Skip to content
Home » Navigating India’s Sugar Industry: Policies, Subsidies, and Impacts

Navigating India’s Sugar Industry: Policies, Subsidies, and Impacts


The sugar industry forms a major backbone of India’s agro-based economy, not only making a significant contribution to the country’s GDP but also creating numerous job opportunities. This industry, a direct influencer of the rural livelihood, touches the lives of approximately 50 million sugarcane farmers and offers direct employment to around 5 lakh workers involved in sugar mills. The ripple effect of this industry goes beyond those directly employed, extending to ancillary activities like transport, trade servicing of machinery, and supply of agriculture inputs.

The Indian sugar industry, the second-largest producer in the world after Brazil, plays a significant role in global sugar markets. More importantly, India is also the world’s largest consumer of sugar, a fact that underlines the importance of a well-functioning and efficient sugar industry within the country.

The sugar industry holds significant importance in India

Economically, the sugar industry’s annual output in India is estimated to be worth approximately Rs.80,000 crores, a significant contribution to the country’s GDP. Besides, this industry also substantially impacts the nation’s foreign trade dynamics. However, the significance of the sugar industry in India extends beyond the economic sphere.

The sugar industry is primarily rural-based and provides a critical source of income and employment for millions of farmers and workers. It has a role to play in the socio-economic development of rural areas, thus contributing to the overall goal of rural upliftment and development. Given its importance, the government has introduced various measures to ensure the sustainability and growth of this industry.

Need a loan? Experience hassle-free assistance and swift approvals with Refer Loan. Simplify borrowing and achieve your aspirations effortlessly! CONTACT REFER LOAN

Key Policies and Their Impact on Sugar Mills and Sugarcane Farmers in India

Policy/MeasureDescriptionImpact on Sugar MillsImpact on Sugarcane Farmers
Fair and Remunerative Price (FRP)Price guaranteed by the government for sugarcane purchaseDirect impact on cost of productionEnsures a minimum selling price for farmers
De-regulation of Sugar Sector (Rangarajan Committee Report)Recommended market-driven approach, abolition of levy sugar systemAllowed sugar mills to sell at market pricesEnhanced competitiveness and potentially better prices
Ethanol Blended Petrol Programme (EBP)Encourages ethanol production from sugarcaneProvides alternative revenue streamEnsures better utilization of sugarcane crop
Scheme for Extending Financial Assistance to Sugar Undertakings (SEFASU-2014)Provided financial aid to sugar millsAssisted in clearing outstanding duesEnsured timely payment of dues to farmers
Soft Loan SchemeLow-interest loans to sugar millsAssisted with liquidity and operational costsIndirect impact through improved functioning of sugar mills
Minimum Indicative Export Quotas (MIEQ)Mandated sugar export quotasCould stress mills with additional logisticsPotential for increased demand and better prices
Production SubsidySubsidy to offset production costsReduced cost burdenEnsured better profitability for mills, indirectly benefiting farmers
Stock Holding and Turnover LimitsRegulation of sugar stocks held by millsLimits on inventory could affect operational flexibilityAffects market supply-demand and potential farm gate prices
Ensuring Sugar Availability measuresVarious measures to ensure consistent sugar supplyDirectly impacts operational planning and profitabilityIndirect effect through stable demand for sugarcane

Overview of the Indian Sugar Industry

As of July 31, 2017, there were a total of 732 sugar factories in India. These factories had the capacity to crush sugarcane and produce approximately 339 lakh metric tons (33.9 million metric tons) of sugar.The industry has seen growth in both private and cooperative sectors, with capacity distributed almost equally between the two. This balance has brought in competitive dynamics and efficiency, enhancing the overall performance of the industry.

The industry’s structure is such that the sugarcane farmers sell their produce to the sugar mills, which in turn produce sugar. Over time, there has been an increase in farmers shifting towards sugarcane cultivation due to the crop’s profitability and the guarantee of purchase by sugar mills.

Despite the challenges posed by the global and domestic markets, including fluctuating sugar prices and changing domestic policies, the Indian sugar industry continues to thrive. The robustness of the industry is testimony to its resilience, the country’s strong domestic demand, and the strategic interventions of the government.

