The direct subsidy announced to the cane growers may not be adequate to lift the sugar sector from the current crisis say experts, while farmers – who are sceptical about the success of the scheme as it is linked to the export performance of the mills – feel that the Centre should have increased the quantum of the incentives.

Performance based “The direct payment of subsidy is a welcome move. However, the government should have increased the quantum of the direct payout,” said Kurubur Shantakumar, President of Sugarcane Growers Association in Karnataka. Shantakumar was, however, not sure about the mills achieving the performance targets on exports and the ethanol blending programme.

“They should not have linked the direct subsidy to the mills performance. We are not sure as to how much sugar will eventually be exported as it would all depends on the demand-supply situation in the global market,” he added.

The government has mandated the mills to export four million tonnes for the 2015-16 season and for the farmers to get the direct subsidy, mills have to meet 80 per cent of the export target.

Export deals “The scheme is not going to serve any purpose to help address the root cause of the sugar sector crisis,” said Kamal Jain, Managing Director of the Pune-based Kamal Jain Trading Services Pvt Ltd, an industry veteran.

The export prices have seen a decline in an immediate reaction to the government’s announcement as buyers are seen discounting the Indian white sugar.

Export deals that were concluded for the new white sugar at ex-factory price of ₹24,000 a tonne before the announcement have now come down to ₹22,500 levels on Thursday when some 25,000-50,000 tonnes were contracted, Jain said. The deals that were struck at around $370 a tonne were at a discount to the London price that’s hovering between $390 and $406.

Control mechanism “Millers will be under pressure to sell at a discount to meet their liquidity demand and also the export performance targets,” Jain said while suggesting that the government come up with a minimum benchmark price to avoid underselling.

Jain further said that the government should bring back the control mechanisms to regulate the prices, a suggestion backed by Sudhir Panwar, a farmer leader and professor who is now the member of Uttar Pradesh Price Commission.

“If the government can procure wheat, rice and cotton at an assured price, what is wrong in buying sugar or routing it through agencies such as ISMA, ISEC or the sugar co-operatives,” Jain said.

“Direct subsidy is a misnomer, as the quantum is already part of the FRP,” said Panwar. “Instead of leaving it to the market forces to stabilise the sugar prices, the government should bring back the release mechanism to control the prices,” Panwar added.

Abhijit Ghorpade, of Ghorpade Agrovet, broker from Kolhapur, said demand is coming up for raw sugar at ex-factory price of ₹2,000 a quintal , while that for white sugar at ₹2,350-2,450. The cane subsidy of ₹4.5 a quintal roughly translates at ₹385 a quintal for the miller in terms of sugar price.

According to the Indian Sugar Mills Association, as per the reports submitted by sugar factories to the government, sugar mills have exported about 0.80 lakh tonnes of sugar in October 2015. However, there are reports that sugar mills have already made contracts for export of around 2-3 lt in November.

Export targets

Millers, while stating that the scheme would help reduce their payouts, are also sceptical about meeting the export targets. “Exports are a losing proposition,” a miller in Uttar Pradesh said, while stating that shipments from the landlocked sugar producing region were not feasible. Moreover, to ship out sugar from UP to the nearest port, one needs to incur a freight cost of ₹2/kg, whereas production costs are higher, he said.

“The Centre has taken a pragmatic step to help the ailing sugar industry. Besides aiding the sugar industry, higher exports should help the country earn forex. Likewise, an increase in ethanol blending should help reduce the country’s oil import bill,” explains Palani G Periasamy, President, South India Sugar Mills Association (SISMA).

Deepak Guptara, spokesperson for the UP Sugar Mills Association said exports from the region will happen, but it was too early to say anything. “UP mills have to tie-up with their counterparts in the coastal states to facilitate shipments,” he added. Meanwhile, some mills have started crushing in UP even before the State has announced the State Advised Price.

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