MUMBAI – The Maharashtra State Cooperative Sugar Factories Federation has urged the Centre to announce a one-time grant of 500 rupees for every tonne of cane crushed in 2018-19 to compensate sugar mills for the

difference between their cost and the sale price.

Sugar prices have been below average cost of production for nearly two years now due to bumper output, hitting mills ability to pay farmers for the cane purchased.

Sugar mills in India have to mandatorily buy cane grown in their vicinity and the minimum price is also fixed by states.

In a letter to Prime Minister Narendra Modi, the federation said sugar mills' average realisation from sugar, and its by-products, is around 3,366 rupees per 100 kg. The average production cost on the other hand, including interest cost, is 3,766 rupees per 100 kg, leading to a loss of 400 rupees on sale of each quintal of sugar.

This has led to cane arrears of around 170 bln rupees, despite the government stepping in with a host of measures to bail out the sugar industry.

The government should increase the minimum selling price of sugar to 35 rupees a kg from 31 rupees now, the federation said. It also urged the government to ensure that sugar distributed under state-run welfare schemes is bought directly from mills at the minimum selling price.

The federation has also sought an extension of moratorium period for soft loans to three years from one now, and an increase in rate of interest subvention to 8% from 7%. 

In February, the Cabinet Committee on Economic Affairs had approved soft loans to sugar mills to boost their liquidity and help them clear cane arrears. However, banks have been hesitant in disbursing money to sugar mills due to pending liabilities and unhealthy balance sheets.

"Negative net disposable resources, consequential non-performing assets, huge piling of stock leading to blocked capital and increasing interest burdens, exhaustion of sectoral exposure limits decided on the basis of lendable resources and exhaustion of unit exposure limits decided on the basis of capital employed" have led to banks' reluctance in extending loans to sugar mills, it said.

On the ethanol front, the federation sought a ban on export of molasses as domestic mills are falling short of ethanol to supply to oil marketing countries.

Drought situation in major producing regions has led to water scarcity and may hit cane production next season and hence the industry has also sought waiver of penalty levied on failure of supply of ethanol to oil marketing companies in 2018-19. 

The Centre has provided soft loans to sugar mills to set up ethanol distilleries and expand existing ones to boost production of the by-product. The Centre also introduced differential pricing for ethanol to encourage direct conversion of cane juice to ethanol, which will reduce sugar output and also reduce India's oil import bill.

It also hiked the price of B-heavy molasses derived from ethanol by 10%.