The Centre has decided to pay a production subsidy of ₹4.50/quintal directly to cane farmers in the 2015-16 season to ensure they get timely payment of arrears amounting to over ₹7,000 crore owed by sugar mills. The move is expected to cost the exchequer about ₹1,147 crore.

Simultaneously, the government also notified a minimum indicative export quota (MIEQ) for sugar mills and has tied the payment of production subsidy to only those mills that meet 80 per cent export and ethanol blending targets.

A decision in this regard was taken by the Cabinet Committee on Economic Affairs on Wednesday.

“Sugar has been facing a crisis with global prices falling. Some States give additional support price, adding to the arrears. We have come up with a World Trade Organisation-compatible scheme for supporting sugar producers,” Power and Coal Minister Piyush Goyal told the media after the Cabinet meeting.

Alongside, the government notified a mill-wise MIEQ for sugar exports, and a national grid allocating ethanol supplies to oil marketing companies by distilleries attached to sugar mills under Ethanol Blending Program (EBP).

Performance-linked sop “The production subsidy is a performance incentive and will be provided to those mills which have exported at least 80 per cent of the targets notified under the MIEQ and in case of mills having distillation capacities to produce ethanol have achieved 80 per cent of the targets notified by the department under the EBP,” an official statement said.

In September, the Centre had notified mandatory export of 4 million tonnes for the 2015-16 season (October-September), to be divided among the mills based on average production in the last three seasons.

As regards farmers, the Centre said that the direct subsidy shall be paid directly to them on behalf of the mills and will be adjusted against the cane price payable to farmers towards the fair & remunerative price (FRP), including arrears of previous years.

“The subsequent balance, if any, shall be credited into the mill’s account. Priority will be given to settling cane dues arrears of the previous years,” the release said. 

In the past five years, sustained surpluses of production over domestic consumption have led to subdued sugar prices. This has stressed the liquidity position of the industry leading to a build up of cane price arrears, the statement said, adding that “during sugar season 2014-15, the peak cane price arrears were ₹21,000 crore as on April 15, 2015.”

Incidentally, the Food Ministry had proposed a production subsidy of ₹4.75/quintal out of the cane FRP of ₹230/quintal for the 2015-16 season that covers October-September. This season, the country is estimated to produce surplus sugar at 26-27 million tonnes for the sixth consecutive year. To liquidate surplus sugar, the government has made it mandatory for millers to export 4 million tonnes in the 2015-16 season.

Millers hail move Sugar producers welcomed the government’s decision to give ₹4.50/quintal for cane crushed in 2015-16 sugar season.

“This decision is significant as it means that the government is no longer shying away from owning up the FRP it fixes for sugarcane, by directly contributing for a part of the cane price, instead of continuously burdening the millers,” the Indian Sugar Mills Association (ISMA) said in a statement.

However, at current low sugar prices, the losses will be over ₹1,100 crore and, therefore, if sugar prices do not improve to cover costs during the season, the industry and farmers may seek further help from the government’s budget, it added.

Scrips of sugar mills reacted positively on the bourses tracking the Cabinet decision. Balrampur Chini Mills gained 15 per cent to end at ₹82.55 on the BSE, while Shree Renuka Sugars and Simbhaoli Sugars gained close to 10 per cent each.

Our Chennai Bureau adds:

Palani G Periasamy, President, South Indian Sugar Mills Association – Tamil Nadu, welcomed the cane subsidy announced by the Centre.

Centre should continue with its thrust on sugar exports to bring down the domestic surplus which have hit sugar prices, Periasamy added.

N Ramanathan, Managing Director, Ponni Sugars, said at the present estimated output, farmers will get about ₹1,100 crore. But at current sugar prices of about ₹2,500 a quintal of sugar, the mills lose about ₹500 on every tonne of cane. This subsidy offsets the loss partially.

It is a welcome step by the Government and for the first time signals that the FRP of ₹2,300 a tonne set for sugarcane during 2015-16 is unviable as compared with the low sugar price. But the subsidy is a step in the right direction, he said.

However, industry sources expressed concern that the condition of meeting 80 per cent of the quota of ethanol supply could be a stumbling block to avail of the subsidy in Tamil Nadu as mills have not been able to participate because of local policies. However, the other condition of meeting 80 per cent of sugar export quota will not be an issue.

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