NEW DELHI – The food ministry is likely to seek approval for creation of a 4 mln tn buffer stock of sugar for 2019-20 (Aug-Sep) in the Cabinet meeting scheduled on Wednesday, a senior government official said.
Sugar mills across the country will have to create and maintain the buffer stock of 4 mln tn for a year from Aug 1, once it is approved.
The government is also likely to provide a subsidy of around 15 bln rupees for the sugar buffer, the official said.
In June, creation of buffer stock of 5 mln tn was under consideration and Cabinet note for the same was prepared by the food ministry but it did not get approval due to lack of funds, an industry source said.
The current buffer for 2018-19 is 3 mln tn, which ended on Jun 30. In 2018-19, the government had provided a subsidy of 11.75 bln rupees for creation of the sugar buffer.
The Centre usually makes mill-wise allocation of buffer stock and every factory has to set apart the quantity allotted.
The food ministry is also likely to float another Cabinet note to fix the fair and remunerative price of sugarcane for 2019-20 (Oct-Sep) which is likely to be unchanged at 275 rupees per 100 kg, linked to a basic recovery rate of 10%.
The Commission for Agricultural Costs and Prices had recommended keeping the fair and remunerative price of sugarcane unchanged at 275 rupees per 100 kg for 2019-20 in order help correct mismatch between the production cost and sale price of sugar, three senior government officials had earlier told Cogencis.
At the current price of cane, the average production cost of sugar works out at 35-36 rupees a kg, as against the minimum selling price of 31 rupees a kg. Mills incur a loss of 4-5 rupees per kg of sugar sold, according to industry estimates.
During 2019-20, the government had increased the fair price of sugarcane by 20 rupees per 100 kg.
The fair and remunerative price of sugarcane is usually fixed after taking into account the actual cost of production, demand-supply of sugar, domestic and international prices, inter-crop price parity, prices of primary by-products of sugar, and the likely impact on sugar prices.
The pricing panel has recommended keeping the cane price unchanged for the next season, as the actual cost of cane cultivation is likely to remain steady, domestic sugar supply is high, and prices are depressed, one of the officials said.
"Though the situation in the sugar sector has improved slightly from last year due to lower expectations of output for 2019-20 (Oct-Sep), the glut may continue in the next marketing season as well due to heavy carry over stocks from the current season," an industry source said.
The sugar sector is undergoing a crisis due to depressed prices and a glut in the domestic market due to record 32.8 mln tn output in the current year.
The only way out from the current glut is exports. For this, industry is waiting for export subsidies from the government for the next season, which is likely to be announced in August. However, the government is struggling to come out with an export subsidy package as India is under scrutiny of World Trade Organization following complaints from other sugar producing nations.