Last but not the least the Minimum Support Price (MSP) or the Fair and Remunerative Price (FRP) has been announced for the sugarcane as well.
The reason for hiking MSP for crops is that the farmers who haven’t been getting their due should be able to get the help of a fair or minimum price mechanism.
We have seen prices of many crops below the MSP in the last two years, where farmers were losing money and unable to recover cost of production in some cases.
But the economics of sugarcane is different, where the sugar mills have to buy cane at the prices decided by the government.
The state of the sugar industry in the last couple of years has been anything but remunerative, with the production at record high at 32.3 million tonne in 2017-18.
The global markets have been flush with surplus production, so India could not export.
Even if India wants to export, it will be at huge loss as country’s sugar is the most expensive in the global markets.
India’s cost of production: Rs 33-35 per kg
MSP fixed by government: Rs 29 per kg
Export costing: Rs 22 per kg
So, whichever way the mills look to sell, it’s with a loss. Inventories have been at a rise and the lower returns on the sugar has led to arrears at Rs 18,000 crore on July 1, 2018.
2017-18: Record 33.2 million tonne
2018-19: Record 35-35.5 million tonne estimated
With the increase expected in the sugar output, the industry will depend on government measures and financial assistance.
There have been many government measure put out in the last year for exports and subsidies, but all with riders and the industry hasn’t been able to make use of them.
Fair and Remunerative Price (FRP):
2017-18: Rs 255 per quintal for 9.5% recovery.
2018-19: Rs 275 per quintal for 10% recovery.
The amount paid to farmers on 2017-18 was Rs 80,000 crore. With the increase in FRP and the cane crop estimated at 325 million tonne, the amount comes to (325 X Rs 275) Rs 89,000 crore.
The domestic consumption is estimated at 26 million tonne. The government has fixed MSP at Rs 29, so even if we take Rs 30 for calculation, the recovery for mills is Rs 78,000 crore.
The industry would still fall short of paying the farmers, increasing the arrears and not making a profit anyways.
Industry requests from the government:
Increase the sugar MSP
Government export subsidy
Abandon release mechanism
Freeze FRP, SAP for next three years
The sugar industry is very clear that unless there is financial assistance and policy intervention, the next season is going to be a difficult one.
Especially at a time when the sugar industry is finding it difficult to access even working capital from the banks, with the kind of losses that they are running.