Informist, Wednesday, Jun 12, 2024

--Official: Govt mulls raising '24-25 season sugar minimum sale price

--Official: Hike in sugar minimum sale price to be reasonable

--Official: Hike in sugar minimum sale price to be below mills demand

--CONTEXT: Mills seek 41 rupees/kg as minimum sale price for sugar

--CONTEXT: Current minimum selling price of sugar 31 rupees/kg

By Afra Abubacker

NEW DELHI – The government is mulling over raising the minimum selling price of sugar for the upcoming season starting October, a senior official told Informist. The current minimum selling price of the sweetener is 31 rupees per kg and has not been changed since 2019.

The minimum selling price of sugar is likely to be revised for the next sugar season and not the current season, the official said. "The government will only give a reasonable hike, which will be below the industry demand," he added. The industry has been demanding that the minimum selling price of sugar be raised to 40-41 rupees per kg.

Citing the rise in fair and remunerative prices of sugarcane, millers have been clamouring for a hike in the minimum selling price of sugar to cover the production cost. However, the official pointed out that though the fair prices of cane were announced in February, it will be effective only from the next sugar season starting Oct 1. Sugar mills pay fair and remunerative prices to sugarcane farmers on cane purchases.

"Whenever there is a hike in FRP, sugar MSP (minimum selling price) should also be increased," said Deepak Ballani, director general of All India Sugar & Bio-energy Manufacturers Association. In February, before the elections, the Cabinet Committee on Economic Affairs had approved a record 7.4% hike, or a 25-rupee raise, in the fair and remunerative price of sugarcane to 340 rupees per 100 kg for the sugar season 2024-25 (Oct-Sep), with a basic recovery rate of 10.25%. The recovery rate is the proportion of sugar extracted from sugarcane.

Previously, the fair prices were increased to 290 rupees per 100 kg in 2021-22 from 255 rupees, and then to 305 rupees in 2022-23. Last year, it was raised by 10 rupees to 315 rupees per 100 kg. On other hand, the minimum selling price for sugar has not been revised since 2019. "It is high time that sugar MSP should be revised," Ballani said.

According to ISMA, the hike makes sugarcane competitive over crops like rice or maize. Further, it will help farmers meet the increasing expenditure on growing sugarcane. The production cost of sugarcane for the sugar season 2023-24 was 157 rupees per 100 kg, as per the government.

As per industry cost calculations based on data from various regional associations, the sugar production cost for the 2024-25 season is 40-42 rupees per kg, said Prakash Naiknavare, the managing director of the National Federation of Cooperative Sugar Factories. Informist could not independently verify the production cost.

"The weighted average pan-Indian cost of sugar production in the 2024-25 sugar season has been calculated at 4,166 rupees per quintal (100 kg)," the ISMA and the sugar federation said in a joint letter to the food secretary on Jun 3. For computation purpose, ISMA and the federation have included cane cost--state advised price, fair prices of sugarcane, conversion cost, and maintenance cost. Sugar mills earn revenue by selling sugar and its byproducts like molasses, bagasse, and press-mud. Some mills also earn revenue from ethanol sales.

The government has reservations about hiking the minimum selling price of sugar. "Why create ripples in a stable market...If MSP is hiked to 41 rupees (as per industry demands), where will market rates go, around 50 rupees?" the official said. He also pointed out that the current ex-mill sugar prices are above the current minimum selling price of 31 rupees. Ex-mill sugar prices are around 37–38 rupees per kg in Maharashtra and Uttar Pradesh.

"There is no sugar glut in the market nor any distress sales," the official added. Sugar output in 2023-24 is estimated at 32.0 mln tn, down from 32.8 mln tn last year, as per ISMA. Sugar bodies will detail production estimates for the 2024-25 season in August.

Though sugar prices are higher than the minimum selling price, Naiknavare said that cooperative banks in Maharashtra take sugar floor price as the benchmark valuation for pledging loans. "Mills keep the produced sugar bags in godowns, against which banks pledge loans. Mills are at a loss when sugar MSP (minimum selling price) is taken as the benchmark valuation," he said. This is against the Reserve Bank of India guidelines, which prescribe valuation to be done on the average of the last three-month market rates, he added.

"We need to pay farmers on time and if you keep increasing the cost of raw materials, then the cost of the final product also needs to be raised as well," said Naiknavare. Mills must pay farmers within two weeks of cane purchases or invite penalties as arrears of land revenue. The sugar industry is infamous for cane arrears, and the situation is dire in states that announce state-advised prices for sugarcane, which are usually higher than the centre-set fair and remunerative prices.

Key sugarcane-growing states like Uttar Pradesh, Haryana, Punjab, and Uttarakhand announce state-advised prices. In January, the Uttar Pradesh government increased the state-advised prices of sugarcane by 20 rupees per 100 kg for all varieties for 2023-24 (Oct-Sep). With the hike, mills in the state will have to pay 370 rupees per 100 kg for good quality sugarcane, 360 rupees for average quality, and 355 rupees for poor quality cane. The previous increase in state-advised prices by the Uttar Pradesh government was in September 2021, months ahead of the assembly election in 2022.

Almost 80% of the arrears in cane payments to farmers are from states that announce state-advised prices, according to the Commission for Agricultural Cost and Prices price policy report for 2023-24. The Commission has recommended that states should stop giving state-advised prices, and if these are to continue, the difference between fair and remunerative prices and state-advised prices shall be paid by the state to farmers through direct benefit transfer.

Mills across the country have paid 1.13 trln rupees to sugarcane farmers during the 2022-23 season, which was about 98% of the total dues for the period, according to the latest data from the government. End

Edited by Akul Nishant Akhoury

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