The Hindu Business Line : Move to create sugar buffer cheers industry

THE sugar industry in Tamil Nadu has welcomed the Cabinet Committee on Economic Affairs decision to create a 20-lakh tonne buffer stock on Government account.

According to the President of South Indian Sugar Mills Association, Dr Palani G. Periasamy, the move was timely and will help ease the pressure on sugar mills' carrying cost on stocks, enhance cash flows and working capital availability and enable sugar prices stabilisation.

Sugar prices have dropped to an all time low of Rs 110 per quintal due to dumping of sugar into the open market by mills desperate for cash flows.

Creation of a buffer stock on Government account should ease the glut in the market. With the Government bearing the carrying cost of the buffer stock, the mills are likely to reduce releases to the open market. The decision is a strong signal of the Government's willingness to support the industry and intervene in the market. Though the wholesale prices had come down, the benefit was not passed on to the consumers because the retail prices had not moved in tune with wholesale prices, he felt.

According to industry sources, the intention to create a buffer stock will have to be implemented fast because the sugar mills were going through a cash crunch that affected their ability to pay sugar cane cost to the farmers. The current season is expected to produce about 175 lakh tonnes against last year's production of 185 lakh tonnes. This will mean that the sugar mills will have about 8 month's stocks.

While the move to create buffer stock is welcome, the continuous dumping of sugar into the market by mills in Maharashtra and others who are desperate to generate some cash flow is likely to dampen the impact, they felt.

The Government will have to look at a comprehensive set of measures including measures to encourage exports, stopping import of sugar including raw sugar and enhance percentage blending of ethanol in automobile fuel.

The present programme of five per cent blending in automobile fuel will mean additional revenue to the sugar mills from the distilleries. The percentage blending will have to be increased to 15 or 20 per cent for significant benefits, they said. Industry sources said the quantity of buffer stocks would mean that the Government would bear about Rs 410 crore in terms of charges and interest. This benefit will be shared between the 475 mills in the country.

According to buffer stock regulations the support would normally be shared on the basis of production capacity. However, this time the Government is looking at allocating the assistance to mills based on the stock position as of October 31, 2002. This could mean that those mills that had defrayed their stocks are not likely to benefit from this support, sources said.

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