Agri Business

Why sugar mills will go for ethanol production this year

Radheshyam Jadhav Pune | Updated on August 20, 2020

Diverting additional cane for ethanol production will ease their cash liquidity crunch

The new Fair and Remunerative Price (FRP) for sugarcane announced by the government will increase the cost of sugar production. But sugar mills can improve cash liquidity by diverting additional cane for ethanol production as OMCs have committed to buy entire ethanol in the next five years at a prefixed rate, said Prakash Naiknavare, Managing Director, National Federation of Cooperative Sugar Factories Ltd. (NFSSF).

“Rise in FRP for sugar season 20-21 was expected because last year FRP had remained unchanged. This rise will give partial relief to cane growers in meeting mounting expenses of cane cultivation. So, as far as sugar millers are concerned, this will definitely increase the cost of sugar production,” Naiknavare told BusinessLine.

He added that sugar mills can benefit from producing ethanol as ample sugarcane is available this year to take care of sugar production. Naiknavare said that sugar mills are certain to receive payment for ethanol within 21 days of delivery as against sugar bag getting sold after a couple of months, blocking funds and attracting interest burden. Ethanol production will help mills to solve cash liquidity issues, he added.

Production, supply targets

According to the Indian Sugar Mill Association (ISMA), ethanol production capacity in the country has increased to over 375-400 crore litres. The government is targeting an ethanol production and supply target of 300-350 crore litres in 2020-21, and achieving 7.5-8 per cent ethanol blend levels with petrol.

As laid down in the National Biofuels Policy, 2018, the government intends to achieve ethanol with petrol blend levels of 10 per cent by 2022 and 20 per cent by 2030, and therefore efforts are being made to achieve the targets. With new FRP rates, sugar mills will go for ethanol production to recover additional production cost.

The government has approved FRP of ₹285 per quintal for a basic recovery rate of 10 per cent and a premium of ₹2.85 per quintal for every 0.1 per cent increase above 10 per cent in the recovery.

While sugar mills are worried about additional production costs, farmers in Maharashtra are unhappy about the FRP hike. “Already production cost has soared in the last few years. We fail to understand how the Commission for Agricultural Costs and Prices (CACP) calculates the production cost. The new rates are not going to help farmers in any way” said farmer Prashant Pawar. He added that many sugar mills still have not paid last year’s FRP.

Published on August 20, 2020

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