Cabinet Committee on Economic Affairs (CCEA) has approved creation of 4 million metric tonne sugar buffer stock for one year. This will support the industry by not only providing cash support to the sugar mills but also improve the demand & supply situation in the domestic market.
Senior Vice President & Group Head, ICRA Ratings, Mr. Sabyasachi Majumdar said "According to the estimation made by us, losing sugar stocks for SY2019 would be around 14.5 million MT. The direct impact of this move by way of compensating mills for the carrying cost alone would translate into a higher PBT margin by 1.5%-1.8%. This apart, the buffer stock creation would result in some improvement in the demand-supply situation in the domestic market in turn resulting in support to sugar prices, although the quantum of the increase cannot be ascertained at this moment. These factors could result in liquidity improvement of the sugar mills, thus supporting the cane payments to farmers.”
Based on market price and availability of sugar this may be renewed by food and public distribution department anytime for withdrawal or modification. The expenditure for the creation of buffer stock is around Rs. 1,674 crore (estimated). The pay under this scheme would be met on quarterly basis to sugar mills, which would be directly transfer into farmers account on behalf of mills against the cane price dues and subsequent balance, if any, would be credited to the mill’s account.
Mr. Majumdar added that “The domestic sugar production in SY2020 is likely to be decline by 14% YoY to around 28.2 million MT from 32.9 million MT in SY2019 - driven by the lower production in the key sugar-producing states like Maharashtra and Karnataka. We expect the sugar consumption to increase to 26.5 million MT in SY2020 and the production is likely to outstrip consumption by around 1.7 million MT”.
Benefits
This will lead to an improvement in the quality of sugar mills.
It will a reduce sugar inventories.
It will also lead to stabilization in sugar prices.
This decision will also benefit sugar mills in all sugarcane producing states by way of clearing their cane price indebtedness.
