The food ministry’s decision to drastically reduce the quantity of raw sugar exports under a subsidy scheme to 14 lakh tonne is likely to upset biggest producer Maharashtra, which has demanded an early announcement of the subsidy amount.

Sources told FE that in his meeting with food minister Ram Vilas Paswan and finance minister Arun Jaitley earlier this month, Maharashtra CM Devendra Fadnavis demanded the subsidy be provided for at least 25 lakh tonnes of raw sugar in 2014-15 so that the cash-starved sugar industry makes timely payments to farmers for cane purchases. Sugar prices have fallen below cane costs in Maharashtra and Uttar Pradesh, hurting the already-stressed sugar mills.

Considering that only 7.50 lakh tonnes of sugar was exported under the scheme in 2013-14, the latest proposal aims to restrict subsidised raw sugar exports at 21.50 lakh tonnes by September 2015, compared with outbound shipments of up to 40 lakh tonnes, approved by the Cabinet Committee On Economic Affairs (CCEA) in February last year.

The ministry has also recommended a subsidy of Rs 4,000 per tonne for raw sugar exports this year. At this rate, mills stand to lose a subsidy of Rs 740 crore in 2014-15 on the additional export opportunity of 18.50 lakh tonnes of raw sugar, which won’t materialise if the government chooses to endorse the latest proposal.

Moreover, a suggestion by the minister of state for food, Raosaheb Dadarao Danve, to include white sugar in the export subsidy scheme is learnt to have been rejected. The food ministry will soon seek CCEA approval for the proposal.

One of the sources said the food department has calculated the latest export limit for 2014-15 on the presumption that production this year would be around 250 lakh tonnes and consumption 248 lakh tonnes. Since opening stocks for this year were as high as 72 lakh tonnes and it wants to carry forward 60 lakh tonnes (for at least three months’ consumption) to the next marketing year, it feels 12 lakh tonnes from the current inventory can be exported. Added to the surplus output of two lakh tonnes in 2014-15, it will total 14 lakh tonnes.

Last February, the CCEA had approved the subsidy proposal for two seasons through September 2015, aimed at helping mills cut a glut in refined sugar and improve cash flows so that they can repay dues to farmers as well. However, it had also said the “incentive shall be reviewed before the commencement of the next sugar season (2014-15)”.

However, even though the last marketing year ended on September 30, the food ministry hasn’t yet sought CCEA’s approval for either the continuation or any change to the subsidy scheme, leading to uncertainties and halt in shipment since October.

Any further delay will cost the mills dear as they won’t be able to encash the full benefit of the scheme, which will be in effect only up to end-September.

Trade sources said global raw sugar prices have moved up over the past week beyond 15 cents per pound and the subsidy of Rs 4,000 per tonne will now make exports viable.

Global sugar prices inched up in recent days after key producer Brazil raised a tax on gasoline, consequently driving up its ethanol prices and raising the possibility of diversion of more molasses into the production of the bio-fuel instead of sugar.

Speculations are also rife that Brazil may increase the mandatory percentage of ethanol blending with gasoline to 27.5% from the current in February-March, which may drag down sugar production by 1-1.5 million tonnes as  more molasses could be used to produce ethanol.