane price, making
the industry uncompetitive. The cost of production in India is currently estimated at about
USD 550 per tonne compared to Brazil’s USD 345 per tonne. In addition to cane price,
another issue faced by the sector is the associated inventory carrying costs and interest
costs especially as production is undertaken in six months and sales take place throughout
the year. He suggested that the short-term solution is to increase the ex-mill minimum
selling price of sugar from ₹29/- to ₹36/per Kg. This would directly improve stock price
valuation. It was also pointed out that the Sugar commodity was not price elastic, therefore,
any increase in its pricing would not significantly affect its consumption. He added that
while Government has announced quota for export of sugar with some incentive
mechanism, there is no mechanism to ensure that these exports indeed take place. Thus,
enforcement of these quotas may need to be accorded priority.
7. Shri Yaduvendra Mathur, Additional Secretary, NITI Aayog suggested that there is a
need to have a relook at the cooperative model of sugarcane farming and re-examining
whether FPO model may serve a more useful purpose.
8. In response to the Chairman’s query regarding conversion costs of sugarcane to sugar, Shri
Suresh Kr. Vashishth, Joint Secretary, DFPD clarified that out of ₹ 29/- (minimum selling
price mandated by the Government to sugar industry), ₹ 26.84/- goes for paying FRP Page | 75
leaving only ₹2.16/- towards conversion cost. With regard to non-payment of sugarcane
arrears, he informed that the Sugarcane Control Order, 1966 has stipulated 14 days as the
cut-off for payments to be made by the sugar mills to the farmers. If the same is not done,
the due amount is considered as arrears. Therefore the payment of dues would have to be
expedited and most of incentives given by the Government are aimed at clearing the dues of
farmers.
9. Shri Sanjay R. Bhoosreddy, Principal Secretary, Sugar Industry & Cane Development
Department, Govt. of Uttar Pradesh informed that currently there are four States that
announce a State Advised Price (SAP) – UP, Uttarkhand, Haryana and Punjab. The others
States follow the Central FRP. In respect of U.P., no increase in SAPs has been announced
this year and increase in FRP is also moderate. He expressed that the quotas for export of
sugar are desirable otherwise the prices of sugar may fall further. However, quotas need to
be enforced as well. He added that while U.P. also came out with the soft loan scheme for
mills, many of them could not avail due to non-cooperation from the banks, especially PNB,
and stringent RBI guidelines. Another problem faced by sugar industry in U.P. is higher cost
of exports as there is no direct access to ports. He added that there is lot of unrest amongst
farmers due to rising arrears and the same need to be cleared at the earliest. He suggested
that the prices of sugar in the market may be increased so as to shift a part of the burden on
farmers, to the final consumers.
10. Shri Sandeep Poundrik, Joint Secretary, MoPNG mentioned that ethanol is being
promoted by the Government as it will reduce import dependence on crude oil and is also
considered as a cleaner fuel. He mentioned that about 330 crore litres of ethanol is required
to achieve 10% blending under Ethanol Blending Project (EBP) and current level of
achievement is around 4%. By 2022, the requirement may go to 450 crore litres indicating
need for increasing distillation capacity. For increased distillation capacity DFPD has come
up with the proposal which includes standalone distilleries also. He observed that with 700
million metric tonne of sugarcane, Brazil is able to produce about 28-30 billion litres of
ethanol, while India with about 320 million metric tonne of sugarcane production is able to
produce only 1.5 billion litres. Therefore, there is huge potential to increase ethanol
production in the country. He also mentioned that deliberations with respect to 20%
ethanol blending are underway, which is being resisted by some of the automobile
companies.
11. DG, ISMA expressed that there is a need to increase the target from 10% blending to 20% at
least in major States/ cities. Besides, there is need for longer term policy (3-5 years) for
ethanol especially in terms of prices. Shri Bhoosreddy informed that in Ethanol Blending
Programme, there were issues of State laws but now they have been streamlined. However,
the issues of lifting of ethanol remains to be addressed especially as production is expected
to increase significantly in U.P. by November 2019.
