Govt okays $1bn bailout package for sugar farmers

The cabinet yesterday approved a Rs70bn (close to $1bn) bailout package and set the minimum selling price for sugar at Rs29 per kg to support the struggling sector, a minister said.The industry is, however, not completely happy.“In order to remove the problem of liquidity of sugar mills resulting in accumulation of huge cane price arrears of farmers, the union cabinet chaired by Prime Minister Narendra Modi has approved measures involving total amount of about Rs7,000 crore,” Minister for Law, Justice and IT Ravi Shankar Prasad said.The decision of the Cabinet Committee on Economic Affairs (CCEA) comes as excess production in the current sugar season has depressed its market price, adversely affecting the liquidity position of sugar mills leading to accumulation of Rs220bn dues to the farmers.The package comprises Rs11.75bn for creating a 3mn tonnes buffer stock, Rs44.4bn as soft loan for mill owners to increase ethanol production capacity to divert surplus sugarcane and Rs13.32bn towards interest subvention for the loan, the cabinet said in a note.“The government will bear interest subvention of maximum Rs1,332 crore over a period of five years including moratorium period of one year on estimated bank loan amounting to Rs4,440 crore to be sanctioned to the sugar mills by the banks over a period of three years,” it said.Food Minister Ram Vilas Paswan said the minimum selling price of white (refined) sugar will be initially fixed at Rs29 per kg, which can be revised by the Department of Food and Public Distribution (DFPD) based on revision of Fair Remunerative Price (FRP).Besides, the government will put in place a mechanism to ensure that retail prices of sugar are kept fully under control.At present, this will be done along with imposition of stock holding limits on sugar mills, the cabinet said.In May, the government had sanctioned Rs15.4bn to be paid directly to the sugarcane farmers who were not paid full amount by the sugar mill owners as they could not recover the cost of production.Farmers were compensated at Rs5.50 per quintal of cane crushed.Paswan said the government has taken several steps in the past four months to stabilise sugar production and improve liquidity position of the mills to enable them clear the dues to farmers including doubling custom duty on sugar import to 100% and withdrawal of custom duty on export of sugar.Though the Indian Sugar Mills Association (ISMA) has welcomed the government’s decision, particularly the provision of soft loans to improve ethanol capacity and the creation of buffer stock, it objected to the stock holding limits and said the minimum support price of Rs29 per kg was too low.“The proposed minimum price of Rs29 per kilo is not enough to cover the cost of sugarcane at FRP of Rs290 per quintal at the current all India average recovery of 10.8%. The ex-mill sugar price which supports the current FRP works out to around Rs35 per kilo and therefore the Rs29 is inadequate,” ISMA director general Abinash Verma said.“It will, therefore, be a challenge to expect the sugar industry to clear the huge cane price arrears on this basis,” he said, and added even the decision to impose stock holding limits on sugar mills tantamounts to controlling sugar sales.This, he said, was not the right way forward.“What is concerning is that there is no idea or proposal on rationalisation of cane pricing policy, which is actually the main reason for all the problems of the industry today,” he said.The move comes after the ruling Bharatiya Janata Party last week suffered a blow in a by-election in Uttar Pradesh, the top sugar producing state in India’s northern cane belt.Analysts viewed the result as a bellwether for a general election due by May 2019.Modi needs to placate India’s 50mn cane growers, whose numbers make them an influential political lobby, to smooth his route back to power next year.