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Government announces Rs 7000-crore bailout package for sugarcane farmers

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New Delhi: The Cabinet on Wednesday approved a Rs 7,000-crore bailout package and set the minimum selling price for sugar at Rs 29 per kg to support the struggling sector, a Union Minister said. The industry is, however, not completely happy.

“In order to remove the problem of liquidity of sugar mills resulting in accumulation of huge cane price arrears of farmers, the Union Cabinet chaired by Prime Minister Narendra Modi has approved … measures involving total amount of about Rs 7,000 crore,” Union Minister for Law, Justice and IT Ravi Shankar Prasad said.

The decision of the Cabinet Committee on Economic Affairs (CCEA) comes as excess production in the current sugar season has depressed its market price, adversely affecting the liquidity position of sugar mills leading to accumulation of Rs 22,000-crore dues to the farmers.


The package comprises Rs 1,175 crore for creating a 30 lakh MT buffer stock, Rs 4,440 crore as soft loan for mill owners to increase ethanol production capacity to divert surplus sugarcane and Rs 1,332 crore towards interest subvention for the loan, the Cabinet said in a note.

“…government will bear interest subvention of maximum Rs 1,332 crore over a period of five years including moratorium period of one year on estimated bank loan amounting to Rs 4,440 crore to be sanctioned to the sugar mills by the banks over a period of three years,” it said.

Food Minister Ram Vilas Paswan said the minimum selling price of white (refined) sugar will be initially fixed at Rs 29 per kg, which can be revised by Department of Food and Public Distribution (DFPD) based on revision of Fair Remunerative Price (FRP).

Besides, the government will put in place a mechanism to ensure that retail prices of sugar are kept fully under control. At present, this will be done along with imposition of stock holding limits on sugar mills, the Cabinet said.

In May, the government had sanctioned Rs 1,540 crore to be paid directly to the sugarcane farmers who were not paid full amount by the sugar mill owners as they could not recover the cost of production. Farmers were compensated at Rs 5.50 per quintal of cane crushed.

Paswan said the government has taken several steps in the past four months to stabilize sugar production and improve the liquidity position of the mills to enable them clear the dues to farmers including doubling custom duty on sugar import to 100 per cent and withdrawal of custom duty on export of sugar.

Though the Indian Sugar Mills Association (ISMA) has welcomed the government’s decision, particularly provision of soft loans to improve ethanol capacity and creation of buffer stock, it objected to the stock holding limits and said the minimum support price of Rs 29 per kg was too low for any help.

“The proposed minimum price of Rs 29 per kilo is not enough to cover the cost of sugarcane at FRP of Rs 290 per quintal at the current all India average recovery of 10.8 per cent. The ex-mill sugar price which supports the current FRP works out to around Rs 35 per kilo and therefore the Rs 29 is inadequate,” said ISMA Director General Abinash Verma.

“It will, therefore, be a challenge to expect the sugar industry to clear the huge cane price arrears on this basis,” he said, and added even the decision to impose stock holding limits on sugar mills tantamounts to controls on sugar sales. This, he said, was not the right way forward.

“What is concerning is that there is no idea or proposal on rationalisation of cane pricing policy, which is actually the main reason for all the problems of the industry today,” he said.

Verma, however, said the decision to provide subsidised loans for ethanol production capacity was an excellent move as it will encourage setting up of more distilleries in the country over the next three years and will help in diverting some of the surplus sugarcane into ethanol. He also said creation of buffer stocks of 30 lakh tons will reduce some surplus sugar from the market, though only for a year, and will improve market sentiments to support domestic prices.