The Centre has decided to pay a production subsidy of Rs 4.50/quintal directly to cane farmers in the 2015-16 season to ensure they get timely payment of arrears amounting to over Rs 7,000 crore owed by sugar mills. The move is expected to cost the exchequer about Rs 1,147 crore.

Simultaneously, the government also notified a minimum indicative export quota (MIEQ) for sugar mills and has tied the production subsidy to only those mills that meet 80 per cent export and ethanol blending targets.

A decision in this regard was taken by the Cabinet Committee on Economic Affairs (CCEA) on Wednesday.

“Sugar has been facing a crisis with global prices falling. Some States give additional support price, adding to the arrears. We have come up with a World Trade Organisation-compatible scheme for supporting sugar producers,” Power and Coal Minister Piyush Goyal told the media after the Cabinet meeting.

Alongside, the government notified a mill-wise MIEQ for sugar export, and a national grid allocating ethanol supplies to oil marketing companies by distilleries attached to sugar mills under Ethanol Blending Program (EBP).

Performance-linked

“The production subsidy is a performance incentive and will be provided to those mills which have exported at least 80 per cent of the targets notified under the MIEQ and in case of mills having distillation capacities to produce ethanol have achieved 80 per cent of the targets notified by the department under the EBP,” an official statement said.

In September, the Centre had notified mandatory export of 4 million tonnes for the 2015-16 season (October-September), to be divided among the mills based on average production in the last three seasons.

As regards farmers, the Centre said that the direct subsidy shall be paid directly to them on behalf of the mills and will be adjusted against the cane price payable to farmers towards the fair & remunerative price (FRP), including arrears of previous years. “The subsequent balance, if any, shall be credited into the mill’s account. Priority will be given to settling cane dues arrears of the previous years,” the release said.

In the past five years, sustained surpluses of production over domestic consumption have led to subdued sugar prices. This has stressed the liquidity position of the industry leading to a build up of cane price arrears, the statement said, adding that “during sugar season 2014-15, the peak cane price arrears were Rs 21,000 crore as on April 15, 2015.”

Incidentally, the Food Ministry had proposed a production subsidy of Rs 4.75/quintal out of the cane FRP of Rs 230/quintal for the 2015-16 season that covers October-September.

This season, the country is estimated to produce surplus sugar at 26-27 million tonnes for the sixth consecutive year. To liquidate surplus sugar, the government has made it mandatory for millers to export 4 million tonnes in the 2015-16 season.

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