Co-op sugar mills told to set up price fluctuation fund

The Maharashtra government has asked the state’s cash-strapped co-operative sugar industry to set up a price fluctuation fund as a means to weather volatile market conditions. It also hinted at its inability to anymore provide the industry a bailout package or financial aid, saying cooperative sugar mills would have to improve their finances by becoming professional and transparent.

A recent meeting by chief minister Prithviraj Chavan and his deputy Ajit Pawar also decided that the government would not give any default guarantee for any type of loan for mills that are closing on account of poor financial track record. Instead, it would prefer a financially sound mill in the region to take over operations of ailing ones.

At Pune this Monday, Chavan stressed the need for the establishment of a price fluctuation fund by an individual mill, given the recent volatility in sugar prices. Currently, global prices are at $603-610 per tonne, while the domestic prices are hovering between Rs 2,720 to Rs 2850 per quintal, he noted.

“Mills are finding it difficult to continue operations. Even so, they cannot expect any financial assistance from the government, as farmers from other regions are also making similar demands,” he added.

Chavan’s statement came in response to a series of demands made by the Federation of Cooperative Sugar Factories in Maharashtra. Its chairman, Vijaysinh Mohite-Patil, had sought an export grant of Rs 1,000 per tonne, citing a dip in global prices and revision in purchase tax.

The chief minister made a strong case for an improvement in the mills’ finances by pruning unwanted expenses. He asked mills to carry out audit regarding cost, energy and environment. “All mills must adhere to discipline. They should regularly update their website on these matters,” he added.

Pawar shared Chavan’s views by saying mills could no more expect reliance on government for providing default guarantee. More importantly, mills with negative net worth would not receive government default guarantee even as they close down their operations, he added.

The statement comes at a time when the Maharashtra State Cooperative Bank wants the government to provide working capital loan of Rs 1,000 crore to 12 mills with negative net worth.

“Economies of scale and professionalism are needed to thrive in the business during the current slowdown,” the deputy CM said. “The government wants the cooperative mills to survive, but not without adhering to fiscal discipline.”