Govt okays Rs 5.5 / quintal aid for cane growers to help mills clear dues

The government on Wednesday approved financial assistance of Rs 5.5 per quintal for cash-short sugar mills to help them clear their rising payment arrears to cane farmers, now at about Rs 200 billion, in the wake of record production and a slide in sugar prices.

The total expenditure from this decision would be Rs 15.4 billion. The money will be paid directly to farmers on behalf of the mills which go along, to be adjusted against the cane price and arrears payable. The assistance shall be paid only to those mills which fulfill the eligibility conditions as decided by the government.

Also, say sources, though the government did not, the assistance of Rs 5.5 a qtl might be linked to mills fulfilling the obligation earlier placed on them to export a cumulative two million tonnes of sugar in the 2017-18 season (ending September 30).

Indirectly linking the sugar assistance to export would also help it bypass World Trade Organization rules. There are reports that  Australia and Thailand will approach the world body over India’s move to give a subsidy on sugar export.          

The decision also comes at a time when Karnataka, a leading sugarcane producing state, is going for legislative assembly polls on May 12.

Cane prices in India are set by states. The Centre’s recommended ‘Fair and Remunerative Price’ (FRP) is Rs 255 a qtl; states can set it higher. Uttar Pradesh’s for instance is Rs 315 a qtl for the normal variety. Wednesday’s decision would mean Rs 5.5 a qtl of this would come from the Centre, to growers on behalf of the mills.

Welcoming the decision, Abinash Verma, director-general, Indian Sugar Mills Association (Isma), said. “Though the losses of companies are much higher and this subsidy will reduce only a small part of what the mills are incurring due to a massive fall in the ex-mill sugar price, this decision to bear a part of the FRP (‘Fair and Remunerative Price’ recommended by the Centre to states for cane) is a positive move,” he said.

Prakash Naiknavare, managing director of the National Federation of Cooperative Sugar Factories, told news agency Reuters that the incentive will help bring down rising cane payment arrears. “It will change sentiment in the domestic market and help sugar prices recover,” he said. 

Last month, an informal ministerial panel had explored options such as production-linked subsidy, imposition of a sugar cess and reducing the Goods and Services Tax on ethanol to help sugar mills clear their dues to cane farmers.

The country’s sugar production had touched an all-time high of 29.98 million tonnes till April 15 in the current season (it began October 1, 2017, and ends on September 30, 2018) on higher cane output. India is the world’s second largest producer; output for the 2016-17 season was 20.3 mt. Annual domestic demand is estimated at 25 mt.

The Centre has already doubled the sugar import duty to 100 per cent and scrapped export duty, to check sliding domestic prices. And, as mentioned, asked mills to export two mt.

To clear cane arrears, Isma has been asking that the government provide a production-linked incentive to cane farmers, as was done in the 2015-16 marketing year. In November 2015, the government had decided to pay a production-linked subsidy of Rs 4.5 a qtl directly to growers, to help millers clear the arrears.

Recently, Isma said sugar prices had fallen across the country by Rs 9 a kg in the past four to five months. As compared to the cost of production, ex-mill prices were around Rs 8 a kg less, it had said.