Sugar mills will purchase cane worth over Rs 1 trillion from farmers starting next month until April 2019, which may lead to payment crisis for the cash-starved millers, according to sources.
Sugar production of India is estimated to rise to 35.5 million tonnes in the next 2018-19 marketing year (October-September) from 32.5 million tonnes in the current year on the back of higher cane output.
In the current 2017-18 marketing year ending this month, mills have purchased cane worth Rs 920 bn, out of which RS 130 bn are still to be paid to the growers.
"Sugar mills are likely to crush 325 million tonnes of sugarcane between October 2018 and April 2019. At the current cane price fixed by the government, total cane payment is estimated to be Rs 1 trillion," a source said.
The Centre has fixed Fair and Remunerative Price (FRP) at Rs 275 per quintal for sugar recovery of 10 per cent for the 2018-19 marketing year.
"Average sugar recovery rate is expected to be 10.8 per cent next year, which means mills have to pay nearly Rs 300 per quintal of cane to growers as per the FRP," the source explained.
Moreover, some states such as Uttar Pradesh, Punjab, Uttarakhand and Haryana announce their own cane price called State Advisory Price (SAP), which is higher than the centrally fixed FRP.
According to sources, cane arrear at the beginning of the new marketing year estimated at Rs 90 bn and the same could rise up to Rs 500 bn by end of April 2019 when the crushing season ends, if the government does not intervene to help them.
Sugar mills have not been able make timely cane payment to growers due to financial hardship in view of low prices due to record output.
The government has taken several measures to ensure mills pay cane price to growers. For instance, the centre has doubled import duty to 100 per cent, scrapped export duty, set up buffer stock of 3 million tonnes and announced a soft loan of Rs 45 bn to establish ethanol facilities.
Yesterday, the industry body ISMA urged the government to raise the minimum selling price of sugar from Rs 29 per kg to 36 per kg and fix a mandatory export quota of 7 million tonnes for the next marketing year.
The opening stock of sugar is estimated at 10.5 million tonnes next month and the same would reach 19 million tonnes if exports are not undertaken, creating glut and will further depress local prices.
Total availability of sugar would be at all time high at around 45 million tonnes during 2018-19 marketing year, while the annual domestic demand remains only 26 million tonnes, leaving the surplus of 19 million tonnes.