Sugar mills back move to build 4 million tonne buffer

Vinu Jehoshapat
Last Updated: 05 Sep, 2019

The Centre has decided to expand the buffer stock of sugar and simultaneously halt the trend of raising the minimum support price for sugar cane to correct demand-supply imbalances, stabilise retail prices and reduce payment arrears from mills to farmers.

The two decisions taken by the Cabinet Committee on Economic Affairs on Wednesday, were welcomed by the sugar industry.

A series of bumper harvests over the past few years, combined with higher rates of sugar recovery from sugar cane, resulted in production vastly overshooting domestic demand and led to a crash in retail prices. Estimates suggest that the country will produce 32.95 million tonnes of sugar in the current marketing year, as against the annual domestic demand of just 26 million tonnes.

At the same time, the Centre has been regularly increasing the Fair and Remunerative Price, the minimum price that mills must pay to sugar cane cultivators, an important vote bank, especially in Uttar Pradesh. As a result, payment arrears shot up to ?25,000 crore earlier this year, and are still above the ?15,000 crore mark.

FRP unchanged

The Cabinet has now decided to maintain the status quo by keeping the FRP unchanged at ?275 a quintal for the next sugar marketing year, which begins in October. This decision is in line with the recommendation of the Commission on Agricultural Costs and Prices, the Centre said in a statement.

“The FRP has increased quite steeply in the past few years and sugar cane has outstripped the returns from other crops. This decision will restore some balance,” the Indian Sugar Mills Association said in a statement. “It will benefit sugar mills because 70-75% of the cost of producing sugar is only on account of sugar cane. At the same time, it will help keep cane price arrears under control.”

ISMA also welcomed the move to create a buffer stock of four million tonnes, for which the Centre is expected to spend ?1,674 crore. Last August, the Centre had created a buffer stock of three million tonnes at a cost of ?1,175 crore to help improve liquidity and reduce surplus stocks.

“Not only will it give extra cash flows to sugar mills, but it will also hugely improve market sentiments, because creation of buffer stock immediately withdraws 4 million tonnes of sugar from the market for the next 12 months,” said ISMA, which estimates that the opening stocks of sugar on October 1, 2019, are expected to be at an all-time high of about 14.5 million tonnes as against the usual requirement of 5 million tonnes.

Vinu Jehoshapat