Sugar companies finally have something to cheer about with the government on Monday announcing a >package of measures to partially alleviate the industry’s problems. Sugar producers have been grappling with mounting losses caused by a combination of soft prices for the sweetener and rising costs of sugarcane procurement. While the low sugar prices are a result of a glut in production in the last couple of years, cane prices have been rising each crushing season on the back of higher prices mandated by State governments. There is already an estimated 8 million tonnes of surplus sugar stock in the country (against a consumption of about 23 million tonnes annually), and more will be added in the current year. Not surprising then that the previous government stepped in with an export subsidy of Rs.3,300 a tonne early this year and the new government has now extended this subsidy for the rest of the sugar season ending in September. Yet, despite the subsidy, the industry could export only one million tonnes this year, which is half of what was expected. On the other hand, cane arrears that are due to farmers are mounting, especially in States such as Uttar Pradesh and Tamil Nadu, causing problems for sugar mills. The promise of interest-free loans to sugar companies, amounting to a total of Rs.4,400 crore, may help increase cash flows for the mills and help them clear their dues to farmers ahead of the next crushing season.
The main problem for the sugar industry is the propensity of States to announce higher prices for cane procurement season after season without considering the prevailing prices of sugar. The Rangarajan Committee came up with the ideal solution of revenue-sharing between farmers and mills, and the ratio suggested by it is very fair to both parties. Yet, only some of the sugarcane growing States, such as Maharashtra, Gujarat and Andhra Pradesh, have implemented the recommendation from this year. Major States, such as Uttar Pradesh and Tamil Nadu, have ignored the Rangarajan formula and continued with the practice of announcing procurement prices unilaterally. The government has also announced an increase in import duty on sugar from 18 per cent to 40 per cent. Since imports are limited now, this is at best a sentiment-booster that might result in domestic prices firming up marginally. Indeed, in the last couple of days since the announcement, sugar prices have firmed up by about Rs.250 a quintal, or Rs. 2.50 a kilogram. The promise of 10 per cent ethanol blending in petrol has a long way to go yet, given that even the currently mandated 5 per cent blending is not being implemented fully. The government needs to get vehicle manufacturers and oil companies fully on board for the ethanol blending programme to take off.
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