12. DG, ISMA stated that the Commission for Agricultural Costs & Prices (CACP) has been
recommending a Revenue Sharing Formula (RSF) for sugar. However, the same has not been
accepted by the Government and emphasis is more on fixing FRP as per the CACP
recommendations. Under this new recommended system, farmers would get the FRP for
their sugarcane and the mills would have to pay RSF. At times of difference between FRP
and RSF, the Government would have to fill the gap through a special fund to be created.
Page | 76
13. Summing up the discussions, the Chairman indicated that there are a number of issues
facing the sector. While discussions need to continue in the next round, he requested
industry representatives to look at the issue from several perspectives including
environmental factors as well, citing the case of jaggery production. Dr. Suri, requested the
participants to submit their representation in writing as well for consideration of the Task
Force and to facilitate preparation of the report.
The meeting ended with a vote of thanks to the Chair and the participants.
**********
Page | 77
Annexure
Subject: Minutes of the first meeting on the Task Force on Sugarcane & Sugar Industry,
held under the chairmanship of Prof. Ramesh Chand, Member, NITI Aayog on
21.1.2019 in Conference Room No. 228, NITI Aayog
List of Participants
1. Prof. Ramesh Chand, Member, NITI Aayog - in Chair
2. Sh. Yaduvendra Mathur, Additional Secretary (KIH), NITI Aayog
3. Sh. R. P. Gupta, Additional Secretary (Energy), NITI Aayog
4. Shri Rajeev Ranjan, Additional Secretary, Department of Expenditure
5. Dr. Yogesh Suri, Sr. Adviser (G&R), NITI Aayog
6. Shri Sanjay R. Bhoosreddy, Principal Secretary, Sugar Industry & Cane Development
Department, Govt. of Uttar Pradesh
7. Shri Santosh Sarangi, Jt. Secretary, Department of Commerce
8. Shri Suresh Kumar Vashishth, Jt. Secretary, Department of Food & Public Distribution
9. Shri Sandeep Poundrik, Jt. Secretary, Ministry of Petroleum & Natural Gas
10. Dr. N. R. Bhanumurthy, Professor, National Institute for Public Finance & Policy
11. Shri Suresh K. Malhotra, Agriculture Commissioner, Department of Agriculture
Cooperation & Farmers Welfare
12. Sh. Neeraj Singhal, Director (G&R), NITI Aayog
13. Shri S. K. Srivastava, Additional Director, Ministry of Environment, Forests & Climate
Change
14. Sh. Desh Gaurav Sekhri, Consultant, NITI Aayog
15. Shri Jitendra Juyal, Under Secretary, Department of Food & Public Distribution
16. Sh. Ankush Das, Young Professional, NITI Aayog
17. Ms. Phalasha Nagpal, Young Professional, NITI Aayog
18. Ms. Pallavi Seth, Young Professional, NITI Aayog
Representatives of Sugar Industry
19. Shri Avinash Verma, Director General, India Sugar Mills Association
20. Shri R. P. Bhagria, Chief Executive Officer, All Indian Sugar Trade Association (AISTA)
21. Shri Ravi Gupta, President, Shree Renuka Sugars [and member of AISTA]
22. Shri Prakash Naiknavare, Managing Director, National Federation of Cooperative Sugar
Factories Ltd
Page | 78
Annexure 7: Minutes of 2
nd meeting of the Task Force
F.No. 7(11)/2018-G&R
Government of India
National Institute for Transforming India
(Governance & Research Vertical)
Subject: Minutes of the second meeting on the Task Force on Sugarcane & Sugar
Industry, held under the Chairmanship of Prof. Ramesh Chand, Member,
NITI Aayog on 30.08.2019 in Conference Room No. 134, NITI Aayog
The second meeting of the Task Force on Sugarcane and Sugar Industry was held under
the Chairmanship of Prof. Ramesh Chand, Member NITI Aayog on 30
th August 2019 at 11.00 AM
in Committee Room No. 134, NITI Aayog. The meeting was called to discuss the findings and
recommendations contained in draft report of the Task Force circulated to the Members of the
Task Force. The list of participants is given in the Annexure.
