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The “Rosetta Stone” with which to decipher the India domestic sugar regime

M.S.R. Prasad - The Dubai Sugar Conference 2019


Table of contents

1. Personal introduction and thank you to organizers and attendees

2. The meaning of acronyms used in the India sugar regime

3. The policy framework governing the India domestic sugar industry

4. Why the Indian sugar policy makes more India domestic political than free market economic sense

5. Key features of the immediate India sugar regime and beyond

6. Conclusion

7. “Question and Answer’ session

13 February 2019 (C) TROPICAL RESEARCH SERVICES 2019 (https://tropicalresearchservices.com) 2


The meaning of acronyms used in the India sugar regime
The policy framework governing the India domestic sugar industry

The price of sugarcane is fixed either by the Central Government or by the State
Government

The conduct of the India sugar industry is governed by ‘The Sugarcane Control
Order’ and ‘The Sugar Control Order’

Sugar is governed by ‘The Essential Commodities Act’, affording the Government


of India complete control over India domestic sugar supplies

The Government of India strictly regulates the international trade of sugar, both
imports and exports from India, often changing its policies at short notice

The pricing and domestic trade of sugar bi-products are highly regulated by the
Government of India too, often preventing inter-state India domestic sugar trade
The policy framework governing the India domestic sugar industry

The farmer decides


The sugarcane The sugarcane is The mills are legally
The Government declares whether to cultivate
commissioner surveys the harvested according this obligated to pay the
the FRP / SAP for sugarcane or an
sugarcane area and the schedule and farmers in full within 14
sugarcane alternative product
based on his survey, delivered ex-mill by the days of having supplied
depending on the relative
farmers are issued a farmers their sugarcane
returns of other products
harvest schedule by the
with reference to the FRP/
mills
SAP, & water availability

Some of these policies


Once the mills take Documentation for any
The administrative control also affect the sugar mills” Once the paper work is
delivery and crush the subsidy scheme availed
on the sugar mills is high. cash flows, diminishing completed, the subsidy
sugarcane they have must be submitted to the
Their conduct is restricted their ability to meet their amount is directly
statutory obligations, to “GoI “ DFPD for the
by India domestic sales obligations to the transferred to the farmers’
pay the farmers and file payment. Of relevant
quotas, export quotas, sugarcane farmers for account on behalf of the
crushing payment reports subsidies The process is
stock holding limits, and sugarcane timely, leading mills, sometimes only
with the respective complex and lengthy
constantly changing policy to cane arrears years later
sugarcane commissioners
The cyclical economic dysfunctionality of the India sugar regime

Increased
Lower sugar duty on
prices and exports &
realizations for allow
the India imports
domestic Place stock
industry Canalize limits on
exports traders and
millers

Increase in area
under
Increased
sugarcane
sugarcane
cultivation and
payment Highly
centrifugal
arrears Lower the
sugar The disconnect export duty, regulated, Lower the
production duty on
between subsidize bureaucratic imports &
sugarcane prices exports &
ban imports sugar trade ban exports
and sugar prices policy
in India

Create a
buffer stock
Canalize
& restrict
Higher sugar Decline in area imports
domestic
prices leading under sugar sales
to ba etter pace sugarcane and Increased
of sugarcane sugar duty on
payments production imports &
allow
exports
How the Indian sugar policy makes more India domestic political sense
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The disconnect between farmer prices for cane and sugar prices for mills
India sugarcane payment arrears
Key features of the immediate India domestic sugar policy

The FRP was revised higher, while the SAP was unchanged in the major sugarcane
growing state of Uttar Pradesh

Regulation of domestic sugar sales


Establishment of sugar buffer stocks, financed by the Government of India
Introduction of mandated minimum ex-mill domestic sugar price

A Minimum Indicative Export Quota (“MIEQ”) of 5.0M MT was issued


Notification of a sugarcane production subsidy and a transportation subsidy linked to the
MIEQ, to be paid to the farmer on behalf of the sugar mill

The price for ethanol produced from B heavy molasses and ethanol produced directly from
sugarcane juice was revised higher
The India sugar balance sheet solves rationally for India domestic politics, and
irrationally for free market economics
Conclusion

• The India sugar regime is opaque, indecipherable and


complex
• The India sugar regime is opaque, indecipherable and
complex
• However, this is because it is often solving for India domestic
politics rather than for free market economics
• India domestic politics are the lens with which to observe the
dynamics of the highly regulated Indian domestic sugar regime
• The Government approach is to maximize political capital and
sugar policies are shaped to this end
• Pleasing the gigantic India domestic farmer voting block
trumps free market economic prerogatives
• Appreciation for this factor is the “Rosetta stone” with which to
decipher the India domestic sugar regime
India domestic politics trump free market economics
Glossary

• CACP: Commission for Agricultural Costs & Prices


• FRP: Fair and Remunerative Price
• SAP: State Advised Price
• Arrears: Sugarcane payment pending to the farmers
• Diversion: Sugarcane diverted away from centrifugal sugar production to artisan sweetener production
• Gur / Khandsari: Artisan sweeteners in India
• Monthly Sales Quota: Monthly mill wise domestic sugar sales
• MSP of sugar: Mandated minimum domestic ex-mill sale price
• ALS: Advance Licensing Scheme
• OGL: Open General Licence
• MIEQ: Minimum Indicative Export Quota
• OMC: Oil Marketing Companies
India sugarcane pricing mechanism

Sugarcane pricing - Maharahstra Karnataka


Maharashtra Karnataka
Fair Remunerative Price (FRP) INR PMT 2,750 2,750
Recovery % 11.3% 10.9%
Additional cane price for every 1 pt. gain in recovery over 10% INR PMT 2.7 2.7
Additional recovery Points 130 90
Effective FRP INR PMT 3,099 2,991
Harvest and transport INR PMT 600 600
Net FRP, payable to farmer INR PMT 2,499 2,391

Sugarcane pricing - Uttar Pradesh


Uttar Pradesh
Mill delivered Purchase centre
State Advised Price (SAP) INR PMT 3,150 3,150
Recovery % 11.4% 11.4%
Additional cane price for every 1 pt. gain in recovery over 10% INR PMT - -
Additional recovery Points - -
Effective SAP INR PMT 3,150 3,150
Cane society tax INR PMT 83 83
Purchase Tax INR PMT 20
Harvest and transport INR PMT - 150
Harvest and transport (reimbursed) INR PMT - 65
Net SAP, payable to the farmer INR PMT 3,253 3,318
Linking the India sugarcane production subsidy to sugar exports

SUGAR EXPORT SUBSIDY CALCUALTION


UNIT
Sugarcane production subsidy approved INR PMT 139
Implied quantity of sugarcane that GoI will pay for M MT 300
Quantity of sugarcane that GoI will pay M MT 300
Total saving on sugarcane procurement M INR 41,630
Total saving in sugar transport M INR 13,750
Total subsidy (saving in sugarcane procurement + sugar transport) M INR 55,380

Minimum Indicative Exprt Quota (MIEQ) M MT WV 5.00

Sugarcane subsidy in sugar equivalent INR PMT 8,326


Transportation subsidy on sugar exported INR PMT 2,750
Total subsidy on sugar exported INR PMT 11,076
USD PMT $ 153
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