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  1. Narendra Modi seeks long-term solution to sugar crisis

Narendra Modi seeks long-term solution to sugar crisis

Industry suggests creation of a strategic reserve of sugar as short-term solution

By: | New Delhi | Published: May 12, 2015 12:12 AM

Prime Minister Narendra Modi, in a meeting with former agriculture minister Sharad Pawar and senior sugar industry executives on Monday, is learnt to have sought long-term solutions to the vexing crisis in the sector so that its recurrence can be addressed effectively.

The delegation met Modi to press for its demand for the creation of a strategic reserve of the sweetener by the government so that a slide in sugar prices can be arrested and cane arrears in excess of a record R21,000 crore cleared at the earliest.

Modi, while listening to the short-term measures for offering a lifeline to the cash-starved industry immediately, also asked about possible long-term solutions to the problem, a source told FE. The industry executives promised to come back soon detailing their take on long-term solutions to the cane crisis.

In a letter submitted to Modi on Monday, Pawar said: “To solve the immediate problems of the sugar sector, there is a need to improve both the liquidity of mills as also the ex-mill sugar prices, which, in turn, will ensure that our cane farmers get their dues. Both these objectives can be achieved by reducing the burden of surplus sugar from the mills.” The ex-factory sugar prices are lower by at least R6-8 per kg than the cost of production, he added.

The industry has demanded that the government buy 10% of the country’s sugar production (2.6-2.7 million tonne) this marketing year through September at a price based on the fair and remunerative price (FRP) of cane fixed by the Centre and the supply is held back from the market for two years.

Once most of the surplus sugar is removed from the market, the domestic ex-mill prices, already languishing at six-year lows, would also inch closer to the cost of production, Pawar said. He said that the situation has been caused by five straight years of surplus production and an expected carry-over stock of 10 million tonne at the end of 2014-15. A plunge in prices overseas has also dented export prospects.

“My understanding is that the government buying out 10% of sugar production is the best and possibly the only solution in the short-run to solve the current crisis of the sugar sector, and the quickest way to reduce the cane arrears of our farmers,” Pawar said in the letter.

Such a move, said the former Union minister, would improve the cash flow of the industry by around R8,500 crore, which will straightaway reduce the arrears to farmers. “Otherwise, the industry fears that a quarter of them may not be able to start their crushing operations in 2015-16 sugar season, less than five months away,” he cautioned.

Pawar also suggested that instead of offering interest-free loans to the sugar industry, just like last year, the government can give loans to state-run agencies like FCI or MMTC/STC to buy sugar from the market, and the interest could be borne by from the Sugar Development Fund (SDF). The SDF comprises mainly the excise duties paid by mills on sugar production and the entire amount is spent on the welfare of the sugar sector.

Apart from Pawar, the delegation included MPs Prabhakar Kore (BJP) and Supriya Sule (NCP), Vijaysinh Mohite Patil, MP as well as chairman of the Maharashtra State Cooperative Sugar Factories (MSCSFL), Kallappa Awade, president of the National Federation of Cooperative Sugar Factories and Abinash Sharma, director general of the Indian Sugar Mills Association. Balrampur Chini Mills managing director Vivek Saraogi and Shree Renuka Sugars managing director Narendra Murkumbi were also part of the delegation.

The MSCSFL has sought a central support of R850 per tonne for the payment of the FRP to farmers.

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