14. Dr. Yogesh Suri, Senior Adviser (G&R), NITI Aayog welcomed the participants to the
meeting. He gave a brief background about the meeting and then gave a detailed
presentation on the draft report. The topics discussed in the presentation include the broad
findings on the status of the sugarcane and sugar industry, the Task Force’s observations
and recommendations keeping in view the Terms of Reference of the Task Force.
15. Prof. Ramesh Chand, Member, NITI Aayog and Chairman of the Task Force expressed
the need for finding long term solutions to the problems faced by the sugarcane and the
sugar sector and any recommendations implemented today would have perceptible
visibility on ground over the next 2-3 years. Various issues raised during the presentation
and discussions thereon are given in the following paras.
Pricing Policy of Sugarcane and Sugar
16. The presentation highlighted that one of the main problems facing the industry was that the
Fair & Remunerative Price (FRP) of sugarcane was well above the cost of cultivation of the
crop. The Chairman opined that Commission for Agricultural Costs & Prices (CACP) has been
fairly generous in the fixation of FRP of sugarcane over the last many years without
meticulously linking them with the projected level of C2 and A2+FL costs of sugarcane or the
market prices of sugar. As a result, year on year FRP has been increasing significantly while
sugar prices have fluctuated. The Government’s proposal of setting the minimum selling
price of crops at 1.5 times the A2+FL cost of cultivation was not meticulously observed due
to historically high prices of sugarcane. The problems got compounded due to even higher
levels of State Advised Prices (SAP) for sugarcane in States such as Uttar Pradesh (UP),
Haryana, Punjab and Uttarakhand and Tamil Nadu (till recently). The Chairman suggested
that there is a need to analyze correlation between State’s SAP and its sugarcane arrears
which is most likely to be positive. On the same note, it was suggested that States which
prescribe SAP may be requested to bear the burden of additional prices themselves.
17. The Chairman expressed that historically sugar prices used to move in cycles but over the
last few years excessive production continued year after year and one reason could be
measures taken by Government for farmers and industry coupled with better yields/
recovery of sugarcane. Dr. Suri expressed that during the current sugar season (2019-20) Page | 79
there is a possibility that sugar production may not be high on account of flooding in various
parts and resultant impact on sugarcane crop. However, high opening balance of 142 MT in
current season remains a concern which may curtail any upward pressure on prices arising
out of lower sugarcane production. Moreover demand of sugar has remained stagnant over
the last many years. With this backdrop, it would be desirable to explore alternate avenues
and diverting a part of sugarcane production away from sugar.
18. The presentation further elaborated on the difference between international and domestic
prices of sugar (both wholesale and retail); sugarcane arrears over the last few years; buffer
stocks of sugar; and the need to further increase the Minimum Selling price (MSP) of sugar
which was earlier hiked from ₹29/Kg to ₹31/Kg.
Rangarajan Committee
19. It was informed that a number of Committees were set up over the last few decades to
reform the sugarcane and sugar industry. However, amongst the most important
Committees set up in the recent period was the Committee set up in 2012 under the
Chairmanship of Dr. C. Rangarajan, the then Chairman of EAC-PM. While a few
recommendations of the Committee were implemented, many others have not been acted
upon by states and therefore need to be addressed. It was noted that a prominent
recommendation of the Rangarajan Committee is a need to implement the Revenue Sharing
Formula. However, only Tamil Nadu has implemented this recommendation, the expenses of
which are being borne by the State Government itself. While Karnataka and Maharashtra
have also passed similar State Acts they are yet to implement the formula.
Government Control over the Industry
20. Shri S.K. Vashishth, JS, DFPD informed that a newly implemented quota system is being
followed, wherein, each sugar mill is permitted to sell only a specified quantity of sugar each
month. The idea is not to flood the market which is likely to depress domestic prices further.
He added that recent introduction of MSP of sugar and its subsequent hike by ₹ 2 per kg has
significantly improved realisation of the industry and resultant reduction in sugarcane price
arrears. The Chairman expressed that in the production of sugar, both the input and output
was controlled by the Government. No other industry is so highly regulated like sugarcane
and sugar and there is a need to undertake reforms by removing some controls. The main
problem with the industry is that the mills are mandated to pay an exceedingly high FRP for
inputs which are not related to output prices which may need to be addressed. It was also
pointed out that if price of sugar falls significantly, it would result in closure of many sugar
mills, affecting farmers and future sugar production.
