The Hindu Business Line : Cabinet nod for additional 30 lakh tonnes sugar buffer

New Delhi June 21 The Centre has approved the financing of an additional 30 lakh tonnes (lt) sugar buffer, over and above the 20 lt created earlier in April.

The decision, taken at a meeting of the Cabinet Committee on Economic Affairs (CCEA) here on Thursday, would involve an outgo of roughly Rs 570 crore from the Sugar Development Fund (SDF).

More credit

Besides, mills would be able to avail additional bank credit of about Rs 630 crore by getting their 15 per cent margin money released against the pledged buffer stock (assuming an average valuation of Rs 14,000 per tonne).

The creation of a buffer entails the factories maintaining the sequestered stocks within their premises, with the Centre defraying the entire carrying cost (12 per cent interest and 1.5 per cent storage and insurance charges, which, on Rs 14,000 per tonne, comes to Rs 1,890 or Rs 567 crore on 30 lt).

1-year period

"The buffer would be created for a full year and we will shortly notify the date from which it shall be effective," a Food Ministry official said.

Earlier on April 20, the Centre had notified the creation of a 20-lt buffer for a one-year period from May 1 to April 30, 2008. The total sequestered quantity was allocated on a pro-rata basis among individual factories taking into account their closing stocks as on September 30, 2006 and production during the current 2006-07 season (October-September) till February 28.

The 20-lt buffer had involved an SDF outgo of Rs 378 crore and additional bank credit facility of Rs 420 crore. "In all, the Centre would be spending almost Rs 950 crore of SDF money, while facilitating additional bank credit of Rs 1,050 crore. This entire amount (to be maintained in a separate bank account) will have to be earmarked by mills to discharge their cane dues to farmers", the official added.

Glut

The Centre's latest intervention comes in the midst of an unprecedented sugar glut, with mills expected to produce over 280 lt during the 2006-07 season. With opening stocks of 40 lt, internal consumption of 195 lt and exports of 15 lt, the season would close with stocks of 110 lt or the equivalent of six-and-half-months' domestic requirement. Worse could follow in the 2007-08 season, with output being projected even higher at 300 lt plus.

"The 50 lt buffer and resulting liquidity of some Rs 2,000 crore would provide, at best, a temporary breather for the industry. With cane dues of Rs 2,800 crore in Uttar Pradesh alone and the prospects of yet another bumper season, we do not see the situation improving in the near future", according to a miller.

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