With the crushing season almost coming to an end, sugar mills across the country are grappling with the issue of Fair and Remunerative Price (FRP) payment to farmers. While the Indian Sugar Mills Association (ISMA) estimates that around a quarter of mills across the country could go into negative networth and may not be able to crush cane next season, in Maharashtra over 80 mills stare the prospects of sliding into negative networth.
Officials from the sugar industry on Wednesday suggested that the Food Corporation of India (FCI) should purchase 21 lakh metric tonne sugar at R31 per kg to make it easier for mills to pay FRP arrears to farmers. A delegation led by Maharashtra cooperation minister Chandrakant Patil, Nationalist Congress Party (NCP) leader Sharad Pawar, Vijaysinh Mohite Patil, chairman, Mahartashtra State Cooperative Sugar Factories Federation (MSCSFF) Narendra Murkhumbi, chairman, Shree Renuka Sugars, Abhinash Verma, director general, Indian Sugar Mills Association (ISMA) met finance minister Arun Jaitley in New Delhi to appraise him of the challenges faced by the country’s sugar sector.
Maharashtra cooperation minister Chandrakant Patil told FE that millers cannot afford to pay FRP at the existing price of R21 per kg and, therefore, this step would help millers. The delegation also sought a shift towards ethanol and demanded an incentive of R7 per litre. A redschedulement of the existing loans was also sought by mills in addition to some assistance from the Centre for the recently announced Rs 2,000-crore interest-free loan by the Maharashtra government.
Officials in Maharashtra State Cooperative Sugar Factories Federation say around 42 odd mills had gone into negative networth last season and this time the number may double. According to Pramod Karnad, MD, Maharashtra State Cooperative Bank ( MSCB), although valuations have not changed over the month, if the current situation continues, several mills could slide into negative networth. He, however, pointed out that if the government releases the recently announced interest free loan of R2,000 crore, the situation may improve.
ISMA is against the idea of buffer stock and has urged the government to purchase 10% of the year’s sugar productiion (around 27 lakh tonne) to enable cash flows for the industry for payment to farmers. ISMA has estimated total peak arrears of Rs 19,300 crore by April 15. Value of collaterals in the form of sugar pledged by mills to banks has fallen due to falling sugar prices, Verma said, adding several banks were not extending working capital loan for this reason since they are worried about recovery. In the current season also, a lot of mills either did not get working capital loan at all or got less than last year.
According to Verma, sugar prices are now at their lowest in last six years while there has been a 70% rise in FRP from Rs 129 per quintal to Rs 220 per quintal. Officials said several top millers in North have applied to the Board for Industrial and Financial Reconstructon (BIFR). Cane arrears in Uttar Pradesh have gone up to Rs 9,000 crore. Verma said the interest-free loan announced in Maharashtra could only offer temporary relief since a loan has to be repaid and, therefore, in the larger run this could be a mean an increasing debt burden. It’s not a subsidy, but just a cash flow, he pointed out.