New Delhi: The government will likely reduce the industry’s burden of supplying cheaper sugar for state-run welfare programmes this marketing year, potentially leaving R1,500 crore more with cash-starved mills and factories.
Mills and co-operatives may be asked to supply just 5-6% of their output – also called levy sugar – at a subsidised rate to the government in the current year through September as the government has adequate stocks from last year’s levy quota, sources told FE. Currently, they are mandated to sell 10% of their production at subsidised prices that cover around 60% of the cost of production and cost the industry around R3,000 crore, the biggest dent for mills and factories. While the levy prices vary slightly for mills depending upon to the location, co-operatives are selling sugar at R19 a kg, compared with the mill gate price of around R30.
Stocks of key sugar companies have been hammered with share prices of some cocompanies sliding by around a half in the past one year, significantly underperforming the Sensex, as various controls and dwindling returns on sugar sales have bled their balance sheets.
Industry executives say as much as 600,000 tonne of levy sugar will be released by June end, compared with the supply obligation of 2.11 million tonne (mt), as lifting has been low because of adequate stocks. Mills and co-operatives have been pitching for a reduction in the levy burden this year.
In a letter to food minister KV Thomas, National Federation of Cooperative Sugar Factories (NFCSF) president Jayantilal B Patel has said that the government needs around 3% of sugar production in 2011-12, considering that the country is expected to produce 26 mt this year, as it had carried forward surplus levy sugar stocks of 2.07 mt from last year.
The country needs around 2.8 mt of levy sugar a year to meet demand through the public distribution system.
NFCSF managing director Vinay Kumar is pitching for a cut in the levy burden by a half in 2011-12, while Indian Sugar Mills Association director general Abinash Verma says a dynamic levy system, which can be tweaked according to demand, is required.
However, the industry is still lobbying for the removal of the levy system along with other control measures, including restrictions on the monthly sugar sale, in the long term.
Sandwiched between high cane prices — often used by state governments, especially Uttar Pradesh, as a tool to woo voters in the farming community — and low sugar sales realisation, the cash-strapped sugar industry has renewed calls this year for lifting of the decades-old government control over the sector. Surplus sugar stocks for a second straight year have kept domestic prices subdued despite a 17% hike in cane prices in the largest producing state of Uttar Pradesh.
The government’s control over how much sugar mills will sell in the open market each month compounds their worries as failure to complete sales within the month could result in a conversion of the unsold quantity into the levy quota.
The government has set up a committee, headed by Prime Minister’s Economic Advisory Council Chairman C Rangarajan, to examine issues relating to shedding the decades-old control over the sugar sector.