Cabinet Committee on Economic Affairs approves creation of a 4 MMT sugar buffer stock for one year

Economy


The Cabinet Committee on Economic Affairs (CCEA) has approved the creation of a 4 million metric tonne sugar buffer stock for one year. This is likely to support the industry by not only providing cash support to sugar mills (in form of compensation for carrying cost of stock) but also improving the demand-supply situation in the domestic market and the consequent support to the sugar prices, said ICRA in a not issued on Thursday.

Mr. Sabyasachi Majumdar, Senior Vice President & Group Head, ICRA Ratings, said: “According to our estimates, the closing sugar stocks for SY2019 would be high at 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 about 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.”

The estimated maximum expenditure for the creation of buffer stock is around Rs. 1,674 crore. The reimbursement under the scheme would be met on quarterly basis to sugar mills which would be directly credited into farmers’ account on behalf of mills against cane price dues and subsequent balance, if any, would be credited to the mill’s account.

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“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”, Mr. Majumdar added.



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