21. Shri N. Ashok Kumar, Director, M/o Commerce opined that India need not be worried
about years of slump in production. In such cases, to fill the gap between demand and
supply, India may rely on importing sugar from other producing nations (at low prices)
whose climatic zones differ from that of India.
22. A proposal for setting up a sugarcane/sugar regulator was also discussed, with
consideration to the fact that the industry faces problems year on year. However, this was
dismissed citing that the concerned Government Ministries/ Departments are capable
enough to oversee the problems of the industry.
Ethanol Blending and Brazil example Page | 80
23. The practice by Brazil in utilising ethanol produced from sugarcane as vehicular fuel, which
has been mentioned in the report, was discussed. Shri Rohit Mathur, Director, MoPNG
opined that 10% ethanol blending target as at present is considered optimum for the
vehicles. In case this is to be increased to 15% as proposed by the Task Force, there may be
a need to do some re-engineering of the vehicles and for that it would be pertinent to hold
discussions with the automobile manufacturers. Another issue for India to consider Brazil
model of utilising ethanol for powering vehicles opined by Prof. Bhanumurthy, NIPFP is
that, at the moment, India’s focus is more on Electric Vehicles (EVs), and therefore utilising
ethanol to power vehicles does not synchronise well with the overall thrust of the
Government. Dr. Suri suggested that MoPNG may hold consultations with the automobile
industry and chart out a roadmap for utilising ethanol and increasing its blending for
powering vehicles. As regards EVs, Government has already clarified that there is no
proposal to discontinue combustion engines and shift entire production capacity to EVs.
24. Director, MoPNG added that limited focus is being given on improving the capacity of
ethanol production from sugarcane keeping in view large sugarcane production. These
would require significant investments which are not happening in the scale required. While
Government has already announced some incentives for increasing investment towards
ethanol production, the mills are facing problems in availing the loans from the banking
system for the same.
25. The Chairman opined that the purpose for cultivation of sugarcane should not be primarily
for production of ethanol for the Ethanol Blending Petrol (EBP) programme. The primary
and secondary purposes for cultivating the crop should be first for human consumption and
then as animal feed and other purposes, respectively. It is to be noted that production of
ethanol through sugarcane on its own consumes a lot of time and energy and therefore
should purely be considered as a strategy for diversion of excess sugarcane.
Crop Diversion
26. With regard to diversion of sugarcane cultivation to other crops, it was recommended that a
proper and thorough analysis should be made on what the feasible amount of area that
needs to be diverted from sugarcane is from a demand perspective. Shri Rajeev Ranjan,
Addl. Secretary, DoE suggested that under 15
th Finance Commission recommendations
water conservation should be incentivised. Besides, additional incentive to the farmer
shifting to less water intensive crops proposed by Task Force may be linked with PM Kisan.
Shri Suresh K. Malhotra, Agriculture Commissioner, DAC&FW informed that a scheme
with regard to intercropping with pulses and millets under M/o Agriculture may also be
considered under crop diversion strategy.
Recommendations of the Task Force
27. The recommendation of the Task Force on further increasing MSP of sugar to ₹33/Kg was
deliberated upon. JS, DFPD opined that there was no firm rationale for calculation of
proposed hike of ₹2/Kg in MSP. Member suggested that a comprehensive formula be
conceptualised for assessing the sugar price as per the cost of cultivation of sugarcane, with
consideration given to the present FRP and SAPs.
28. With regard to the Task Force’s recommendation on payment of 60% of sugarcane price to
farmers within the first 14 days, Dr. Suri explained that this amount fully covers the cost of
cultivation of the crop. The remaining 40% is proposed to be paid in two instalments within
a period of 3 months of purchase of sugarcane by the mills. Page | 81
29. With regard to the recommendation on proposing to extend sugar under PDS similar to the
mechanism of wheat and rice, JS, DPFD indicated that the proposal was earlier examined by
the Department but was shelved since it did not add much value to the industry and only
resulted in an additional burden to the Government exchequer. The Chairman opined that
this recommendation may be retained for the time being.
