Sugar stocks moved up on Wednesday following the Union cabinet’s decision of a Rs 6,000 crore interest-free loan to enable mills to clear farmers’ cane payment arrears. As of now, mills have Rs 21,000 crore of cane arrears, around a third of the procurement value.

The share price of industry leader Bajaj Hindusthan jumped 10 per cent to Rs 15.22, of Shree Renuka Sugars by 7.7 per cent to Rs 10.89 and of Bannari Amman Sugars by 7.4 per cent to Rs 821.50.

The Cabinet Committee on Economic Affairs (CCEA) has provided a one-year moratorium on this loan’s payment, for which the government would bear interest subvention cost to the extent of Rs 600 crore.

CCEA has asked banks to collect data from the respective mills on cane arrears, to transfer credit directly into the farmers’ account. Any surplus would be credited to the mills’ account.
 

However, the industry says it is not impressed. “It is not an interest-free loan. It is an unproductive loan. The amount and moratorium will not address the basic problem of a surplus 10 mn tonnes (by October 1) and depressed sugar prices (Rs 10 lower than the cost of production). Instead of this loan, the credit can be extended to a buyer like Food Corporation of India, MMTC, State Trading Corporation or Apeda, that can buy 2.5-3 million tonnes of surplus from the industry. This way, both the objective of clearing the cane price of farmers and reducing the surplus can be solved. Apart from a proportionate decline in surplus carryover stock, the sugar price would start firming up, improving the financial health of mills,” said Abinash Verma, Director General of the Indian Sugar Mills Association.

To get the loan, mills are required to pay at least 50 per cent of the cane price for the current year by June 30. According to industry sources, many would not be able to take advantage of the interest-free loan due to this condition. The industry has so far paid 67 per cent of the Fair and Remunerative Price set for cane this year.

Also, the industry currently holds total inventory of 18 million tonnes, worth Rs 30,000 crore.


“The government has realised that the problem persists with the basic structure of cane price fixation. Today’s announcement is a measure to address the immediate crisis of previous seasons' dues. Obviously, the problem of the industry would not be solved by this measure alone. Since Nitin Gadkari (a senior Union minister) said the government is working to have a long-term solution in place, the industry hopes cane pricing would be addressed next,” said Narendra Murkumbi, managing director, Shree Renuka Sugars.

To improve the liquidity of sugar mills and facilitate payment of cane dues, the government raised the export incentive on raw sugar from Rs 3,200 a tonne to Rs 4,000 a tonne. Funds have been allocated to support 1.4 million tonnes of raw sugar export as against 0.75 mt achieved last year. However, falling sugar prices in global markets have prevented Indian mills from stepping up the pace of export.

Also, the government fixed remunerative prices for ethanol supplied to the programme for blending with petrol, effectively giving Rs 42 a litre to a mill as against Rs 32 a litre of last year. The government has also waived excise duties on ethanol from October.