In summary, the sugar industry in India, backed by strong domestic demand and supportive government policies, has been a key contributor to the nation’s economy. Furthermore, it also has an influential role in the socio-economic development of rural areas. It is an industry that carries the potential for further growth and contribution to the country’s development.

Sugarcane Pricing Policy

Understanding the Sugarcane Pricing Policy is paramount to comprehend the dynamics of the Indian sugar industry. This policy determines the earnings of millions of sugarcane farmers and has a direct influence on the profitability and sustainability of the sugar industry.

Background of the Fair and Remunerative Price (FRP) Policy

The Fair and Remunerative Price (FRP) system was introduced in India by the government to protect the interests of sugarcane farmers, ensuring they receive a fair amount for their crop. Before the implementation of the FRP in 2009, there was the Statutory Minimum Price (SMP) system in place. However, it was observed that the SMP often fell short of providing the farmers a fair and remunerative price for their hard work.

The FRP policy aims to balance the interests of all stakeholders – the sugarcane farmers, sugar mills, and consumers. It intends to offer a price that would cover the cost of production for farmers, allow sugar mills to remain competitive and viable, and ensure that the consumers get access to sugar at affordable rates.

Factors Influencing the FRP

Various factors come into play when the FRP is decided each year. These factors include the cost of cultivation, the return to the growers from alternative crops and the general trend of prices of agricultural commodities, availability of sugar to consumers at a fair price, the price at which sugar produced from sugarcane is sold by sugar factories, etc. The government also considers the recovery rate, which is the quantity of sugar that can be extracted from a set amount of sugarcane.

FRP System Implications for Farmers

The FRP system has a profound impact on sugarcane farmers. It provides them with a guaranteed minimum price for their produce, irrespective of the market conditions. This predictability allows the farmers to plan their finances and activities better. However, the effectiveness of the FRP system depends heavily on timely payment of the FRP by the sugar mills, which is often a challenge.

Recent Trends in FRP Rates

In recent years, the FRP for sugarcane has shown an upward trend. For instance, the FRP was increased from Rs.275 per quintal in the 2018-19 season to Rs.285 per quintal in the 2019-20 season for a basic recovery rate of 10%. Despite the rise, there are arguments from different sections of the society that the increase in FRP is not sufficient, given the rising costs of cultivation. Thus, the debate surrounding the FRP and its impact continues.

To conclude, the FRP plays a significant role in the Indian sugar industry. It not only ensures a fair price for the sugarcane farmers but also impacts the sustainability of sugar mills and the affordability of sugar for consumers. Hence, there is a need for a continued dialogue among all stakeholders to strike an optimal balance

De-regulation of Sugar Sector: The Rangarajan Committee Report

In an attempt to enhance efficiency and competitiveness in the sugar sector, the Indian Government embarked on a critical journey towards de-regulation, which culminated in the formation of the Rangarajan Committee in 2012. This step aimed at addressing the structural issues hampering the growth of the sugar industry, thereby freeing it from the burdens of excessive controls and regulations.

The Rangarajan Committee was charged with the daunting task of reviewing the existing regulatory framework and suggesting a roadmap towards a freer, more competitive sugar industry. After thorough analysis and numerous consultations with stakeholders, the committee produced a report encapsulating a series of recommendations that aimed to unshackle the industry from archaic regulations and promote its modernization.

Among the key recommendations made by the committee, some standout ones include:

  1. Abolition of the levy sugar system: This proposal advocated the removal of the obligation on sugar mills to supply a portion of their produce at below-market prices for the public distribution system. This was subsequently accepted by the government, benefiting mills by allowing them to sell all their produce in the open market.

  2. Removal of state-imposed controls over cane pricing: The committee argued for the replacement of state-advised prices with the fair and remunerative price (FRP) set at the national level, aiming to bring more uniformity and predictability in pricing.

  3. Liberalizing sugar trade: The committee recommended lifting restrictions on the sale of sugar in the domestic market and removing limitations on exports and imports to ensure a free trade environment.

The government, in response, accepted and implemented some of these recommendations, leading to notable impacts on the sugar industry. The abolition of the levy sugar system, for instance, provided financial relief to mill owners, allowing them to sell their entire produce at market prices. Likewise, liberalizing sugar trade has allowed the industry to tap into the global market more freely, aligning with global price trends and cushioning the domestic industry from the volatility of local demand and supply dynamics.

