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Sugar industry seeks creation of buffer stock

Harish Damodaran

NEW DELHI, Aug. 10

THE sugar industry is mounting fresh pressure on the Government for creating a buffer stock of up to 25 lakh tonnes in order to mitigate the mounting inventory cost burden of mills arising from excess domestic production.

This demand featured prominently at Wednesday's high-level meeting convened by the Minister for Consumer Affairs and Public Distribution, Mr. Shanta Kumar, with sugar industry representatives and the Members of Parliament concerned with the sector.

The four-hour long meeting, which was held mainly to elicit a consensus view on the modalities of implementation of the Mahajan Committee report, was attended by the President of the Indian Sugar Mills Association (ISMA), Mr. Tilak Dhar, the former Presi dent of the National Federation of Cooperative Sugar Factories, Mr. Shivajirao Patil, the Minister of State for Finance, Mr. Balasaheb Vikhe Patil, the Planning Commission Member, Mr. Som Pal and around 15 MPs including Mr. K.K. Birla and Mr. Virendra Ve rma.

At the meeting, it was noted that the mills would be saddled with nearly 100 l.t. of sugar stocks by the end of the current 1999-2000 season (October-September), equivalent to almost eight months' domestic consumption requirement. As against this, the no rmative closing stock requirement is only for two-and-a-half months, which works out to about 32.5 l.t..

``We told the Minister that even if one were to adopt four months' stocks as the safety norm, this would come to less than 52 l.t., which still leaves 48 l.t. of surplus stocks. While it may not be possible to create a buffer stock for this entire surplu s, the Government can definitely consider doing so for half this quantity, i.e. around 25 l.t.'', industry sources said.

Creation of a buffer stock would entail the Government sequestering these quantities on its account. While the stock would be maintained by the factories, the carrying costs would, however, be borne by the Centre.

The sources said the financial provision for this was already there under the Sugar Cess Act, 1982. Under this, the Government has been levying a fixed cess of Rs. 140 per tonne of sugar since November 1982, with the monies from this going to the Sugar D evelopment Fund.

``Of the Rs. 140 per tonne cess, Rs. 90 is supposed to go for the creation of buffer stock whenever necessary and the rest towards activities such as modernisation of factories, cane development, research and development. Currently, an amount of about Rs . 2,500 crores of SDF money is lying unused in the Consolidated Fund of India, which can be deployed for creating the buffer'', they claimed.

Whether the Government would agree to the creation of a buffer stock of 25 l.t. to be financed through the exchequer is, however, a moot point. It is estimated that the carrying cost of even 10 l.t. of buffer would be in the range of Rs. 200 crores.

Significantly, the Mahajan Committee had also called for placing the system of bufferstocks and its operation on a ``permanent footing'' in order to ``reduce the magnitude of fluctuations in sugar production''.

The quantum of buffer stocks to be built-up, it had suggested, should be determined on the basis of ``surplus of domestic production during the year plus opening stocks over estimated requirements for the sugar season plus two-and-a-half months consumpti on requirements as closing stock for the ensuing season''.

The current sugar season began with a carryover stock of 67.23 l.t. of sugar. Production during the season is expected to be around 180 l.t., taking the total availability for the season to 247.23 l.t. On the other hand, domestic consumption during the s eason is estimated at 150.84 l.t., leaving end-season stocks of 96.39 l.t. Going by the Committee's formula, the quantum of buffer stocks to be created would work out to 64.97 l.t. (180 plus 67.23 minus 150.84 minus 31.42).

But on the other hand, the Committee had simultaneously suggested the necessity to fix a ``maximum limit'' for the buffer stock. This limit, in turn, ``should be equal to the deficit of the minimum production in any year during the last five years plus o pening stock for the current season, compared to the estimated consumption for the current sugar season plus two-and-a-half months consumption requirement as closing stock for the ensuing season''.

Considering that the lowest production in the last five seasons was in 1997-98, at 128.52 l.t., the maximum buffer stock limit on the basis of the Mahajan formula would be only 13.49 l.t. (128.52 plus 67.23 minus 150.84 minus 31.42). Thus, even going by the formula given in the Mahajan Committee report (which the industry swears by), it is difficult to imagine the Government agreeing to the creation of a buffer stock beyond 15 l.t.