The Commission for Agricultural Costs and Prices (CACP) has suggested a more than 17% increase in the benchmark sugarcane price to around R170 a quintal for the marketing year starting October 2012 to encourage farmers to boost planting for higher sugar production.
The government has fixed the fair and remunerative price (FRP) or the minimum price sugar mills must pay farmers for cane purchases at R145 per quintal for 2011-12.
The FRP is linked to a basic recovery rate of 9.5%, subject to a premium of R1.46 for every 0.1 percentage point rise in the recovery rate above 9.5%. The recovery rate refers to the quantity of sugar that is produced from cane after crushing.
The Commission, which recommends minimum prices for key crops to the government, has factored in the rise in the cost of production and some other risk factors while suggesting the hike in the FRP, official and industry sources said Wednesday. The FRP also factors in margins for farmers, based on the cost of sugarcane production as well as transportation.
The centre mostly accepts the recommendations of the CACP with regard to minimum prices of key crops. Planting rose by around 5% this summer from a year before due to high prices as well as good monsoon showers.
The country expects to produce 26 million tonne of sugar in the marketing year 2011-12, while its annual consumption is pegged at around 22 million tonne.
Although the Centre fixes the FRP, a state is free to determine the minimum price at which sugar mills within its boundary must purchase cane.
The cane price set by an individual state, however, is much higher than the FRP as the ruling party often uses the pricing policy as a tool to woo farmers who form the majority of vote bases. Earlier, a move by the Centre to introduce the FRP to discourage states from fixing higher prices for cane purchases by mills was opposed by them.