However, the transition towards de-regulation has not been entirely smooth, with certain challenges emerging in its wake. For instance, the suggestion of replacing state-advised prices with FRP has faced resistance from several states, leading to uneven implementation. This has added a layer of complexity in the pricing mechanism, often leading to arrears in payments to farmers.

Overall, the Rangarajan Committee report and its subsequent implementation signified a pivotal shift in the sugar industry’s landscape, with a shift towards a more liberalized and competitive environment. While the journey of de-regulation is far from over, and challenges persist, the changes thus far have set the stage for the industry’s evolution towards greater self-reliance and resilience

Dispersion of Sugar via the Public Distribution Mechanism (PDS)

The Public Distribution System (PDS) in India has long been a crucial instrument in ensuring food security for millions of its citizens. Offering basic necessities at subsidized rates, this comprehensive network is instrumental in addressing poverty and malnutrition. Within this system, sugar is one of the key commodities distributed to eligible families at affordable prices.

A critical aspect of PDS is the Antyodaya Anna Yojana (AAY), a flagship scheme launched by the Indian Government in December 2000. The AAY primarily targets the ‘poorest of the poor’ by providing them with food grains, including rice and wheat, and other essentials such as sugar, at highly subsidized rates.

In recent years, changes have been made to the distribution and subsidy system under the reviewed scheme. One of these changes was the shift from the Levy Sugar system to the Direct Benefit Transfer (DBT) approach. Earlier, sugar mills were obligated to supply a portion of their production for PDS at below-market prices (Levy Sugar system). With the introduction of the DBT system, the obligation was scrapped, and sugar mills were allowed to sell their entire output in the open market. Instead of receiving physical sugar at subsidized rates, eligible families now receive monetary support directly in their bank accounts, which they can use to purchase sugar at market prices.

The effects of these changes on AAY families have been multifaceted. On one hand, the direct transfer of subsidy has promoted transparency and reduced systemic leakages. It has also provided beneficiaries with the flexibility to purchase sugar as per their requirements and choice.

However, it’s worth mentioning that the shift to DBT has also presented some challenges. For instance, beneficiaries now have to contend with market price fluctuations, which may affect affordability, particularly when market prices soar. Additionally, there’s a digital divide and lack of financial literacy in certain sections of the society, which may limit the effectiveness of DBT.

Despite these challenges, the move towards DBT is considered a significant step towards making the subsidy system more efficient and beneficiary-oriented. As the system continues to evolve and improve, the aim remains to ensure that the benefits of subsidized sugar reach the intended AAY families without fail.

The government’s commitment to safeguarding the interests of vulnerable sections of the society and ensuring their food security continues to be reflected in the ongoing reforms in the PDS, including the distribution of sugar.

Ethanol Blended Petrol Programme (EBP)

The Ethanol Blended Petrol Programme (EBP) is an initiative by the Indian Government aimed at promoting the use of clean and renewable energy sources in the transport sector. This program, launched in 2003, is primarily focused on reducing the environmental footprint of traditional petroleum fuels by mixing them with a significant percentage of ethanol, which is a biofuel typically produced from plant sources like sugarcane.

The EBP Programme shares a strong link with the sugar industry and sugarcane farmers. As mentioned earlier, ethanol is predominantly derived from sugarcane in India. The sugar industry produces sugar from the sucrose found in sugarcane, but there is also another sugar in sugarcane – invert sugar – which can be used to produce ethanol through the process of fermentation. This creates a new revenue stream for sugar factories, helping them mitigate the financial challenges posed by the cyclic nature of sugar production and prices.

For sugarcane farmers, the EBP Programme has offered a new market for their produce, ensuring their sugarcane finds buyers not just in the sugar industry but also in the ethanol industry. This offers an opportunity for diversification and can cushion them against fluctuations in sugar prices.

In terms of recent developments, the Indian government has been increasingly proactive in promoting the EBP. The original aim was to achieve 10% ethanol blending in petrol by 2022, but in 2020, the Indian government set a new target to achieve 20% ethanol blending by 2025, advancing the earlier target by five years.

To facilitate this, a few regulatory measures have been taken. Firstly, the price of ethanol produced from various sources for the EBP Programme has been revised to make it economically viable. Secondly, soft loans are being provided to sugar mills and molasses-based standalone distilleries to enhance their ethanol production capacity.

