In a significant move to bolster the financial stability and growth of the Indian sugar industry, Union Home and Cooperation Minister Hon. Amit Shah proposed the formulation of a comprehensive five-year plan aimed at boosting the financial capacity of sugar mills, with a target of increasing their funding to ₹25,000 crores. This strategic funding is expected to enhance the financial capacity of sugar mills, ensuring their sustainability and long-term development.
The plan underscores the government’s commitment to improving the livelihoods of millions of farmers and strengthening the cooperative movement. By providing substantial financial support, the initiative aims to address the challenges faced by the sugar industry, including fluctuating market prices, rising production costs, and the need for modernization1. This financial boost is anticipated to not only stabilize the industry but also pave the way for innovations and improvements in production efficiency and sustainability.
CURRENT CRITICAL FINANCIAL POSITION OF THE CO-OPERATIVE SUGAR FACTORIES:
The financial position of cooperative sugar factories in India, particularly in regions like Western Maharashtra, is currently facing several challenges:
1) Liquidity Issues:
Many cooperative sugar factories are struggling with liquidity. The Acid Test Ratio, which measures the ability to cover short-term liabilities without relying on inventory, is often less than 0.5, indicating a heavy dependence on inventory for liquidity1.
2) High Fixed Assets:
These factories tend to maintain high levels of fixed assets, which can be a financial burden. The fixed assets ratios suggest that the factories have relatively higher fixed assets, impacting their financial flexibility.
3) Profitability Concerns:
The profitability of these factories is under pressure due to fluctuating sugar prices and high production costs. Various profitability ratios, such as Gross Profit Margin Ratio (GPMR) and Net Profit Margin Ratio (NPMR), indicate that many factories are struggling to maintain healthy profit margins.
4) Debt and Solvency:
Cooperative sugar factories often have high levels of debt, affecting their solvency. The financial strength tests reveal that these factories are heavily reliant on external borrowings, which can be risky in times of financial instability1.
5) Inventory Management:
On a positive note, the inventory turnover ratio is relatively better, indicating efficient management of inventory over the study period.
These financial challenges highlight the need for strategic financial management and support to ensure the sustainability and growth of cooperative sugar factories in India.
USEFULNESS OF THIS DECISION TO COOPERATIVE SUGAR FACTORY:
The decision to inject ₹25,000 crore into the Indian sugar industry through the NCDC will significantly aid in various areas of modernization and expansion. Here’s how this financial support can help:
Modernization of Machineries:
1) Upgrading Equipment:
Funds can be used to replace outdated machinery with modern, efficient equipment, reducing downtime and maintenance costs.
2) Automation:
Implementing automated systems can enhance precision, reduce labor costs, and increase overall productivity.
Expansion of Capacity:
1) Increasing Production:
Financial support can help in expanding the production capacity of sugar mills, allowing them to process more sugarcane and produce more sugar.
Infrastructure Development: Building new facilities or expanding existing ones to accommodate increased production volumes.
2) Establishing By-products:
Ethanol Production:
Investment in ethanol production facilities can help sugar factories diversify their revenue streams. Ethanol, a biofuel, can be produced from molasses, a by-product of sugar production.
Compressed Biogas (CBG):
Setting up CBG plants can convert agricultural waste into biogas, providing an additional source of income and promoting sustainable practices.
Co-generation:
Co-generation plants can produce electricity and steam from bagasse (sugarcane residue), improving energy efficiency and reducing costs.
Green Hydrogen:
Developing green hydrogen production capabilities can position sugar factories at the forefront of renewable energy, using surplus electricity from co-generation for hydrogen production.
These initiatives will not only enhance the operational efficiency and profitability of sugar factories but also contribute to environmental sustainability and energy security. The financial support from the government is a crucial step towards achieving these goals.
VERY URGENT NEED OF THE SUGAR INDUSTRY FOR SUSTAINABILITY:
The recent announcement of ₹25,000 crore financial support for the Indian sugar industry is a significant step towards its modernization and sustainability. However, there are additional critical needs that must be addressed to ensure the long-term viability and growth of the industry giving Top-Priority . Here are the key areas that require immediate attention:
1. Revision of Sugar Minimum Selling Price (MSP)
Current Situation:
The MSP of sugar has been stagnant at ₹31 per kg since 2019. This price does not reflect the rising costs of production, including the Fair and Remunerative Price (FRP) of sugarcane which has been revised five times from 2019, keeping the MSP of Sugar as it is. The total cost of production of sugar is ₹4166 per quintal- and current average sugar prices in the domestic market ranges from ₹3400 per quintal- to ₹ 3500 per quintal.
Industry Demand:
The industry is advocating for an increase in the MSP to at least ₹4200/- per quintal to align with the current FRP of ₹ 3400/- per Tonne and ensure financial stability for sugar mills. This revision is crucial to cover the costs and provide a fair return to farmers.
Impact:
An increased MSP would help sugar mills manage their finances better, reduce their debt burden, and ensure timely payments to farmers, thereby stabilizing the entire supply chain.
2. Revision of Ethanol Prices
Current Situation:
The prices for ethanol supplied to Oil Marketing Companies (OMCs) have not been revised in line with the increasing costs of production.
Industry Demand:
The industry is calling for a revision proportionately with the revised MSP in ethanol prices to make ethanol production more profitable and encourage investment in this sector. This includes setting a long-term policy for ethanol blending to provide stability and predictability.
Impact:
Higher ethanol prices would incentivize sugar mills to invest in ethanol production, helping diversify their revenue streams and reduce their dependence on sugar sales alone. This would also support the government’s ethanol blending program, aiming for 20% blending by 2025-26.
Conclusion:
The proposed infusion of ₹25,000 crore into the Indian sugar industry marks a pivotal moment in its journey towards modernization and sustainability. This substantial financial support, coupled with the urgent need for revising the Minimum Selling Price (MSP) of sugar and ethanol prices, sets the stage for a transformative era. By addressing these critical financial aspects, the industry can achieve greater stability, enhance profitability, and foster innovation. This comprehensive approach not only benefits the sugar mills and farmers but also aligns with the nation’s goals of energy security and sustainable development. The future of the Indian sugar industry looks promising, with the potential to become a global leader in both sugar production and renewable energy.
P.G. Medhe is the former Managing Director of Shri Chhatrapati Rajaram Sahakari Sakhar Karkhana Ltd and sugar industry analyst. He can be contacted at +91 9822329898.
