Indian sugar industry officials met with reporters here on Friday to present suggestions as to how arrears owed to sugarcane farmers, which have already touched a record-high of over Rs 15,000 crore, could be resolved to a large extent in the years to come.

Sugar prices have remained depressed globally and excess supply in the domestic market has kept ex-mill prices at between Rs 20-22 in Maharashtra and Rs 25 in Uttar Pradesh, India’s two largest sugar producing States. The problem is compounded by projections for a fifth consecutive season of surplus production in the ongoing 2014-15 season (October-September).

According to the Indian Sugar Mills’ Association (ISMA), due to the low realisation from sugar, mills are unable to recover the cost of production and generate enough cash flows. Liquidity woes with banks staying away from providing mills working capital loans only ends up feeding into the cycle of farmers not being paid for their crop.

Even though the Government has announced an incentive on production and export of raw sugar, sugar prices have still been falling. “This is the first that mills are unable to pay even the Fair and Remunerative Price (FRP), which is fixed by the Central Government,” an ISMA statement read.

It added that the FRP of Rs 220/quintal had been set considering ex-mill prices between Rs 3,000-3,400/quintal, while prevailing prices were as low as Rs 2,300-2,500/quintal.

Suggestions

The association believed that the foremost priority was to dispose of around 30 lakh tonnes (lt) and to improve the liquidity situation of sugar mills. It pushed for re-inserting Clause 3(B) in the Sugarcane Control Order whereby if a State wishes to incentivise cane farmers with payments above the FRP, the difference should be borne by that particular State Government and not by mills, as is done in the case of paddy, wheat, etc.

It also pushed for the creation of a 20-lt buffer stock for the public distribution system (PDS) next year so that the amount would be drawn out of the market and help raise market prices of the sweetener. Currently, the State procures the sweetener for the PDS by floating tenders during the season. “This has been used by the Government to reduce surplus on 4-5 past occasions,” the statement added.

The ISMA also urged the Centre to encourage production and supply of fuel grade ethanol where it says there is a demand-supply gap of around 100 crore litres by giving an incentive of Rs 7-8/litre. It would take the sugar out of the system and better revenue from it would enable mills to pay farmers and states that if an incentive was not viable, then the central excise duty on ethanol should be removed.

A restructuring of outstanding loans, as was done for the textiles industry four-five years ago, given that debt burden of sugar mills had increased more than thrice over the last five years was also suggested. Finally, the ISMA also the suggested subsidisation of 15-20 lt of white sugar exports along the lines of the Rs 4,000/tonne incentive recently announced by the Centre for the export of raw sugar.

The Food Ministry estimates sugar output to touch 265 lt, while domestic consumption is pegged at 248 lt. The total surplus stock at the end of the season is expected to be around 30 lt, while cane arrears have already crossed a record Rs 13,274 crore at the end of last March.

“During the last six months alone i.e. from the beginning of the current sugar season, the ex-mill sugar prices have fallen by almost Rs 7,000 a tonne of sugar. The current ex-mill sugar prices are the lowest in the last three years, and are falling by almost Rs 25 per quintal on a daily basis,” the statement said.

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