New sugarcane fair and remunerative price 87% above cost, sugar MSP unchanged

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August 26, 2021 4:45 AM

Still, as much as 91% of mills’ sugar sales realisation will go to the farmers for cane supplies in 2021-22, way above the 70-75% level in competing countries, food and consumer affairs minister Piyush Goyal said after the Cabinet meeting.

The government has been seeking to balance the interest of producers with consumers, he said.The government has been seeking to balance the interest of producers with consumers, he said.

The Cabinet Committee on Economic Affairs (CCEA) on Wednesday decided to raise the fair and remunerative price (FRP) of cane marginally by Rs 5 to Rs 290 a quintal for the next marketing year starting October 1.

Still, as much as 91% of mills’ sugar sales realisation will go to the farmers for cane supplies in 2021-22, way above the 70-75% level in competing countries, food and consumer affairs minister Piyush Goyal said after the Cabinet meeting. However, there is no plan yet to raise the minimum sale price of sugar from Rs 31/kg, he added. The government has been seeking to balance the interest of producers with consumers, he said.

Importantly, of the cane dues of Rs 90,959 crore in the current marketing year (2020-21), as much as Rs 86,238 crore have already been paid to farmers. This leaves arrears of only Rs 4,711 crore, which are way below the levels witnessed earlier when farmers had to resort to agitations to get their dues cleared, the minister said.

The FRP for 2021-22 is 87% higher than the cost of production of cane, based on the so-called A2+FL formula, Goyal said, citing an estimate by the Commission for Agricultural Cost and Prices. This is way above the government’s promise to ensure farmers get a profit of 50% over their production cost.

A surge in sugar exports, backed by government assistance, and policy supporting the diversion of excess cane to ethanol have improved mills’ margins, cut a glut of the sweetener in the domestic market and enabled them to substantially clear their cane arrears.

Keeping the expected rise in production in 2021-22, about 308.8 million tonne of cane will likely be purchased by sugar mills, taking the total remittance to farmers to a record Rs 1 lakh crore, according to an official estimate.

The minister also said mills have generated about Rs 15,000 crore in revenue in 2020-21 from ethanol sale to oil-marketing companies. The blending of ethanol with petrol has hit 8.5%, which is going to jump to 20% by 2025, he added, indicating that such a move will further help improve mills’ liquidity.

Similarly, sugar exports have surged in recent years following government support. Against a contracted volume of 7 million tonne, as much as 5.5 million tonne have been shipped out so far in the 2020-21 marketing year, against 5.96 million tonne in the whole of 2019-20, 3.8 million tonne in 2018-19 and 0.62 million tonne in 2017-18. In fact, exports will exceed the target of 6 million tonne for 2020-21.

Abinash Verma, director general of the Indian Sugar Mills Association, said the latest move is unlikely to be a burden for mills. “(But) Now that the FRP is increased, the industry would expect that the government will increase the minimum selling price (MSP) of sugar too. It will be necessary to help sugar mills accommodate the higher cane price payment to farmers in the current as well as the next season. The MSP of sugar has remained static for over 30 months, even though the cane FRP was increased by Rs 10/quintal in 2020-21,” he said. Verma favoured hiking the sugar MSP to about Rs 35 a kg.

The cane FRP of Rs 290 is linked to a basic recovery of 10%. A premium of Rs 2.90 per quintal will have to be paid to farmers in 2020-21 for every 0.1 percentage point increase in recovery beyond 10%. Similarly, the price will be cut by Rs 2.90 per quintal for every 0.1 percentage point drop in recovery from 10%. However, farmers will get at least Rs 275.50 per quintal even if the recovery is below 9.5%, against Rs 270.75 in 2020-21.

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