The Cabinet Committee on Economic Affairs today approved a proposal to pay a production-linked subsidy of Rs 4.50 per quintal directly to cane farmers in the 2015-16 season to help cash-starved sugar mills clear arrears -- a move that would cost the exchequer about Rs 1,147 crore.
ICRA expects a decline in the domestic sugar production to 26.8 million tonnes during 2015-16 as compared to 28.1 million tonnes in October-September.
Reports suggest that demand for sugar will outstrip supplies in 2015-16, which is indicated in the upward movement of sugar prices. Domestic sugar prices have increased to Rs 25 per kg from Rs 19 per kg in the last few months.
Abinash Verma of ISMA says the government will be bearing the interest for just one year and that doesn't seem to be an interest-free loan in the true sense of the word. Earlier, about one-and-half-years ago, the government had given a similar loan and was willing to bear the interest for five years.
Abinash Verma of ISMA says the basic problem that the industry is facing is on account of surplus sugar which will be almost 10-10.5 MT from beginning of next season â€“ which is 4-4.5 MT more than what the government norms require to carry, putting pressure on sugar prices.
FY15 saw the farmers grappling with surplus stock of around 35 lakh tons of sugar. Given the low prices of sugar and increasing pressure from banks to repay debt that crossed Rs 36,600 crore way back in FY13; maintaining cash flows have become a big problem.
The country's sugar production has increased by 14.27 percent to 27.37 million tonnes till April of the 2014-15 marketing year, industry body ISMA said on Friday while demanding the government to buy surplus sugar to help cash-starved mills clear cane arrears worth Rs 21,000 crore.
Government's decision to hike import duty on sugar and remove excise duty on ethanol will help millers only in the long run and it should buy 10 percent of the sweetener produced this year to help clear cane arrears.
Sugar mills are unable to clear the cane arrears to farmers as the ex-factory prices of the sweetener is ruling below the production cost.
Hike in sugarcane prices would increase input costs and in turn would increase cost of sugar production, says Abinash Verma, DG, ISMA.
In a statement, the industry body ISMA sought continuation of export subsidy on raw sugar to check falling prices and improve cane price paying capacity.
Sugar production of India, the world's second largest producer and biggest consumer, stood at 28.77 lakh tonnes in the year-ago period.
ISMA director general Abhinash Verma believes the sugar industry will see better realizations with the new price. The industry revenue will increase by nearly Rs 5,000 crore, he adds.
The Cabinet Cabinet Committee on Economic Affairs (CCEA) fixed the delivered price of Ethanol in the range of Rs 48.50 per litre to Rs 49.50 per litre, depending upon the distance of sugar mill from the depot/installation of the public sector oil marketing companies (OMCs), an official statement said.
The south Asian country is likely to produce 25 million tonnes to 25.5 million tonnes in 2014/15 year starting Oct. 1, compared with local demand of about 23 million tonnes, the Indian Sugar Mills Association said in a statement.
Verma says foreign investors are beginning to take interest in the sector now that many states have begun rationalizing their sugar pricing policies. Maharashtra and Karnataka have already done that, and Uttar Pradesh too will follow suit, feels Verma.
Sugarcane payment dues of farmers have crossed Rs 12,000 crore. Out of this, Rs 8000 crore pertains to Uttar Pradesh and Rs 3000 crore for Karnataka alone as on date.
Maharashtra, the country's largest sugar producing state, has produced 22.14 LT of sugar, down from 29.07 LT in the same period last year. 154 mills were operating as against 161 till December 2013 in the state.
The sugar industry has been lobbying for an immediate review on current cane pricing and demanded that the UP government introduce the revenue sharing model suggested by the Rangarajan committee.
Avinash Verma, managing director, Indian Sugar Mills Association, said there was no need for the panel, or even a state-advised price for cane if the Rangarajan Committee recommendations were accepted.
According to ISMA's Abhinash Verma, the move by the UP government is 100 percent disappointment. "Last year, there was no purchase tax and this is just Rs 2. It is peanuts and doesn‘t mean anything," he adds.
This is not the first time the UP sugar industry has sparred with the government on the issue of cane pricing. During BSP supremo Mayawati's tenure, mill owners had moved the Allahabad High Court challenging the State Advised Price (SAP) for the 2010-11 crushing season.
Sugar cane prices have increased 17 percent on average for the last three years, while sugar prices have been lower by nearly 10 percent year-on-year (Y-o-Y) leading to deep losses by the industry.
The special advisory price that sugar mills pay to farmers has increased from Rs 165, just three years back to Rs 280, a 70 percent increase. On the other hand, sugar prices have been hiked by just 7-8 percent over the last three years.
Angel Commodities has come out with its report on agricultural commodities. According to the research firm, Sugar futures may trade on a mixed note today. Demand from stockists coupled with output concerns this season is likely to support the prices.