Government to pay Rs 1,540 crore to cane growers on mills' behalf to help clear part arrears

Ahead of elections in Karnataka, the Union government today decided to directly pay sugarcane farmers about Rs 1,540 crore to clear less than a tenth of the outstanding that sugar mills owe to them. 

Sugarcane farmers, who have not been paid full amount by sugar mills, will get Rs 5.5 per quintal (of cane crushed) directly in their bank accounts from the central government that is keen to prevent an agrarian crisis developing in sugar producing states like Uttar Pradesh, Maharashtra and Karnataka.

The move would provide much-needed relief to mills that are facing a loss of Rs 8-9 per kg in sugar sales because of record production, resulting in a huge cane arrear of about Rs 20,000 crore and out of that over Rs 8,000 crore pertains to UP and about Rs 3,000 crore each to Maharashtra and Karnataka.

"The Cabinet Committee on Economic Affairs has given approval to provide financial assistance of Rs 5.50 per quintal of cane crushed in sugar season 2017-18 to sugar mills to offset the cost of cane, in order to help the mills clear cane dues of farmers," Union Minister Ravi Shankar Prasad told reporters here.

The assistance would be paid directly to the farmers on behalf of the mills, he said.

"Due to over production, there is liquidity problem with the millers," Prasad said, adding the total subsidy outgo is estimated at Rs 1,540 crore.

The government will also put certain conditions on millers for becoming eligible for this financial assistance.

Sugar production is estimated to cross 30 million tonne (MT), an all-time high, in the current 2017-18 marketing year (October-September) as against 20.3 MT in the previous year. The annual domestic demand is estimated at 25 MT.

Welcoming the decision, industry body ISMA's Director General Abinash Verma said this will provide a relief to the millers as they are facing a loss of Rs 8-9 per kg due to sharp fall in ex-mill sugar prices. The average cost of production is Rs 35 per kg while the selling price is about Rs 26 per kg.

"The quantum of Rs 55 per tonne of sugarcane would work out to around Rs 1,550-1,600 crore for the current season," he said.

Verma termed the decision positive for the industry even as mills are incurring much higher losses and hoped that the government would provide further assistance to bail out the industry.

To clear cane arrears, the association has been demanding that the government provide production-linked incentive to cane farmers as it was done in 2015-16 marketing year. In November 2015 too, the government had paid a production-linked subsidy of Rs 4.50 per quintal directly to cane farmers.

"Due to higher sugar production against the estimated consumption during the current sugar season 2017-18, the domestic sugar prices have remained depressed since the commencement of the season. 

"Due to depressed market sentiment and crash in sugar prices, the liquidity position of sugar mills has been adversely affected, leading to accumulation of cane price dues of farmers which have reached to more than Rs 19,000 crore," the official statement said.

To stabilise sugar prices at reasonable level and help mills clear cane arrears, the government said it has already doubled sugar import duty to 100 per cent and scrapped export duty to check sliding domestic prices. It has also asked mills to export 2 MT sugar.