Overall, the EBP Programme is not only helping India move towards its environmental goals, but it is also playing a critical role in stabilizing the sugar industry and improving the livelihoods of sugarcane farmers. However, the path towards the ambitious blending target will require continuous efforts and support from all stakeholders involved.
Financial Assistance Schemes

  1. Scheme for Extending Financial Assistance to Sugar Undertakings (SEFASU-2014)

In response to the financial stress faced by sugar mills due to high sugarcane costs and low sugar prices, the Government of India introduced the Scheme for Extending Financial Assistance to Sugar Undertakings (SEFASU) in 2014. The scheme aimed to provide interest-free loans to sugar mills to help them clear their outstanding dues to sugarcane farmers.

The loans under SEFASU-2014 were disbursed to sugar mills against their excise duty liabilities, essentially serving as an interest-free cash flow for the mills for a period of up to five years. The government, in turn, bore the interest burden of these loans to the banks.

The implementation of SEFASU-2014 had a significant impact.This approach not only aided in restoring the economic vitality of a multitude of sugar mills, but it also proved vital in alleviating the monetary hardships of sugarcane farmers by guaranteeing punctual compensation.

  1. Soft Loan Scheme

The Soft Loan Scheme is another initiative introduced by the Indian government to aid the financially distressed sugar industry. Under this scheme, sugar mills can avail loans at a reduced interest rate, provided that the loans are used for specific purposes such as enhancing their ethanol production capacity or for setting up new distilleries.

The Soft Loan Scheme has been a vital source of financial support for sugar mills, offering them an opportunity to expand their operations and diversify their revenue streams. The focus on increasing ethanol production is particularly strategic, as it ties in with the government’s Ethanol Blended Petrol Programme (EBP), aiming to achieve a 20% ethanol blend in petrol by 2025.

The scheme has also had significant indirect benefits for sugarcane farmers. As sugar mills bolster their ethanol production capacity, they demand more sugarcane, providing a stable market for the farmers. Furthermore, by helping sugar mills maintain their financial stability, the scheme ensures that farmers are paid their dues in a timely manner.

Overall, both SEFASU-2014 and the Soft Loan Scheme have been pivotal in bolstering the financial stability of the Indian sugar industry and ensuring the welfare of sugarcane farmers. These programs epitomize the government’s dedication to protecting the rights and interests of every participant in the sugar industry.

Minimum Indicative Export Quotas (MIEQ)

Purpose and Function of MIEQ

Introduced by the Indian government, the Minimum Indicative Export Quotas (MIEQ) are part of a strategic initiative designed to manage the surplus sugar production in the country. The fundamental purpose of the MIEQ is to set a lower limit on the quantity of sugar that each mill in the country is required to export, in order to balance domestic sugar supply and demand, stabilize prices, and ensure the financial health of the industry.

By establishing quotas, the government encourages the export of surplus sugar, reducing the risk of over-supply in the domestic market which can lead to drastic price drops. This helps in maintaining the stability of the domestic sugar prices which is crucial for the profitability of sugar mills and, by extension, the welfare of sugarcane farmers who are paid based on the revenue of the mills.

Recent Changes and Impacts of MIEQ

Over recent years, the MIEQ has seen some important changes. The government has periodically adjusted the quota based on the projected sugar production and global market conditions. For example, in years of high production, the export quota is typically increased to prevent a glut in the domestic market.

These changes in MIEQ have direct impacts on the sugar industry. An increase in the quota stimulates the sugar export, helping in offloading surplus stocks and thus preventing a price collapse in the domestic market. It also provides an additional stream of revenue for sugar mills, especially when global sugar prices are favourable. However, meeting the export quotas can be challenging for some mills, particularly in times of lower production or when international sugar prices are low.

Moreover, the MIEQ policy has indirect implications for the sugarcane farmers. By helping maintain the sugar mill’s profitability, the policy ensures that the farmers get their dues on time. It also reduces the risk of payment arrears that can occur in times of sugar surplus.

In summary, while the MIEQ comes with its own set of challenges, it is an essential policy tool used by the government to manage the domestic sugar supply-demand balance and to safeguard the interests of all stakeholders in the sugar industry.

