In a major relief to the sugar industry grappling with low price of the commodity and mounting arrears of cane dues, the Union government hiked the Minimum Selling Price (MSP) of sugar by 7 per cent to Rs 31 a kilogram which will now become the benchmark for wholesale price.
Not enthused with the hike, the sugar industry said that the move would not make much impact in medium term on the domestic sugar sector bogged down by a global glut and rising inventories. The industry fears that the Union and UP governments would now step up pressure on mills to clear cane dues.
In the crucial election year, the extra elbow room provided to mills by way of hike in MSP pitches the Yogi government in a much comfortable position. The NDA government in the interim budget has already announced a dole of Rs 6,000 to small and marginal farmers in three instalments.
Although, the MSP hike improves the realisation of beleaguered mills in the backdrop of outstanding for 2018-19 crushing season rising to almost Rs 22,000 crore, yet it remains below the average cost of production, which private millers peg at almost Rs 34 per kg.
However, coupled with sugar and realisation from cane byproducts, like bagasse, ethanol, cogeneration etc, which account for nearly 15 per cent of the total realisation by an average sugar unit, the current level should be sufficient to settle arrears.
An Sugarcane department official said that the mills would get some extra liquidity (estimated Rs 6,000 cr) and there would be some sentimental impact to expedite the payment of arrears. He said that recently, there had been some unrest among farmers over arrears and the hike would provide extra cash to mills to pay farmers. It will also ensure that the sugar prices did not crash over the next 2-3 months. India’s top sugar producer, UP, accounts for nearly Rs 10,000 crore of total outstanding cane arrears.
A senior official with a leading sugar producer in UP said on conditions of anonymity that the move put mills at ‘marginal position’ and allowed them to clear arrears. He said that though the break even point for mills came to about Rs 33-34 per kg, yet mills could comfortably settle their payment commitments at this MSP level.
