Nod for sugar industry package; higher wheat, rice support prices

Nod for sugar industry package; higher wheat, rice support prices

New Delhi: In sweeping moves aimed at helping farmers while putting a lid on prices for consumers, the government announced a package of relief measures for the sugar industry, set higher support prices for rice and wheat farmers, and banned exports of mainly inexpensive rice.

The moves came late on Tuesday after the cabinet committe for economic affairs met on a day when it looked increasingly likely that India was headed for early elections. Earlier in the day, talks between the ruling Congress party and its ally, the Left block, failed to make headway over the India-US nuclear deal.

To revive the ailing sugar industry, which has a strong presence in the electorally critical states of Maharashtra and Uttar Pradesh, the government approved a wide-ranging relief package. These include extending a moratorium on loans outstanding from April 2005 for cooperative sugar factories, from two years to five, and conversion of short-term debt owed to banks by sugar mills from April into loans with a maximum tenure of five years.

To enhance the demand for sugar cane and to partially ease the excess supply in the market, the government has also cleared mandatory blending of ethanol with petrol at 5% with immediate effect and to 10% from October 2008. Thegovernment has also permitted 10% optional blending ofethanol.

Mint was the first to report, on 29 August in a Page 1 story, that the government proposed to make 10% blending mandatory by 2008.

India is the world’s second largest producer of sugar, behind Brazil, and the largest grower of sugar cane. Ethanol is produced from the fermentation of sugars such as corn, sugar cane, grains and beet. In India, ethanol is mostly made from rectified spirit, which, in turn, comes from molasses—a by-product in sugar manufacturing. Molasses comprise around 45-50% of total sugar production.

A group of ministers headed by external affairs minister Pranab Mukherjee in July had recommended making 5% blending of ethanol with petrol mandatory throughout the country, except in Jammu and Kashmir, the north-eastern states, Andaman and Nicobar Islands and Lakshadweep; at the same time, it also suggested 10% optional blending to begin with and mandatory from October, 2008.

With total sugar production touching 29mt in 2006-07 (the season ended on 30 September), molasses production is projected at 14.8mt, with the potential to produce 3,300 million litres of alcohol.

At the proposed level of 10% blending, a full implementation of the government’s order would require around 1,130 million litres of ethanol. Today, more than one-third of ethanol produced in India is allocated to potable alcohol and then sold to breweries and makers of spirits.

Some experts believe that existing infrastructure would be a constraint.

Sarthak Behuria, chairman & managing director, Indian Oil Corp., the largest oil marketing company in the country, said, “Though it can be done it will require a lot of preparations. As of today, we have not been successful in 5% blending."

On Tuesday, the government also permitted sugar factories to produce ethanol directly from sugar-cane juice to augment availability of ethanol and reduce oversupply of sugar. It also approved a uniform purchase price of Rs21.50 per litre for supply of ethanol, which can be implemented all over the country for the next three years. It also cleared reduction in customs duty from 7.5% to 5% on importedalcohol and halved it on molasses to 5%.

The cabinet also cleared loans to sugar mills under special guidelines and extension of export assistance schemes to them.

On wheat, the government said it would pay farmers Rs1,000 per quintal of wheat sown in winter of 2007, which is harvested next summer. It also raised the minimum support price from Rs645 per quintal to Rs695 for common varieties of rice and from Rs675 to Rs725 for the superior or Grade-A variety.

Keeping a lid on wheat and sugar prices while ensuring enough supplies will be keyto the Congress party’s relection bid.