CCEA raises cane price, tightens premium rule

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New Delhi | Published: July 19, 2018 1:28:27 AM

The Cabinet committee on Economic Affairs (CCEA) on Wednesday decided to raise the fair and remunerative price (FRP) of cane to Rs 275 per quintal for the marketing year starting October, against Rs 255 this year.

Effective hike just 2.4% against 14% in 2017-18; Paswan says new FRP 77.4% higher than cane cost. (Reuters)

The Cabinet Committee on Economic Affairs (CCEA) on Wednesday decided to raise the fair and remunerative price (FRP) of cane to Rs 275 per quintal for the marketing year starting October, against Rs 255 this year.

However, for the first time since the FRP regime was introduced in 2009-10, the government has tightened the rule for premiums to be offered to farmers for supplying quality cane by linking the headline FRP to a basic cane recovery of 10%, against 9.5% until now.

Assuming that the pan-India recovery rate remains the same (10.8%) as this year, the cane FRP will effectively rise just 2.4% per quintal to Rs 297 in 2018-19 — lower than over 14% hike in the effective FRP a year before. A 10% recovery basically means a quintal of cane will fetch 10 kg of sugar; the higher is the recovery, the better is the quality of cane.

FE was the first to report on July 3 about the proposal to raise the basic recovery rate and the rate of premium to be offered beyond this level.
Still, despite the tougher premium rule, the cane FRP of Rs 275 per quintal (at 10% recovery) is 77.42% higher than the cost of production — much higher than the government’s promise to ensure farmers get a profit of 50% over their cost, food and consumer affairs minister Ram Vilas Paswan said.

A premium of Rs 2.75 per quintal will have to be paid to farmers in 2018-19 (over and above the FRP of Rs 275) for every 0.1 percentage point increase in recovery beyond 10%.

In 2017-18, every 0.1 percentage point increase in recovery above 9.5% fetched a premium of Rs 2.68. The total payment to the sugarcane farmers in 2018-19 will be over Rs 83,000 crore, according to the food ministry.

However, the CCEA didn’t accept a proposal by the Commission for Agricultural Costs and Prices (CACP) that low-quality cane with a recovery below 10% be sold at a discount to sugar mills, in sync with the premium high-quality supplies attract, ostensibly to protect the farmers’ interest.

Instead, the CCEA decided to fix the floor price of cane at Rs 261.25 per quintal even where the recovery is below 9.5%. At present, farmers get at least the headline FRP, which is linked to the 9.5% recovery, even if the recovery from their cane is below this level.

Although the Centre fixes the FRP, a state is free to determine the minimum price at which sugar mills within its territory must purchase cane. But this price—known as the state advised price (SAP)–has to be higher than the FRP.

Hefty hikes in cane prices by the centre in recent years and a steep fall in sugar prices this marketing year through September have constrained the mills’ ability to pay even the FRP to farmers, let alone the SAP that is even higher. Consequently, cane arrears have touched a staggering Rs 17,824 crore.

Stressing that the hike in the FRP is “unaffordable” at the prevailing sugar price, Abinash Verma, director general of the Indian Sugar Mills Association, called for concrete steps to help improve ex-mill sugar prices to at least Rs.35 a kg (against the minimum sale price of Rs 29 now). He said the “unaffordable FRP” in 2017-18 resulted in cane price arrears hitting record and remaining higher by Rs.14000-15000 crore, compared with the corresponding period in the last two years.

Also strong efforts should be made to export 60-70 lakh tonnes of sugar, to improve cash flows. The sugar production is expected to touch a record 350-355 lakh tonnes in 2018-19 but consumption could be around 255 lakh tonnes, worsening the surplus in a market already awash with supplies. “To bridge this huge gap, additional cash flows would have to be managed supplementing domestic sale, by mainly exporting sugar, as cane price payment next year would be at Rs.97,000 crore, which would be difficult for the sugar mills to pay not only during the season but even at the end of the season in Sept 2019,” Verma said.

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