Cane crisis: Sops not enough, viable pricing model needed, says industry

The Centre’s proposed support package for sugar industry to enable it pay over dues to farmers only partly addresses the problem, say industry representatives.

Only a viable sugarcane price can be a long-term solution to ensure timely payment to sugarcane farmers, they say reacting to reports of a package being in the pipeline.

Weighing options

The government is considering production subsidy, cess on sugar sales and reducing tax and hiking ethanol price to enable mills pay farmers’ dues, according to reports.

The Indian Sugar Mills Association (ISMA) estimates the industry owes farmers well over ₹20,000 crore in the current season. Mounting sugarcane prices even as sugar prices spiral downwards have contributed to the mills taking a beating and farmers have been left in the lurch.

N Ramanathan, Managing Director, Ponni Sugars, said the proposal will infuse some cash flow and is an acknowledgement the government recognises industry’s problem. It is a welcome ‘qualitative step’ but hardly enough. A “tough political call” on bringing down sugarcane price is the only remedy, he said.

A sugar cess will only supplement government resources to support its subsidy to farmer by drawing from the consumer. But this will further hit sugar prices which are at an all time low of about ₹26 a kg.

If ethanol prices are hiked from the present ₹40 a litre, how much will the oil companies support? Also, not all mills have ethanol production capability.

There is a ₹8 gap between sugar price and the cost of production which is about ₹34 a kg. Mills can only support a sugarcane price of about ₹2,100 a tonne whereas they are expected to shell out ₹ 2,800 assuming an average 10 per cent recovery.

TN mills in quandary

Also, while this is an issue for States like UP, Maharashtra and Karnataka where there is excess cane. Sugar mills in Tamil Nadu are losing three times more. Due to a shortage of sugarcane, the mills are working at about 25 per cent capacity and are taking a beating on fixed costs. Mills in Tamil Nadu are losing ₹18, he pointed out.

A chief executive, not wanting to be named, said “nothing will matter” as long as State and Central governments set sugarcane price without considering sugar price.

According to ISMA, without supporting the farmers with a production subsidy the government’s target of 20 lakh tonnes of sugar exports will not be possible. Not one contract has been finalised since the announcement in March.

The government will have to decide fast on production subsidy and measures to enable diversion B-heavy molasses to ethanol production to tone down sugar output in the coming season. State level laws also have to be eased for smooth movement of ethanol.

Create a buffer

Also, a sugar buffer stock is needed so the carrying cost of sugar can be borne by the government.

With a sugar production of 300 lakh tonnes against a consumption of about 245 lakh tonnes and an equal output expected in the coming season, the industry needs the subsidy and relief on carrying cost covering interest on working capital, insurance and storage charges, a representative said.