The Hindu Business Line : Sugar industry happy with new SMP, computing norm

THE sugar industry is happy with the statutory minimum price (SMP) for sugarcane fixed by the Centre and the new norm — using season's average sugar recovery rather than peak period recovery — for computing the prices for each mill.

By acceding to the long pending demands of the industry, the Government has signalled that it is finally looking at sugarcane prices from an economic rather than populist point of view, feel industry sources.

Also, the proposal to link the SMP to 9 per cent from the next season rather than 8.5 per cent in vogue has gladdened sugar millers.

Sugar mills are looking at another good season with cane prices under control and buoyant sugar prices. With the SMP for sugarcane set at Rs 745 a tonne for 2004-05, the increase is Rs 15 over that of the previous season's Rs 730. The SMP then was Rs 35 more than the 2002-03 price of Rs 695. Also, with Rs 745 linked to 8.5 per cent to be paid on the average season's recovery, the mills could get the benefit of up to 0.5 per cent lower than the peak period recovery for computing the sugarcane price.

Mills in the South, especially those in Tamil Nadu, which have a longer season, will benefit because the difference between peak period recovery and average recovery will be greater, between 0.5 per cent and 0.7 per cent, when compared to mills with a shorter season.

A difference of 0.5 per cent can represent a significant saving. For instance, on an SMP of Rs 745 linked to 8.5 per cent, mills pay about 88 paise more per tonne for every 0.1 percentage point increase, and each mill crushes several lakh tonnes of sugarcane.

Similarly, when the SMP from next year is linked to 9 per cent, the price per 0.1 percentage point will drop further, unless the Government takes this into account and provides for a one-time jump in SMP that year.

Sugar mills are on a comfortable wicket for the coming season as sugarcane availability is expected to increase and sugar prices are likely to be buoyant. The industry has pegged the production for the current season at 123 lakh tonnes, which will mean that prices will continue their uptrend.

Herein lies the grouse of the farmers. They see the announcement as a measure to dampen sugarcane prices. Using the season's average and linking SMP to a higher percentage recovery will lower sugarcane prices, they say.