INDIA is set to announce support measures to cut a growing sugar surplus and prop up local prices, the food minister said on Tuesday, a move aimed at helping loss-making mills and millions of cane growers who make up a key voting bloc. Prime minister Narendra Modi’s cabinet is likely to back the proposals as early as Wednesday.
The measures include building a 3 million tonnes government stockpile to soak up excess supply from the domestic market and granting soft loans worth Rs 45 billion ($670 million) to help millers expand their ethanol output capacity, food minister Ram Vilas Paswan said.
Modi’s Bharatiya Janata Party (BJP) last week suffered a blow in a by-election in UP, the top sugar producing state in northern cane belt. Analysts viewed the result as a bellwether for a general election due by May 2019. Modi needs to placate 50 million sugarcane growers, whose numbers make them an influential political lobby, to smooth his route back to power next year.
Paswan said the measures could cost the government Rs 80 billion, but refused the give full financial details. “We will be to able to give you the details about these measures once the cabinet clears this,” Paswan said. The government will also make available Rs 45 billion ($669.89 million) in soft loans to sugar mills to expand ethanol production capacity, Paswan said.
India, the world’s biggest consumer of sugar and second-largest producer after Brazil, has in the past created government stockpiles, or buffer stocks, to tackle supply gluts caused by yo-yoing production.
Late last month Reuters reported that the government would approve the proposal that would require mills to stock 3 million tonnes of sugar in their warehouses, with the government paying the carrying costs for the commodity.
Shares of sugar companies such as Dhampur Sugar Mills, Mawana Sugars, Balrampur Chini Mills and Avadh Sugar & Energy jumped on Tuesday in anticipation of the measures. Dhampur Sugar Mills rose 3.24 per cent, followed by Balrampur Chini Mills (3.14 per cent), Mawana Sugars (2.14 per cent), Uttam Sugar Mills (1.63 per cent), Avadh Sugar & Energy (0.48 per cent) and Bajaj Hindusthan Sugar (0.28 per cent).
Sugar prices have dropped to their lowest in 28 months, exacerbating financial woes of sugar mills. Citing poor financial health, mills have said they are unable to pay cane farmers on time. Presently, the average exmill price of sugar is in the range of Rs 25.60-26.22 per kg, which is below the cost of production.
Mills owe more than Rs 220 billion to the sugarcane farmers for this year, Paswan said. Rising sugarcane arrears have angered farmers. The government also approved a plan to provide financial support to sugarcane farmers for produce sold to mills. The government scrapped a 20 per cent tax on sugar exports in March, and in April asked mills to export 2 mn tonnes to cut back inventories.