As the Centre contemplates interest-free loans and export incentives for cash-starved sugar mills to enable them to start crushing cane this season, millers and senior industry executives say such a bailout package would at best give temporary relief, and revival of the sector would hinge on resolving systemic problems. The millers want an end to arbitrary fixation of the state-advised price (SAP) for cane and scrapping of the UP government’s rule that a portion of molasses be reserved for sale to the state’s alcohol industry.
The situation in UP has become so precarious for mills that an industry delegation on Wednesday asked the state government, in an inconclusive meeting with chief secretary Jawed Usmani, to run sugar mills this season and pocket all the profits if it manages to rake in any, informed industry sources told FE.
Top executives of sugar mills rejected the state government's offer of an incentive package, including an entry tax exemption and a cut in cane society commission, as such waivers barely make up for 4-5% of cane value and were well below the industry's demand of a 20% cut in the raw material price to R225 a quintal for 2013-14, which they say is in sync with the Rangarajan panel formula.
Senior officials with the state sugarcane department, however, maintained “though there has been no breakthrough yet, the talks have not yet concluded.”
“Interest-free loans or incentives proposed by the Centre or the UP government may help us clear some arrears of the last season and, maybe, enable us to start crushing for only some time this year. But what about next year and the year after? As long as cane prices are fixed by the state government arbitrarily without any economic basis, the problem will linger on. What the industry wants now is no quick-fix but a permanent solution to the cane pricing issue so that all stake holders can breathe easy permanently,” said a senior executive with a leading Uttar Pradesh mill.
"There is only one solution: implement the Rangarajan panel recommendations on price linkage or fix a logical formula for cane pricing. The rule mandating that a portion of molasses be reserved for the alcohol industry in UP before mills can sell it to others should also be scrapped. This is because alcohol manufacturers often resort to blackmailing the mills as they know mills can't sell molasses to others until the alcohol manufacturers lift their share," he said. The sentiment was echoed by executives of some other mills of the state who didn't want to be identified.
The central food ministry will soon approach the Cabinet with a proposal to provide interest-free loans to mills to help them meet working capital requirements. The move follows discussions at a meeting of an informal group of ministers, headed by agriculture minister Sharad Pawar last week. The Centre is considering paying the interest on loans from the R1,200 crore available under the sugar development fund, food secretary Sudhir Kumar said. The interest amount would be to the tune of R380-400 crore if banks lend roughly R3,000 crore for two years to the sugar industry against the excise paid by them over the last two sugar seasons, Kumar said.
The government is also considering providing more export incentives and reducing the period for re-export of imported sugar to three months from 18 months now to discourage purchases from overseas, Kumar said.
The latest stalemate, which revolves around the cane price fixed by the state government this year, has already delayed the crushing season in the state, which starts from early November. Consequently, farmers, who follow the wheat-cane cycle, are the worst hit. Forced to evacuate their fields in time for sowing wheat, they are selling their cane to crushers and khandsari units at half the price of R280 per quintal announced by the state government.