Punjab sugar industry on a sticky wicket

  • Gurpreet Singh Nibber, Hindustan Times, Chandigarh
  • Updated: Jun 07, 2015 14:34 IST

The state sugar industry in ailing and it needs a swift revival plan. The industry is in the midst of an unprecedented crisis as sugar prices are hovering around six-year low, while raw material costs have grown consistently.

Officials in Punjab state federation of cooperative sugar mills (Sugarfed) say 2014-15 has been the worst phase for sugar industry as losses and debt have mounted to an all-time high.

The fall in local sugar prices is straining finances of mills which have failed to make timely payments to cane farmers, who owe these mills a whopping Rs 280 crore.

It was in the early 60s, with the beginning of the green revolution, Punjab opened its first cooperative mill in Bhogpur. Gradually, more mills were opened. Though the sugar production was less than the state's requirement, these mills continued to be profitable ventures till 2003. Then the percentage realisation of sugar from cane grown in the state started declining gradually, as result losses mounted for sugar mills. Currently, mills in Punjab are under a loss of about `750 crore and a debt `450 crore.

To bail out these sick units, the state government gave a `186 crore grant in 2014 and `300 crore this year. The money would be further disbursed to growers.

Lately, to revive the industry and help cane farmers, 11% entry tax has been imposed on sugar imported from outside the state by the Punjab government.

Sugar politics at play

On March 25, the last day of the budget session, a bill for imposition of entry tax on sugar was deferred with the BJP ministers in the state cabinet pressing for a discussion on the issue. Nearly two months later, the state council of ministers decided to impose 11% entry tax on sugar imported from outside the state.

At that time, BJP state president Kamal Sharma, claimed that his party was not consulted before the decision. However, industries minister Madan Mohan Mittal, who belongs to same party, said the agenda was moved by his department after his clearance.

Sugar wholesalers have opposed entry tax claiming that it would lead to a price hike. "It (entry tax) doesn't make any sense and should be rolled back," says Pritam Singh Arora, president of sugar wholesalers' body.
RK Singla, a chartered accountant with Ludhiana-based Bonn breads and biscuits, told HT that the company's business has been hit as the entry tax has jacked up sugar rates.

Congress MLA Rana Gurjeet Singh, who owns a sugar mill, said the government should take care of all sections of the society. "There is a need to safeguard farmers, sugar producers and consumers. The entry tax has given a forward push to industry even as there has been a marginal increase in sugar rates," he says.

Rana's son Inderpartap Singh had taken up the plight of sugar industry with Punjab Chief Minister Parkash Singh Badal.

Not a profitable business model?

According to experts, per acre production of cane grown in Punjab is about 300 quintals. It's just one-fourth as compared to Maharashtra, Gujarat and Tamil Nadu.

Also, the percentage realisation of sugar from cane grown in Punjab has come down from 9-10% to about 8%. In Maharashtra, Gujarat and Tamil Nadu, the realisation is up to 14%.

"The fair remunerative price (FRP) of sugarcane fixed by the Centre is currently `220 per quintal and that state advise price (SAP) fixed by Punjab government is `290 per quintal. This clearly shows that it's not a uniform business model across states," says general manager of Morinda sugar mill SP Singh.

"The cost of producing one kg sugar in Punjab is more than `40, while in other states it is less than `30. The price of sugar is fixed keeping in view the cost of sugar in most parts of country. Sp, it makes no sense purchasing sugar cane at higher price and selling sugar at lower price," he says.

"Sugar in Uttar Pradesh is manufactured at a very less input cost. It's like a cottage industry with which we can't compete. So, the government has decided to impose entry tax on sugar coming from outside the state," said Sukhbir Singh Wahla, Sugarfed chairman

Redundant variety adds to woes

The CoJ-64 variety of sugarcane gave best results in Punjab for about 20 years (from 1980s to 2003) when percentage realisation of sugar touched 10%.There has, however, been a steady decline from which the industry has failed to recover. Also, there have been no good cane varieties to replace CoJ-64. "We are looking for new sugarcane varieties. Research began a year ago and it would take two more years to come up with a new variety," financial commissioner cooperation SK Sandhu said.

Mills in Punjab: 16

Cooperative model: 9

Morinda, Nawanshahr, Budewal, Bhogpur, Nakodar, Gurdaspur, Batala, Ajnala and Fazilka.

Privately run: 7
Amloh, Phagwara, Buttar, Dhuri, Mukerian, Keeri Afgana and Dasuya

Shut down mills: 7
Cooperative: Rakhra, Jagraon, Faridkot, Budlada, Taran Taran and Zira
Private: Patran

Figures at glance:

80 lakh quintals - Punjab's annual sugar consumption
45 lakh quintals - sugar manufactured by private sugar mills
16 lakh quintals -manufactured by cooperative mills
20 lakh quintals - imported from outside the state
260 lakh tonne - national sugar production
240 lakh tonne -national consumption
`30 per kilogram -sugar price for retail consumers,
2.45 lakh acre - area under sugar cane cultivation
7 lakh tonnee - total sugar production


SK Sandhu, Financial commissioner (cooperation), Punjab govt

"We need newer varieties of sugarcane. The government is making serious efforts to revive the industry. Like our entry tax, the Centre has imposed 15% duty on sugar imports to keep prices under check. India is already a sugar-surplus country".

SP Singh, general manager, Morinda cooperative mill

"While the sugar prices are same, the cost of sugar production varies across the states. The input cost is high in Punjab; as a result, the sugar industry is suffering. It will take concrete steps from government to save the sugar".

Tota Singh, Agriculture minister, Punjab
"Private sugar mill owners have threatened to wind up operations, cooperative mills are reeling under huge losses and farmers are yet to get their dues. The situation is grim, but we have taken effective steps such as imposition of entry tax to bail out the industry."

Why ails Punjab sugar industry

* The losses have mounted to an all-time high for the industry as sugar prices are hovering around six-year low. On the other hand, input costs have gone up consistently.
* The percentage realisation of sugar from cane grown in the state is mere 8%. The realisation in states like Maharashtra, Gujarat and Tamil Nadu is up to 14%
*The redundant cane variety (CoJ-64) is primarily responsible for the low realisation. The government has failed to come up with better varieties.
* The fall in local sugar prices is straining finances of mills which have failed to make timely payments to cane farmers
*Also, per acre production of cane grown in Punjab is about 300 quintals. It's just one-fourth as compared to Maharashtra, Gujarat and Tamil Nadu

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