Sugar firms welcome sops

Sugar companies have welcomed the government's announcement of various sops to provide relief to the industry. Most sugar stocks surged by 8-10 per cent after the Cabinet Committee on Economic Affairs cleared the sops at its meeting held on Tuesday.

"The loan will improve the cash flow of the companies and enable them to make timely cane price payments. The provision to make ethanol directly from sugarcane juice will allow excess cane to be diverted to another productive purpose," said Nikhil Sawhney, vice president, Triveni Engineering and Industries.

However, these measures, though positive for the industry, fail to address the issue of the industry's viability in the current scenario, where sugarcane prices remain higher than sugar realisation. In the last season, Uttar Pradesh mills lost Rs 400 on every quintal of sugar they produced as the cane prices remained high.

The sugar industry is facing its worst crisis with the mills unable to recover the cost of sugarcane. Last year's production, at 28 million tonnes, is 45 per cent higher than the previous year's 19.2 million tonnes. Consequently, sugar prices have crashed and most companies have reported a loss in the past two quarters.

"The decision to make 10 per cent ethanol blending mandatory from next October will create a long-term demand for ethanol while addressing the issue of surplus sugarcane. We need to convert 10 million tonnes of sugarcane into ethanol when the 10 per cent blending begins," said Narendra Murkumbi, the managing director of Shree Renuka Sugars.

The government, on Tuesday, approved a grant of loans to the sugar mills against the excise payments made by them in 2006-07 and 2007-08. It also extended the subsidy on sugar exports by another year to April 18, 2009. The 5 per cent blending of ethanol has been made mandatory with the approval to take it to 10 per cent from next October.