30. AS, DoE recommended that the functions of the Sugar Division of DFPD may be segregated
into two parts: the first part pertaining to cropping of sugarcane may be handled by the M/o
Agriculture while the second part pertaining to matters relating to sugar policy may be
handled by the DFPD. This was agreed to by the Chairman.
31. With regard to the recently drafted export policy of sugar, JS, DFPD informed that it was
framed in compliance with WTO guidelines.
32. The proposed Price Stabilisation Fund could be considered as a sub-component of Sugar and
Sugarcane Development Fund.
33. The recommendation on promotion of jaggery was based on the fact that a large section of
the middle class and above was moving to healthier options for sweeteners. Jaggery in this
regard needs to be standardised and its manufacturing be more scientifically oriented.
DFPD, Bureau of Indian Standards (BIS) and National Institute of Sugar (NIS), Kanpur may
take appropriate action on this recommendation.
Action Points
34. The Chairman suggested that the sugarcane and sugar industry is one such sector where
policies should not be formulated without consulting the beneficiaries, i.e., the farmers. In
this context a meeting may be scheduled with representatives of sugarcane farmers/
societies to seek their views and bring them on board with the recommendations of the
Task Force. A suitable date to set the meeting may be fixed at the earliest.
35. An analysis on comparison between SAP of states and their sugarcane arrears is to be
included in the report. Likewise a Table may also be considered giving minimum sugar price
required for specific levels of FRP.
36. Members of the Task Force are requested to submit their feedback and views on the draft
report for further revision. Based on inputs, the report may be finalised and submitted to
the Government
The meeting ended with a vote of thanks to the Chair and the Members.
**********
Page | 82
Annexure
Subject: Minutes of the second meeting on the Task Force on Sugarcane & Sugar
Industry, held under the chairmanship of Prof. Ramesh Chand, Member,
NITI Aayog on 30.08.2019 in Conference Room No. 134, NITI Aayog
List of Participants
23. Prof. Ramesh Chand, Member, NITI Aayog - in Chair
24. Shri Rajeev Ranjan, Addl. Secretary (Exp), D/o Expenditure
25. Dr. Yogesh Suri, Sr. Adviser (G&R), NITI Aayog
26. Shri Suresh Kumar Vashishth, Jt. Secretary, Department of Food & Public Distribution
27. Dr. N. R. Bhanumurthy, Professor, National Institute for Public Finance & Policy
28. Shri Suresh K. Malhotra, Agriculture Commissioner, Department of Agriculture
Cooperation & Farmers Welfare
29. Shri N. Ashok Kumar, Director, M/o Commerce
30. Shri N. Ramesh, Director, M/o Commerce
31. Shri Rohit Mathur, Director, M/o Petroleum & Natural Gas
32. Shri Neeraj Singhal, Director (G&R), NITI Aayog
33. Shri S. K. Srivastava, Additional Director, Ministry of Environment, Forests & Climate
Change
34. Shri Desh Gaurav Sekhri, OSD, NITI Aayog
35. Shri Manoj Sharma, US (Sugar), D/o Food & Public Distribution
36. Shri Ankush Das, Young Professional, NITI Aayog
37. Shri Venkata Narayana Angina, RO (G&R), NITI Aayog
Page | 83
Annexure 8: Minutes of 3
rd meeting of the Task Force with farmer representatives of
Maharashtra and Uttar Pradesh
F. No. 7(11)/2018-G&R
Government of India
National Institute for Transforming India
(Governance & Research Vertical)
Subject: Minutes of the third meeting on the Task Force on Sugarcane & Sugar
Industry, held under the Chairmanship of Prof. Ramesh Chand, Member,
NITI Aayog on 27.11.2019 in Conference Room No. 122, NITI Aayog
The third meeting of the Task Force on Sugarcane and Sugar Industry was held under
the Chairmanship of Prof. Ramesh Chand, Member, NITI Aayog on 27
th November 2019 at 3.30
PM in Committee Room No. 122, NITI Aayog. The meeting was called in order to interact with
farmer representatives of Uttar Pradesh and Maharashtra to understand their views on
challenges faced in cultivation of sugarcane. The list of participants is given in the Annexure.