Production Subsidy

Overview and Purpose of the Production Subsidy

The production subsidy is a form of financial assistance provided by the Indian government to the sugar industry, primarily targeted at sugarcane farmers. The fundamental purpose of this subsidy is to alleviate the financial burden on farmers and to encourage consistent and robust production of sugarcane.

In the face of fluctuating market conditions, farmers often bear the brunt of low sugar prices, delayed payments from mills, and escalating input costs. The production subsidy serves as a safety net, providing farmers with a certain degree of financial stability, and encouraging them to continue growing sugarcane.

Besides directly benefiting the farmers, the subsidy indirectly aids sugar mills. By incentivizing farmers to maintain sugarcane production, the subsidy ensures a stable supply of raw material for the mills, thereby facilitating their operations and enhancing their economic viability.

Recent Changes and Impacts of this Subsidy

In recent years, the government has revised the terms and amounts of the production subsidy, in response to the changing dynamics of the sugar industry and agricultural economics. These changes are typically based on the costs of production, the prevailing sugar prices, and the financial health of the sugar industry.

One significant impact of these changes has been on the profitability and sustainability of sugarcane farming. A timely and sufficient subsidy can help farmers cover their costs of production and make a reasonable profit, even when sugar prices are low.

Moreover, the subsidy plays a crucial role in stabilizing the sugar industry. By ensuring that farmers keep growing sugarcane, the subsidy guarantees a consistent supply of raw material for sugar mills. This stability, in turn, contributes to regular sugar production, price stability, and the overall health of the industry.

However, it’s important to note that while the production subsidy offers essential support to farmers and the industry, it’s a delicate balancing act for the government. The challenge lies in setting the subsidy at a level that protects the interests of farmers and mills, without distorting market dynamics or creating an undue fiscal burden on the government.

To conclude, the production subsidy plays a vital role in India’s sugar industry, acting as a stabilizing force amid the volatility of agricultural markets and offering critical support to millions of sugarcane farmers across the country.

Stock Holding and Turnover Limits

Explanation of these Limits and Their Purposes

Stock holding and turnover limits are regulatory measures often employed by governments to monitor and manage the supply of essential commodities, such as sugar, in the market. These limits are set to prevent hoarding, stabilize prices, and ensure a fair distribution of commodities among consumers.

A stock holding limit stipulates the maximum quantity of a particular commodity, such as sugar, that a trader, wholesaler, or retailer can store at any given time. This limit acts as a deterrent to hoarding and speculation, which can create artificial scarcity and drive up prices.

On the other hand, turnover limits dictate the amount of commodity a trader can buy or sell within a specific timeframe. This regulation ensures the regular flow of goods in the market, preventing both short-term shortages and surpluses.

These measures are vital tools for the government to maintain market equilibrium, protect consumer interests, and keep essential commodities affordable for all sections of the society.

Impacts of These Limits on the Sugar Industry and Prices

The implementation of stock holding and turnover limits can significantly influence the dynamics of the sugar industry and the prices of sugar.

Firstly, these regulations can curtail hoarding and speculation in the sugar market. By preventing traders and businesses from stockpiling sugar beyond the prescribed limit, the government can avert artificial price hikes and ensure stable prices for consumers.

Secondly, these limits promote the regular flow of sugar in the market. Turnover limits ensure that traders can’t hold onto their stock for an extended period, anticipating price increases. This measure ensures the availability of sugar for consumers and helps maintain a balance between demand and supply.

However, the impact of these limits is not without challenges for the sugar industry. Strict regulations can sometimes create a bottleneck for traders and sugar mills, potentially affecting their operational efficiency and profit margins. These limits also necessitate effective tracking and enforcement mechanisms, adding to the administrative costs of the industry.

In conclusion, while stock holding and turnover limits play a pivotal role in managing the sugar supply and stabilizing prices, they must be implemented judiciously, considering the interests of all stakeholders – from farmers and sugar mills to traders and consumers.

Seeking a loan? Discover clear guidance and speedy approvals at Refer Loan. Streamline your borrowing process and effortlessly attain your goals! GET IN TOUCH WITH REFER LOAN

Ensuring Sugar Availability

Overview of Current Sugar Production and Stock Conditions

As of the current scenario, India continues to maintain its standing as the second-largest producer of sugar worldwide. The production is primarily focused in the states of Uttar Pradesh, Maharashtra, and Karnataka, contributing significantly to the national output. A combination of favorable climatic conditions, fertile soils, and robust agricultural practices has contributed to the abundant production of sugarcane, and subsequently, sugar.

