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Centre gives nod to bailout package worth Rs 7,000 cr for sugar sector
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Thursday, 07 June, 2018, 08 : 00 AM [IST]
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Ashwani Maindola, New Delhi
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The union government on Wednesday approved a bailout package for the sugar sector. Worth Rs 7,000 crore, the package was approved by the Union Cabinet in a meeting chaired by prime minister Narendra Modi in order to improve the problem of liquidity of sugar mills resulting in the accumulation of huge cane price arrears of farmers, which has risen to Rs 22,000 crore in recent times.
The cabinet also decided that a buffer stock of 30 lakh metric tonne (LMT) of sugar was to be made for one year, and that a estimated expenditure of Rs 1,175 crore would be incurred for this purpose.
It was also decided that the Sugar Price (Control) Order, 2018, under the Essential Commodities Act, 1955, would be notified to fix the minimum selling price of white/refined sugar at the mill gate, below which no white/refined sugar can be sold and delivered by a sugar mill in the domestic market.
In a statement, the department of food and public distribution (DFPD), ministry of consumer affairs, food and public distribution, said, “The fixation of the minimum selling price of white sugar would be based on the fair remunerative price (FRP) of cane and the minimum conversion cost of white/refined sugar.”
“The minimum selling price of white/refined sugar shall be initially fixed at Rs 29 per kg, which can be revised by DFPD subsequently based on the revision of the FRP, etc.,” it added.
“This will not affect the availability of sugar to consumers at a reasonable price, and the government will put in place a mechanism to ensure that the retail prices of sugar are kept fully under control,” the statement said.
“At present, this would be done along with imposition of stock holding limits on sugar mills. The stock limit on mills will be initially imposed for the current sugar season (up to September 2018), which may be reviewed by DFPD at any time,” it added.
It was also decided to allow the sugar mills to increase their income by means of installing additional or upgrade of existing distilleries attached to sugar mills.
“The government will bear an interest subvention of maximum Rs 1,332 crore over a period of five years, including the moratorium period of one year on an estimated bank loan amounting to Rs 4,440 crore to be sanctioned to the sugar mills by the banks over a period of three years, for which DFPD would formulate a detailed scheme in this regard. This would help the diversion of sugar during a surplus phase to reduce excess inventories,” said the statement.
Excess production during the current sugar season (SS) and indication of higher production in the ensuing SS have been continuously depressing the market price of sugar.
Due to the depressed market sentiments and crash in the sugar prices, the liquidity position of the sugar mills has been adversely affected leading to accumulation of cane price dues, which has already reached an alarming level of over Rs 22,000 crore.
In order to stabilise the sugar production at a reasonable level with a view to improve the liquidity position of the mills, thereby enabling them to clear the cane price arrears of farmers, the Central government has taken the following steps in past four months:
- Increased the custom duty on import of sugar from 50 per cent to 100 per cent to check any import to the country
- Imposed stock holding limits on producers of sugar for the months of February and March 2018 to stabilise the domestic sugar price
- Withdrawn the custom duty on export of sugar to encourage the sugar industry to start exploring the possibility of export of sugar
- Allocated mill-wise minimum indicative export quotas (MIEQ) of 20 LMT of sugar for export during SS 2017-18
- Reintroduced the duty-free import authorisation (DFIA) scheme in respect of sugar to facilitate and incentivise the export of surplus sugar by sugar mills
- Extended financial assistance to sugar mills at Rs 5.50 per quintal of cane crushed during SS 2017-18 to offset the cost of cane
Meanwhile, the Indian Sugar Mills Association (ISMA), in a statement, welcomed the Cabinet’s decisions, saying that the decision to fix a minimum ex-mill sale price of sugar at Rs 29 per kG will improve ex-mill prices from the current levels of about Rs 28 per kg.
However, it cautioned that the decision may not impact the retail prices in any significant way.
“The proposed minimum price of Rs 29 per kg is not enough to cover the cost of sugarcane at FRP of Rs 290 per quintal at the current all-India average recovery of 10.8 per cent,” said Abinash Verma, director general, ISMA, in a statement.
“The ex-mill sugar price which supports the current FRP works out to around Rs 35 per kg, and therefore, Rs 29 per kg is inadequate. It will, therefore, be a challenge to expect the sugar industry to clear the huge cane price arrears on this basis,” he added.
The statement stated that the other step of providing subsidised loans for ethanol production capacity was an excellent move, adding that it will encourage the setting up of more distilleries in the country over the next three years and help in diverting some of the surplus sugarcane into ethanol and reduce surplus sugar in the long run.
Further, the decision to impose stock holding limits on sugar mills tantamounts to controls on sugar sales, which is not the right way to move into the future.
Creation of buffer stocks of 30 lakh tonne will reduce some surplus sugar from the market, though only for a year, and will improve market sentiments to support domestic prices.
“What is concerning is that there is no idea or proposal on the rationalisation of the cane pricing policy, which is actually the main reason for all the problems of the industry today,” the ISMA statement read.
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