17 July 2023, New Delhi: The government has recently announced the Fair and Remunerative Price (FRP) of 315/quintal for sugarcane for Sugar Season 2023-24 with more than 100% margin over Paid out cost + imputed value of family labour (A2+FL cost). This is amongst the highest margin in crops thereby assuring high returns for farmers. This decision will benefit about 5 crore sugarcane farmers, including their dependents. The new FRP aims to address the aspirations of the farmers while ensuring competitiveness of the Indian sugar industry. The FRP is the benchmark price below which no sugar factory can purchase sugarcane. Therefore, it is like Minimum Support Price but here procurement is carried out by the sugar factories, and not by the government.
The sugar industry in India has had a chequered history and has emerged as a robust sector only in recent years. In 8 years leading up 2020-21, the government extended financial assistance of more than Rs 18,000 crores to bring sugar sector out of financial crises so that farmers’ payments could be released by mills promptly. In recent years, targeted interventions from the Centre, acumen of the sugar industry and propitious global factors have led to a turnaround of the sugar sector.
The health of sugar sector can be gauged from the fact that since 2021-22, no budgetary support has been given to sugar mills except under interest subvention scheme for ethanol projects (under which Rs 494 crores have been disbursed till June 30, 2023). Enhanced levels of capital expenditure in the sector for modernisation and diversification have led to additional investment of more than Rs 30,000 crore in the sector in the last 6 years and generation of more than 50,000 direct and indirect employment opportunities for rural youth. Trends in stock prices of listed companies are a reliable indicator of not only the present health of the sector but also of its future prospects. It is seen that market capitalisation of the top 10 listed sugar companies (based on their sugarcane crushing capacity) has more than doubled in last 4 years.
The turnaround of the sugar sector can be credited to three broad set of factors. The flagship initiative which has contributed the most to revival of the sugar sector, has been the National Biofuel Policy 2018 which promotes blending of ethanol with petrol. Although, Ethanol Blending with Petrol (EBP) Programme has been under implementation since 2003, announcement of the National Biofuel Policy can be termed as the watershed event leading to a resurgence in the sector. Since then, a slew of policy initiatives have simplified the procedures of establishing ethanol plants and offered remunerative prices for ethanol produced from molasses.
The Centre also introduced Interest Subvention Scheme for ethanol projects under which 6% interest per annum or 50% of interest, whichever is lower, is reimbursed for 5 years to project proponents to incentivise enhancement of ethanol production capacity in the country.
More than 1,200 projects with a projected capacity of 4,400 crore litres have been given in-principle approval by Central Government under the scheme since 2018. In just over two years, ethanol blending percentage has doubled and about 434 crore litres of ethanol was blended during Ethanol Supply Year (Dec-Nov) 2021-22 surpassing the target of 10%. The EBP Programme is now on track to achieve the target of 20% ethanol blending by 2025 which would make India the third largest ethanol producer in the world. Ethanol Blending Programme has resulted in additional revenue of more than Rs 51,000 crores for sugar-based distilleries in last 4 years.
Exports have, inter alia, enabled the sugar sector to dispose its additional inventory which hitherto used to block funds for sugar mills and delay payments to cane farmers. Indian sugar has now developed a strong foothold in the export market reaping the benefits of higher global prices which have almost doubled in last three years.
The third factor relates to diversification of product basket of the sugar mills. Sugar sector today is the torchbearer in the country of a circular economy with minimal impact on the environment. The industry is creating additional value with co-gen power, potash based fertilizers and use of press mud to generate Compressed Bio Gas (CBG). Sugar industry has effectively tapped bagasse to generate power not only to meet its own requirements but also to provide surplus electricity to the grid. With a capacity of 9,500 MW, sugar sector is generating revenues of about ₹10,000 crore from its green power cogeneration infrastructure. Water usage by the sugar mills is declining due to increased use of drip irrigation and efficient use of water in the integrated sugar complexes. The sector is well poised to use all these initiatives to earn and and monetise carbon credits and is thus meaningfully contributing in meeting India’s targets under COP 26 agreements towards Net Zero Emissions. The increased profitability of sugar mills has also benefitted the two major stakeholder- farmers and consumers. Improved cash flows of the sugar mills have led to faster clearance of cane dues of farmers. The available data shows that as against 73% of the cane dues having been paid out as on July 1, 2020, 90.8% of the dues have been paid to the farmer having been paid out as on July 1, 2020, 90.8% of the dues have been paid to the farmers by the same date this year.
The consumer has also gained on account of stability in domestic sugar prices. Though international sugar prices touched an 11-year high in April, 2023, domestic retail prices have been stable with nominal inflation of less than 3%. In contrast, retail prices in the neighbouring countries are two to four times of what prevails in India.
