Financial Daily from THE HINDU group of publications
Friday, May 21, 2004
Agri-Biz & Commodities
Govt scraps sugar buffer stock
Chennai/Mumbai , May 20
THE Centre has terminated the maintenance of buffer stock for the sugar industry, leaving the industry poorer by about Rs 300 crore a year, according to industry sources.
A notification issued by the Ministry of Consumer Affairs, Food and Public Distribution says that it has decided to terminate the maintenance of a 20-lakh tonne buffer stock of sugar from May 18.
Earlier, it was expected to continue till December since the Ministry had announced last December that the buffer stock would be maintained for a further 12 months.
The move has caught the sugar industry by surprise as it has come at a time when the Government at the Centre is in transition.
The announcement means that the sugar industry will now have to bear the interest on the carrying cost of 20 lakh tonnes of sugar. According to industry estimates, this would work out to about Rs 300 crore annually.
The Centre had announced the creation of the buffer stock in December 2002, which meant that it would pay for the interest on the carrying cost of sugar. The money would come out of the contribution of the sugar mills to the Sugar Development Fund.
Industry sources said the Government decided to back out of the commitment due to the increasing cost of sugar.
The carrying cost for a period is estimated on the cost of sugar, which has been steadily climbing. It now ranges around Rs 14.50 a kg compared to about Rs 12 or lower when the buffer stock was created.
Another reason suggested is that many of the mills have got around the mechanism of monthly release of sugar and managed to offload their stocks but continue to claim the subsidy under the buffer stock.
However, it is also argued that despite sugar mills offloading stocks, the stock levels with the industry were far in excess of the normal 3-4 month requirement of about 40 lakh tonnes.
"The Government is taking this step at the time when some sugar mills have started making profits. Moreover, the Supreme Court ruling that upheld the power of the State Governments to fix sugarcane prices will have definitely some negative impact on working of sugar mills in the country," sources said.
"Now, the situation is that the raw material (sugarcane) price will be decided by the States and finished product (sugar) by the Centre."
The estimates for the current season 2003-04 have been heavily scaled down to 167 lakh tonnes from 199 lakh tonnes, on account of lower than anticipated cane supply, according to the latest USDA report.
Sugar production in the forthcoming 2004-05 season (October/September) is expected to register a major fall for the second consecutive year to 159 lakh tonnes from 167 lakh tonnes, due to severe drought in the sugarcane producing States such as Maharashtra, Karnataka and Tamil Nadu.
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