37. Dr. Yogesh Suri, Senior Adviser (G&R), NITI Aayog welcomed the participants to the
meeting. He gave a brief background and said that before finalising the report of the Task
Force, it is pertinent to take on board the perspectives of the farmers. He then requested the
Chairman of the Task Force to make his opening remarks.
38. Prof. Ramesh Chand, Member, NITI Aayog and Chairman of the Task Force expressed
the need for finding long term solutions to the problems faced by the sugarcane and the
sugar sector. He informed that there have been a number of issues over pricing and other
complexities related to sugar and sugarcane sectors. Due to technology improvement and
also due to use of high yielding varieties, production of sugarcane and recovery has
improved resulting in much higher supply than demand. The country is grappling with 40
lakh tonnes of surplus sugar production. This has resulted in a slump in the domestic sugar
prices consecutively for the last few years. To tackle over-production of sugar, incentives to
export sugar are considered; however, in order to adhere to India’s commitments to WTO
guidelines, export subsidy cannot be continued endlessly. Other sugar producing countries
have complained against the support being provided by India to the sugar sector. The
matter is currently before a dispute settlement panel and Government of India has also
constituted a panel to deliberate the issues.
He mentioned that there are 5 stakeholders of the sugarcane and sugar industry viz.
farmers, consumers, industry, economy, and environment. It is therefore important to take
the interests of all into account while drafting policies on the sector.
Finally, he indicated that a draft report has been made which will further incorporate the
suggestions given by the farmer representatives in this meeting. He then requested the
farmer representatives to give their views on the industry.
39. The concerns raised by the farmer representatives of Uttar Pradesh were as under:
a) It was suggested farmers be prompted to grow sugarcane in only 65% of area.
Remaining 35% area may be utilised for growing other crops, thus promoting crop
diversification.
b) More quantities of sugarcane juice should be directly used for production of ethanol,
inferring a need for technology improvement in this regard. Page | 84
c) A concern was voiced with regard to increasing rate of FRP for sugarcane and near
stagnant MSP for sugar over the years. This has resulted in sugar mills having
significant outstanding dues to the farmers. In this regard, the Minimum Selling Price
for sugar may be increased to ₹35/kg.
d) It was pointed out that the fixed price of sugar, for sales by mills is also a challenge.
This leads them to buy from farmers at the lowest price to increase their profits. In
light of this, and on an assumption that an average household consumes only 5-10 kgs
of sugar per month, it was suggested to allow raising sugar prices by a nominal
amount. This wouldn’t affect end consumers adversely, although, it would help mills
and sugarcane farmers to a great deal.
e) It was suggested that sugar mills in UP should not be allowed to function without
tagging order, which is related to cash credit limit of the mills from the banks.
f) To conserve water, drip irrigation may be mandated where sugarcane plantation is
done in over 3 hectares of land holding.
g) To deal with challenge of wildlife and stray animals destroying crops, use of solar
fencing instead of barbed wire was suggested. Furthermore, it would also help end
injuries to animals from barbed wires.
h) Given that sugarcane has a 12-14-month crop cycle, if payments are delayed it affects
the capacity of sugarcane farmers to invest for the next cycle. Therefore, dealing with
delayed payments is very crucial.
i) There are concerns over rising labour costs in the state which has reduced profitability
of sugarcane farmers.
j) It was also brought to the Chairman’s attention that there had been a near doubling of
electricity bills in the state over the last few years which has increased the cost of
production of sugarcane.
k) A request was made to provide 80% subsidy to farming equipment including small
tractors as the small and marginal farmers find costs unaffordable. While there is a
scheme operated by the State, subsidy is reimbursed after a delay of 3 months or more
and small farmers are not in the position to take the benefit of these subsidy schemes
which require 100% upfront payment to buy the equipment / machinery. Such subsidy
would also help in intercropping.
l) Along with interests of consumers of sugar, those of sugarcane producers should also
be taken into account.