However, the sugar industry in India is characterized by cyclicality, which means periods of surplus production are often followed by periods of deficits. This fluctuating production pattern can result in periods of high sugar stocks, subsequently leading to lower sugar prices, and vice versa.

Government Measures to Ensure Availability and Reasonable Prices

In order to manage these fluctuations and ensure the continuous availability of sugar at reasonable prices, the Indian Government has initiated several measures.

Firstly, the government has implemented a system of Minimum Indicative Export Quotas (MIEQ) to encourage the export of sugar during surplus years. This helps reduce the stockpile in the country, prevent drastic price drops, and ensure the stability of the domestic sugar industry.

Secondly, the stock holding and turnover limits come into play. These measures aim to prevent hoarding and artificial scarcity of sugar, thereby controlling price inflation. These regulatory tools ensure a regular flow of sugar in the market, maintaining a balance between supply and demand.

Furthermore, the government also provides financial assistance and subsidies to the sugar industry and farmers during challenging times. The Soft Loan Scheme, the Scheme for Extending Financial Assistance to Sugar Undertakings (SEFASU-2014), and the Production Subsidy are notable examples.

Lastly, the Ethanol Blended Petrol Programme (EBP) has also played a crucial role. By promoting the conversion of surplus sugarcane and molasses into ethanol for blending with petrol, it not only provides an additional revenue source for sugar mills but also helps in maintaining a steady demand-supply balance in the sugar market.

Through these multi-faceted strategies, the government ensures the availability of sugar at affordable prices for consumers, while also safeguarding the interests of farmers and the sugar industry. Yet, maintaining this delicate balance requires continual monitoring and responsive policy adjustments in line with evolving market conditions.


Recap of the Current State of the Indian Sugar Industry

With its journey steeped in the depths of history, the Indian sugar industry today stands as a prominent pillar of the nation’s economy. Ranking as the world’s second-largest producer, the industry significantly contributes to India’s agricultural GDP, while also creating substantial direct and indirect employment opportunities.

Over the years, the industry has shown an impressive ability to adapt and thrive in the face of changing circumstances. It has embraced innovations, from improvements in sugarcane farming to advancements in sugar processing technologies. Yet, the sector continues to grapple with the challenges posed by the cyclicality of production, market volatility, and price uncertainties.

Reflections on the Impacts of the Discussed Policies and Measures

A series of interventions, ranging from the Fair and Remunerative Price (FRP) policy to the various subsidy schemes, have played a vital role in maintaining a delicate equilibrium. They have helped insulate farmers from price fluctuations, incentivized sugar mills to clear cane arrears, and facilitated the smooth functioning of the market.

The Ethanol Blended Petrol (EBP) Programme has introduced an alternative revenue source for the sugar industry, improving its sustainability. The Rangarajan Committee’s recommendations have sparked progressive policy changes, fostering a more liberated and competitive sugar sector.

Furthermore, the Public Distribution System (PDS) and Antyodaya Anna Yojana (AAY) have ensured that sugar, a staple commodity, remains within the reach of the economically disadvantaged segments of society, thus promoting nutritional security.

Looking Forward: Potential Challenges and Opportunities for the Industry

The future of the Indian sugar industry appears to be a mix of challenges and opportunities. On one hand, environmental concerns, resource constraints, and the need for sustainable farming practices add complexity to the sector’s growth prospects. On the other, the rising demand for clean energy opens up exciting possibilities for the industry, especially in terms of ethanol production.

Continued government support, innovative approaches, and a keen focus on sustainability will be crucial in navigating the road ahead. With the right policies and a responsive approach to changing dynamics, the Indian sugar industry can look forward to a future that is not only sweet but also sustainable.

Let Refer Loan guide you through the loan process, from choosing the right option to getting approved fast!

Refer Loan is your one-stop solution for identifying the best loan options at competitive rates. Our team of experts works diligently to guide you step by step through the loan processing journey. We offer personalized assistance in documentation, ensuring accuracy and compliance, and our strong network of lenders helps facilitate fast processing. With Refer Loan, you can trust that we have your back, making the borrowing experience seamless and efficient. CALL Refer Loan

Leave a Reply

Your email address will not be published. Required fields are marked *