“The time may be ripe to implement the Rangarajan formula for sugarcane pricing,” the Union consumer affairs ministry has written to the Uttar Pradesh government recently. This follows considerable narrowing of the difference between the Centre’s fair and remunerative price (FRP) for cane and the state-advised price (SAP) announced for the produce in the last couple of years.
While the cane FRP for the coming season (October-September) is fixed at `255 per quintal, yield increase will help most farmers to fetch much higher FRP (a premium of `2.68 is given over FRP for every 0.1 percentage point increase in recovery). This will make the Centre’s price close to the SAP (which for last season was `305 a quintal for the general variety).
“Apart from the stable sugar price scenario, … for the sugar season 2017-18, the FRP of sugarcane at 10.61% recovery (reported recovery of UP would be about `284 per quintal which is closely aligned to SAP presently prevailing in Uttar Pradesh,” the ministry wrote.
According to the Rangarajan committee’s revenue sharing formula, which has so far been implemented by only Maharashtra and Karnataka, sugar mills will initially pay the FRP to farmers during a season; thereafter, another price will be calculated every quarter, taking 70% of a mill’s sugar price realisation and 5% of the realisation from by-products, (ex-mill), including bagasse, molasses and press-mud, as cane dues payable to farmers for supplies. If this price exceeds the FRP, the difference will be paid to farmers. If this price is below FRP, then farmers will get only FRP.
Uttar Pradesh is the only major sugar producer which still pays its farmers an SAP for the cane supplied. The SAP is a fixed price paid by mills to farmers irrespective of the recovery the cane or the prevailing prices of sugar at the time, while mills in FRP states pay a formula-driven price. Those with higher recoveries pay more for the sugarcane they buy and those that are supplied with poor quality cane pay less.
“Advising” the state government to “initiate requisite process in the matter”, the letter written by GS Sahu, director (sugar policy) and dated July 7, states that the sugar sector in the country had undergone many changes during the last five years. “The inherent cyclicity of the Indian sugar sector has diminished and sugar prices have remained stable by and large barring a short span of six months during sugar season 2015-16 due to surpluses of previous seasons,” it said.
Speaking to FE on condition of anonymity, a senior official of the cane department here said that the issue is highly sensitive and needs to broached carefully, lest it turns volatile. “Definitely, FRP is in the long-term interest of the sector. But before launching the exercise, we first need to educate them and tell them how it would be in their interest too to adopt the FRP. It is perhaps only logical that the government take it upon itself to motivate the farmers to grow better varieties of cane and use better farming practises so that they can get paid better for their produce,” he said.
The industry, on its part, is finally beginning to hope that rationality in cane pricing will soon become a reality in UP. Industry observers say there is every chance that the government could implement the recommendations and usher in a much more transparent pricing mechanism.