The Hindu Business Line : Rs 2.45 hike in sugarcane floor likely

A RS 2.45 per quintal increase in the basic statutory minimum price (SMP) of sugarcane is in the offing, even as the arrears payable by sugar mills to growers have crossed Rs 2,700 crore.

The Centre is set to accept the recommendation of the Commission for Agricultural Costs and Prices (CACP) to fix the SMP of sugarcane for the ensuing 2002-03 season (October-September) at Rs 64.50 per quintal, linked to a basic recovery of 8.5 per cent and a premium of Rs 0.76 per quintal payable on every 0.1 percentage point increase over this level.

This is as against the base SMP of Rs 62.05 per quintal and incremental premium of Rs 0.73 per quintal declared for the 2001-02 season. The Ministry of Consumer Affairs, Food and Public Distribution is soon expected to pilot a note seeking Cabinet nod for the Rs 2.45 per quintal hike. The other concerned Ministries — Agriculture and Finance — have already given their approval to the proposal.

Normally, a higher SMP would not have unduly bothered the industry. This is because the SMP is not what factories often pay for their cane. What they actually end up forking out is the much higher State advised prices (SAP) fixed by individual State Governments.

For instance, mills in Uttar Pradesh have in the current season paid Rs 95-100 per quintal for the cane sourced from growers. These advised prices are way above the Centre's SMP of Rs 73 per quintal, assuming an average 10 per cent State-level recovery rate.

Moreover, an SMP increase is actually beneficial to the industry, given that it constitutes the main input for determining the price of the `levy' sugar that mills supply for the public distribution system. The price that the Government pays for levy sugar is calculated on the basis of the SMP (not the SAP), with factories also compensated for their normative conversion costs.

But unlike in the past, the industry is not particularly enthusiastic this time about an increase in SMP, which otherwise translates into higher levy sugar prices and, thereby, also reflects their `true' cost of procuring cane. The main reason for this, industry sources say, is the extremely low open market sugar prices, "which makes it impossible for us to even pay the SMP, let alone the SAP''.

Benchmark S-30 sugar is currently trading at a six-year-low of Rs 1,330-1,372 per quintal in Mumbai. Net of excise and transport, the ex-factory realisation at these rates comes to roughly Rs 1,215-1,250 per quintal, which is lower than even what mills are obtaining on their levy sugar in many States!

"The fact that open market prices have dipped below levy sugar prices only confirms the inability of factories to pay cane growers even the SMP that is used in levy price computation'', the sources said.

A reflection of this is the ground situation vis-a-vis cane payment arrears, which, as on April 30, 2002, are estimated at over Rs 2,700 crore, compared to Rs 1,560 crore during this time last year.

While farmers are typically paid on a staggered basis — implying that there is a certain `normal' level of arrears, which gets cleared at the end of the season — what is causing concern, however, is the almost Rs 1,150 crore jump in their levels over last year. Further, the defaulters this time round are not only mills in Uttar Pradesh. Nearly 50 per cent of the Rs 2,700-crore arrears is accounted for by other States.

The industry does not also expect to benefit from the increase in levy sugar prices accompanying an SMP hike. "As it is, mills are now saddled with unsold levy stocks of around five lakh tonnes. With open market prices ruling so low, there is no incentive for the State governments to lift their allotted levy sugar quota. How will an increase in levy sugar prices help, more so when the Centre is anyway planning to totally free the industry from levy obligations with effect from October?'' the sources pointed out.

Send this article to Friends by E-Mail

Stories in this Section
Rs 2.45 hike in sugarcane floor likely

Palm oil may test 1,270 ringgits

No apple this