The government on Thursday announced a Rs 2 per kg, or seven per cent, increase in the minimum selling price (MSP) of sugar to Rs 31 per kg. Sugar mills are expected to get a benefit of Rs 6,000 crore from this move.
In June 2018, the government had fixed the minimum price for selling sugar by mills, perhaps for the first time in recent decades. This increased price became the benchmark for all stock with mills and future production.
However, the mills were seeking more relief because the price was not helping them to pay the mounting farmers' dues. The new season's (October 2018 to September 2019) crop is also estimated at over 30.7 million tonnes. Analysts estimate that sugar mills have to pay around Rs 22,000 crore to farmers as on date.
The industry has been demanding a hike in the MSP for sugar because international market prices have fallen in the past few months and mills have not been able to increase exports. Compared to the government's mandate to the industry to export 5 million tonnes, the season is expected to end with 3.5 million tonnes in exports.
Indian Sugar Mills Association Director General Abinash Verma said, "This increase of Rs 2 per kilo will give additional revenues of Rs 6,000 crore for the 20 million tonnes of sugar stocks in the godowns of mills, as also on the further production of another 10 million tonnes in the balance period of the season. This will be a big help to the sugar producers, which will enable them to clear some of the cane price arrears from this additional revenue."
Several mills and their associations have already alerted their buyers that if and when the MSP is increased, mills, irrespective of the contracts they have, will sell at the new price.
All India Sugar Trade Association Chairman Praful Vithlani said, "(The) new price is expected to benefit well-diversified sugar companies." He, however, raised concern over the lower than mandated exports, as that would only add to the domestic glut. He hoped that international market prices would rise, as expected, by eight per cent, as the current low prices were not justified in view of the deficit scenario in the international market.
India is the world's second-largest sugar producer after Brazil.
In June last year, the government had also notified the creation of a 3-million-tonne sugar buffer stock and said that the cost would be financed by it at Rs 29 per kg. The industry now expects that the buffer stock notification will also have to be revised in line with the new price. However, many millers want the buffer stock cost to be financed at cost of production, which is Rs 34-35 per kg.
Even if the benchmark for this subsidy is raised to Rs 31, the additional subsidy burden is expected to be minimal.