Sugar companies like Bajaj Hindusthan, Balrampur Chini and Triveni Engineering among others stand to improve their revenues by Rs 4,400 crore if the government gives in to the Commission for Agriculture Costs and Prices (CACP)’s recommendation of doing away with the levy sugar obligation. Currently, sugar mills are obliged to sell 10 per cent of their produce at a regulated price for the government’s public distribution system.
CACP has strongly advocated the government should do away with its levy sugar obligation, and, instead, purchase the commodity for public distribution system (PDS) operations directly from mills at market price. Currently, the open market price is at an average Rs 36,000 per tonne, while government pays mere Rs 19,050 to mills for levy sugar. The difference stands at a sharp Rs 16,950 per tonne.
The current levy price does not even cover the cost of sugarcane which is the raw material, above which mills have to incur processing costs, interest cost and wages.
Moreover, cane price has been going up sharply year-on-year, while there has been no corresponding increase in levy price.
The government, while calculating levy sugar price takes into account the Fair and Remunerative Price, while sugar mills in several major producing states like Uttar Pradesh, Tamil Nadu and others pay a much higher State Advised Price.
A significantly lower realisation on one-tenth of sugar impacts the overall profitability of the industry and restricts the capacity to make payments to sugarcane farmers. No other industry is subjected to such an obligation.
Even the government-owned oil marketing companies that sell diesel and cooking gas at subsidised rates, receive compensation for the losses incurred in the process.
While imposing a levy obligation, the government also follows a hawkish strategy towards open market sugar prices. Every time prices go beyond a certain level, the government intervenes with additional sale quota.
Under release mechanism, it is the government that decides the quantity each mill can sell every month.
So, on the one hand the central and state governments increase sugarcane price every year, on the other the Centre does it bit to keep sugar prices under check even though several studies have pointed that more than 60 per cent of sugar is consumed by bulk buyers like beverage manufacturers, pharma industry and confectioners.
Abinash Verma, director general, Indian Sugar Mills Association, said the sugar industry’s financial losses would narrow down once levy obligation was removed.
| SWEET SCHEME Analysis of how top companies will benefit if levy obligation is removed | ||||
| Company | Levy sugar obligation 2011-12 (tonnes)* | Price realised on levy sugar (approx)** | Price realised if levy sold at market rate# | Extra income |
| Bajaj Hindusthan | 122,900 | 234.12 | 442.44 | 208.32 |
| Balrampur Chini | 82,200 | 156.59 | 295.92 | 139.33 |
| Birla Group | 62,000 | 118.11 | 223.20 | 105.09 |
| Renuka Sugars | 52,300 | 99.63 | 188.28 | 88.65 |
| Triveni Eng | 46,400 | 88.39 | 167.04 | 78.65 |
| *Based on 10% levy; ** Based on average levy price of Rs 19,050/tonne; #Based on average ex-mill price of Rs 36,000/tonne | ||||
“It is often witnessed that while the government or its agencies fail to lift the entire levy sugar from mills every year, mills are expected to carry forward the unsold sugar for up to two years leading to additional carrying cost. This also restricts open market supply of sugar,” he said. Verma said Food Corporation of India, which distributes levy sugar in certain states, deducted five per cent from the levy sugar price to offset its transportation losses.