40. On behalf of all 30-32 lakh sugarcane farmers of Maharashtra, representatives expressed
great appreciation and gratitude towards NITI Aayog for being invited to share their
concerns to a Government body. They made the following points:-
a) The challenge of climate change in recent years when either drought or floods has
dominated cropping cycle, restricts their ability to switch to alternate crops. This is
because these weather conditions lead to poor forecasting and the risk of crop failure
is higher with other crops. It is only paddy and sugarcane that are climate resilient.
b) The suggestion made by their UP counterparts on drip irrigation for sugarcane
cultivation was reiterated by them. It was opined that drip irrigation provides the dual
benefit of higher productivity and water saving. It was argued that the money saved
from lesser water use through drip irrigation could be used to provide relief to
farmers. This would make it environmentally conducive and economically rational
without affecting state’s fiscal capacity adversely.
c) The diversification of end use of sugarcane being facilitated by the Government was
appreciated. A reference was made to the National Biofuels Policy 2018 which expands Page | 85
the use of raw material for production of ethanol. The specific inclusion of sugarcane
and its by products in this policy could be a game changer in mitigation of sugarcane
farmer woes. A request was made to ensure its effective and timely implementation.
d) While sugar consumption might reduce in coming years given the shift towards
healthy lifestyle in the country, it was acknowledged that, there is still significant scope
for sugarcane production by switching to alternative end products which are relatively
healthier such as jaggery.
e) It was also acknowledged that over 99% of their payment dues had been cleared in
recent months. However, it was also brought to notice that, just a few months ago, up
to 40% of their dues were unpaid. This severely constrained their farming activity.
f) The high cost of harvesting-and-transporting-plus-processing (H&T+P) in mills has led
to reduction in final remuneration of farmers in Maharashtra. It was requested to
review this pricing structure as well. The Maharashtra farmer representatives
enquired if difficulty was faced by Uttar Pradesh farmers on taking on H&T+P activities
themselves unlike in Maharashtra where it is undertaken by mills. The farmers from
UP responded that in their State, the cost of H&T is borne by farmers and their bigger
concern was that of high cost of labour.
g) There was a demand made to look into delayed payments of export subsidy to mills
and farmers.
h) The need of diversification of crops in farm fields being made by the Government was
agreed upon. However, like counterparts from Uttar Pradesh, Maharashtra farmers
expressed concern that different crops require varied soil and weather conditions and
it isn’t conducive to experiment with different crops by farmers given the scale of
majority of farming operations.
i) There was a suggestion to look at an opportunity to use organic farming within
sugarcane sector to raise viability for farmers.
j) The end result of these discussions and deliberations around sugarcane farmers, it was
pointed out, should lead to policies which ensure improvement of quality of life for
farmers. There should be focus on relative improvement in a farmer’s lifestyle as
experienced by labour in different sectors of the economy.
41. Representative of Government of Uttar Pradesh, Shri. Rajesh Mishra, Dy. Cane
Commissioner (Meerut) mentioned that there are a few mills whose accounts have
become NPA with the banks and they are not able to issue tagging orders. Nevertheless, in
U.P. about 85% of cane dues have been cleared already. He suggested that a mechanism for
differential pricing for industry and consumers should be developed. Lastly, the concern on
sugar export subsidy not being adequately received was raised.
42. Representative of Government of Maharashtra, Shri Uttam S. Indalkar, Director, Sugar
Cooperation Department pointed out that jaggery, which is in need to be promoted is only
grown in 3 to 4 districts of the state. Further promotion of this healthier alternative to white
sugar is necessary.
43. Shri Praveen Mahto, Economic Adviser, Department of Commerce informed that India
does have a provision to provide export subsidy in a phasing out manner up to the year
2023. After this date, as per WTO commitments, all subsidies given for agricultural export
should be stopped. The concern on India’s sugar being internationally uncompetitive as per
pricing was raised.
