Cabinet Clears Rs 10,000 Crore Subsidised Loans For Sugar Mills

Going by past experience, the move is unlikely to benefit farmers. Sugar stocks, on the other hand, have surged since the news.

New Delhi: The Union cabinet on Thursday approved a proposal to provide subsidised loans up to Rs 10,540 crore to the sugar industry. The Centre will bear the cost of interest subvention, which could cost up to Rs 1,054 crore.

The move, the government has argued, will incentivise sugar mills to clear pending dues of sugarcane farmers, which have now exceeded Rs 20,000 crore and are likely to be a headache for the BJP going into the Lok Sabha elections.

“Surplus production is also estimated in the current sugar season 2018-19 which has affected the liquidity position of sugar mills resulting in building up of cane price arrears of farmers which has reached to the level of Rs 20,159 crore as on February 22, 2019,” an official statement said.

The pending dues in Uttar Pradesh alone are Rs 7,813 crore as of February 22, with just 54% of the dues of farmers having been cleared. At this time last season, 74% of the dues had been cleared and the pending dues amounted to Rs 4,652 crore. If the dues for last season which still remain pending are included, the total pending dues exceed Rs 13,000 crore.

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Last season in UP, pending dues peaked at Rs 13,000 crore in May, with a payment percentage of 63%.

Sugar mills argue that they are unable to clear pending dues of farmers due to the low selling price of sugar, which impacts their liquidity positions. This low selling price is caused by excess production and a decline in global sugar prices.

While India consumes about 26 million tonnes of sugar annually, the production in the last few seasons has been over 30 million tonnes. While last season, the production was 32 million tonnes, this year the production is estimated to be 30 million tonnes. To add to the troubles, there is a leftover stock of ten million tonnes from last season, taking the total availability of sugar to 40 million tonnes.

The government has tried to incentivise exports but the low price of sugar in the global market has meant that Indian sugar – at a higher price due to the assured price of sugarcane – is unattractive to buyers.

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The Indian Sugar Mills Association (ISMA) estimates that total exports would not exceed three million tonnes. “It is likely that the pending sugarcane dues could reach historic levels by March,” ISMA said in a statement in January. The government has had an eye on the problem and the Rs 10,000 crore subsidised loan to the sugar industry is only the latest among many interventions to deal with the problem.

In May last year, the Centre had announced a Rs 8,000-crore package to deal with the crisis. The package included a production-linked subsidy, subsidised loans to the sugar mills and an increase in the minimum selling price of sugar – from Rs 26 per kilogram to Rs 29 per kilogram.  

When the package failed to have the desired impact and pending dues of sugarcane farmers remained as high as Rs 10,000 crore, the UP government announced a Rs 4,000-crore package which included subsidised loans to the sugar industry.

The industry was slow to take up the offer and pending dues remained close to Rs 10,000 crore up until crushing for the new season began in November. Subsequently, dues for last season began to be cleared. However, Rs 4,600 crore from last season still rremain pending, calling into question the effectiveness of the government’s many interventions.

Then, in February, after intense lobbying by the sugar industry, the government announced that the minimum selling price of sugar will be raised by Rs 2 to Rs 31 per kilogram.

Sugar stocks rallied thereafter, gaining as much as 16% in one day of trading.

Now, with the latest announcement of the government, stocks have rallied again. Since January, the stock value of some sugar companies has almost doubled.

On the other hand, farmers continue to struggle and wait for their dues to be cleared. This year, farmers have blocked railway tracks, laid siege to sugar mills and organised several protests in Maharashtra and UP – the two major producers of sugarcane.

Pushpendra Singh of the Kisan Shakti Sangh, an organisation that works with farmers in UP, argued that the subsidised loans are unlikely to prove effective in clearing farmers’ dues. “Repeatedly, we have been giving packages to the sugar industry. The problem of sugarcane farmers has remained where it was.”

He contends that the government should instead focus on long-term measures such as building ethanol capacity and differential pricing. “About two-thirds of sugar is bought by commercial consumers – companies that make chocolates, biscuits, sweets, cold drinks, jam, etc. They are making supernormal profits on their products. The government should charge them a higher price for sugar. Why can’t they be charged Rs 50 per kilogram?” asked Singh.

PTI reports: Brazil, Australia lodge complaint with WTO

Brazil has joined Australia to lodge a formal complaint against India with the World Trade Organisation (WTO), alleging that India’s continued sugar subsidies to farmers have led to a “glut” and “depressed” global prices.

The Australian government first lodged a counter-notification with the WTO over India’s sugar subsidy practices last November.

Australian minister for trade, tourism and investment Simon Birmingham on Thursday said that India’s sugar subsidy regime was inconsistent with WTO rules and had helped create a glut in the global sugar market.

“That’s hurting sugarcane growers and sugar millers whether they’re in Australia, Brazil, or any other country in the world,” Birmingham said. He said Australia was “left with no other choice but to initiate formal WTO dispute action, together with Brazil”.

“The liberal-national government continues to stand side-by-side with our sugar industry on this matter,” he said. He said that while Australia respects the rights of WTO members to support their farmers and industries, this support must be consistent with WTO rules and provide a level playing field.

“Australia always seeks to resolve its concerns outside of the WTO’s dispute system, and our numerous representations to India at the highest levels and in the WTO have been consistent with this approach,” he said.

Australia maintains a very good relationship with India, both economically and strategically, and it is perfectly normal for even close friends and partners to avail themselves of WTO mechanisms from time-to-time to resolve trade issues, he said.

Australian agriculture minister David Littleproud and assistant minister for trade, Mark Coulton, joined Birmingham in acknowledging the work that sugarcane farmers and the Australian Sugar Milling Council have done in preparing to launch this WTO action.

“Our industry relies heavily on exports, sending roughly 85% of its raw sugar into the world market,” Littleproud said. “These subsidies are hitting our farmers and millers, and I’m pleased we’re exercising our WTO rights and asking for an even playing field.”