In yet another move to save the sugar mills, the Centre on Wednesday announced that it will pitch-in to pay a portion of the FRP (fair and remunerative price) on cane to the farmers.

The FRP on cane for 2018-19 sugar season as announced earlier is 275/quintal linked to a basic recovery rate of 10 per cent.

The announced assistance of ₹13.88/quintal on cost of cane, thus, works out to a saving of 5 per cent for mills.

Assuming an average recovery rate of 10.8 per cent, where the FRP will be ₹297/quintal, the assistance of ₹13.88/quintal, means a 4.6 per cent saving.

The cost of cane for a mill to produce one kilogram of sugar, assuming 10.8 per cent recovery, is ₹27.5, but, they will be paying only ₹26.2 and the balance will be settled by the government directly to the farmer.

Not a complete cure

The cost of production of sugar for the mills however works to around ₹34-35/kg (including other overheads and interest cost).

Low cost manufacturers (Dwarikesh Sugars and Balrampur Chini) and those light on debt and higher ethanol production capacity may have it around ₹30-31/kg.

So, while the current move gives some breather to the mills, it is still not a complete cure.

Also, one needs to watch the conditions the government puts forth for mills to be eligible for this assistance.

Yesterday, the Centre also announced an assistance to sugar mills for the expenditure towards freight and other charges incurred to export sugar.

The assistance will be ₹1,000/tonne of sugar for the mills located within 100 km from the port, ₹2.500/tonne of sugar for the mills located beyond 100 kilometres from the port and ₹3,000/tonne of sugar for mills not located in coastal states.

If the actual expenses are lower, it will be the actuals that are reimbursed.

If the mills export white sugar, they will now realise ₹20-21/kg against ₹31-32/kg when sold in the domestic market. So, again, the freight assistance package too, is not set to alter the fortune of sugar mills much. Mills will come forward to export if they are able to make up for the losses in export from the domestic market.

They have been asking for increase in the minimum selling price of sugar, which is at ₹29/kg now, but, the Centre is mum.

With current year sugar production estimate at 350-355 lakh tonnes, that is going to increase the surplus sugar in the market further, the situation does not look too good for the mills.

Ethanol: a bright spot

The only bright spot for now is the increasing demand for ethanol from Oil Marketing Companies with rising crude oil prices.

If mills divert cane to ethanol, that will suck some cane from the market and push sugar prices higher.

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