Page | 86
44. The Chairman explained the mechanism of fixing Fair Remunerative Price (FRP) to farmer
representatives. He expressed confidence in the comprehensive surveys carried out by
Government bodies to work out approximate cost of production of sugarcane. He pointed
out that Commission for Agriculture Costs and Prices (CACP) takes into account interest
payments up to a year while recommending FRP to the Government. He also agreed to
provide literature on mechanism of calculation of sugarcane price by CACP to farmer
representatives. The Chairman explained that while some individual farmers might feel that
cost of production approximation by Government is less, the cost fixed is an average which
is fair for farmers in overall terms.
It was remarked that farming is an economic activity which would be carried out only if it is
profitable. Hence the objective of these deliberations should be to find ways to ensure
farmers have fair conditions in sugarcane sector in order to ensure profitability. He
informed that a lot of sugarcane sector challenges come from over production and a 10-15%
reduction in overall production can mitigate most challenges in the sector.
He asked farmer representatives to appreciate the efforts being taken by Government to
stabilise farming activity. He gave the example of Government ensuring that the cost of urea
was stable over the last 10-15 years helping containment of cost of production for farmers.
The Chairman explained the overall fiscal concerns of Government to farmer
representatives. He remarked that the combined tax to GDP percentage of the central and
state government remains at only 16%. Hence, if the Government gives in to raising subsidy
amounts to sugarcane farmers, they would be constrained on other fronts such as
infrastructure expenditure which is also extremely essential for the nation.
Lastly, he requested representatives of both state governments to look into concern of
delayed export subsidy payments and provide details on the percentage of farmers who get
delayed payments in the sugarcane sector.
The meeting ended with a vote of thanks to the Chair and the Members.
********** Page | 87
Annexure
Subject: Minutes of the third meeting on the Task Force on Sugarcane & Sugar
Industry, held under the Chairmanship of Prof. Ramesh Chand, Member,
NITI Aayog on 27.11.2019 in Conference Room No. 122, NITI Aayog
List of Participants
38. Prof. Ramesh Chand, Member, NITI Aayog - in Chair
39. Shri R. P. Gupta, Additional Secretary, NITI Aayog
40. Dr. Yogesh Suri, Sr. Adviser (G&R), NITI Aayog
41. Shri Praveen Mahto, Economic Advisor, Department of Commerce
42. Shri Suresh K. Malhotra, Agriculture Commissioner, Department of Agriculture
Cooperation & Farmers Welfare
43. Dr. N. R. Bhanumurthy, Professor, National Institute for Public Finance & Policy
44. Shri Manas Choudhury, Joint Advisor, NITI Aayog
45. Shri Makarand Phadke, Director, Department of Food & Public Distribution
46. Shri Neeraj Singhal, Director (G&R), NITI Aayog
47. Shri Rajesh Mishra, Deputy Cane Commissioner, Meerut, Govt. of Uttar Pradesh
48. Shri Uttam S. Indalkar, Director, Sugar, Govt. of Maharashtra
49. Shri Desh Gaurav Sekhri, OSD, NITI Aayog
50. Dr. R. B. Lal, Scientist ‘E’, Ministry of Environment, Forest & Climate Change
51. Shri. Sushil T. Williams, Deputy Secretary, Ministry of Petroleum & Natural Gas
52. Shri Nitesh Bhasin, Under Secretary, Department of Food & Public Distribution
53. Shri Ankush Das, Young Professional, NITI Aayog
54. Shri Satwik Mishra, Young Professional, NITI Aayog
55. Shri Venkata Narayana Angina, RO (G&R), NITI Aayog
Farmers’ Representative
56. Shri Shyamvir Tyagi, Saharanpur, Uttar Pradesh
57. Shri Jaiveer Singh, Bulandshahar , Uttar Pradesh
58. Shri Kaushal Kumar Mishra, Saharanpur, Uttar Pradesh
59. Shri Lakshmi Pratap Mall, Kushinagar, Uttar Pradesh
60. Shri, Sanjiv Ganapatrao Mane, Sangli, Maharashtra
61. Shri Pandurang Balwant Thorat, Pune, Maharashtra
62. Shri Vittal Namdeo Pawar, Pune, Maharashtra
63. Shri Shivanand Nagnath Darekar, Solapur, Maharashtra
64. Shri Chandrakant Annaso Bhoje, Kolhapur, Maharashtra