India, battling a huge surplus of sugar, said it would set up a buffer stock of 30 lakh tons of the sweetner to absorb excess supply and give soft loans of Rs 4,440 crore to help sugar mills expand their ethanol capacity.
The decision comes days after the ruling Bharatiya Janata Party lost a key parliamentary election in the northern sugar belt where farmers and mills have both been complaining about falling prices due to higher-than-expected crop.
The Indian Sugar Mills Association has said that mills had produced 310.37 lakh tons of the sweetner by April 30 and given that several mills were still operational the output was expected to end up between 315-320 lakh tons.
The buffer stock will be built for one year at an estimated cost of Rs 1,175 crore, a government statement said, adding that the decision may be reviewed depending on the market price and availability of the sweetner.
“The reimbursement under the scheme would be made on quarterly basis which would be directly credited into farmers’ account on behalf of mills against their cane price dues,” it said.
The government said it was also fixing a minimum selling price of Rs 29/kg for white/refined sugar at the mill gate below which no white/refined sugar can be sold and delivered by a sugar mill in the domestic market.
This, the statement said, will not affect availability to consumers at reasonable price and the government will put in place a mechanism to ensure that the retail prices are kept fully under control.
The government also proposed to provide soft loans of Rs 4,440 crore to help mills augment their distilling capacity so that sugar can be diverted towards making more ethanol that would reduce inventories.
The government move comes at a time when excess production during the current season and indication of higher output in the forthcoming season has depressed prices.
“Due to the depressed market sentiments and crash in sugar prices, the liquidity position of the sugar mills has been adversely affected leading to accumulation of cane price dues which has already reached to an alarming level of more than Rs.22000 crore,” the statement said.
The government has already taken several steps in the past month to stabilise production at a reasonable level with a view to improve the liquidity position of the mills so that they could clear the cane price arrears of farmers.
In the past four months, the government has increased custom duty on import of sugar from 50% to 100% to check any import to the country and imposed stock holding limits on producers for the months of February and March to stabilise the domestic sugar price.
It also withdrew custom duty on export of the sweetner to encourage the industry to start exploring export possibilities and allocated mill-wise Minimum Indicative Export Quotas of 20 lakh tons for export during the 2017-18 season.
The government also extended financial assistance to mills at Rs.5.50/quintal of cane crushed during the 2017-18 season to offset the cost of cane.