The Centre on Wednesday decided to pay a production-linked subsidy of Rs 4.50 per quintal directly to cane farmers in 2015-16 season, a move that would cost the exchequer about Rs 1,147 crore.
Sugar mills are facing a liquidity crunch due to low prices of the sweetener in retail markets. Mills and co-operatives across states owed a whopping R7,060 crore to farmers by October 15 for cane purchases in the last marketing year that ended September 30. Although the arrears have come down significantly from the record level of Rs 21,836 crore until April 15, as realisations from sugar sales came in, the dues are still much higher than those at this point of time for any other year.
“In order to further reduce arrears and support cane growers, the government has taken out a WTO-compliant scheme. Production subsidy will be given to offset the cost of cane and facilitate the timely payment of cane prices to farmers,” power and coal minister Piyush Goyal said after the Cabinet meeting. Sugar export subsidy was given to millers in the last two seasons to help them clear cane dues to farmers, but the same has been discontinued this time due to WTO objections. “Eventually, this will help liquidate some of the sugar stocks and meet the export target at least to the extent of 80%,” he said.
The country is estimated to produce for the sixth straight year surplus sugar at 26-27 million tonne (MT) this season.To liquidate surplus sugar, the government has made it mandatory to millers to export 4 MT in the 2015-16 season.
The Indian Sugar Mills’ Association (ISMA) said Wednesday’s decision would “reduce industry’s liabilities towards cane to that extent, reducing a part of its losses.”
“This concept of the government to bridge the gap, at least partially, between what the sugar mills cane payment to farmers as per their revenue realisation, and what the government wants to give to framers, will help to reduce cane price arrears. However, at current low sugar prices, the losses will be more than Rs 1,100 crore and, therefore, if sugar prices do not improve to cover costs during the season, the industry and farmers may seek further help from the budget.”
The Centre in June decided to extend a soft-loan loan package, worth Rs 6,000 crore, to the cash-starved sugar mills to help clear cane arrears. However, the package failed to enthuse the industry, which termed the move an “inadequate” response to a crisis, as it didn’t solve the basic problem of excessive stocks and a lack of a linkage between the price of cane and its by-products, including sugar.
The industry had demanded that the government set up a price stabilisation fund for cane and pay the difference between the fair and remunerative price (FRP) and the price of cane in accordance with the Rangarajan panel’s linkage formula. The Rangarajan panel had suggested that mills pay 70% of the prices of cane and other by-products or 75% of the prices of only sugar to farmers for cane purchases. Based on this formula, the cane price should be roughly Rs 55 lower than even the FRP of Rs 230 per quintal for the 2015-16 season, the industry has said.