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Harish Damodaran

New Delhi , Oct. 21

OPPOSITION from the Finance Ministry and the sugar industry notwithstanding, the Ministry of Consumer Affairs, Food and Public Distribution has forwarded a note to the Cabinet recommending a Statutory Minimum Price (SMP) of Rs 73 per quintal for sugarcane linked to a basic recovery of 8.5 per cent for the current crushing season (October 2003-September 2004).

The Rs 73 per quintal price pegged to an 8.5 per cent base recovery, with a premium of Rs 0.86 per quintal payable on every 0.1 percentage point increase over this level, is in line with the Commission for Agricultural Costs and Prices (CACP) recommendation, which has also found favour with the Agriculture Ministry. This is against the SMP of Rs 69.50 per quintal declared for the just ended 2002-03 season, linked to an 8.5 per cent basic recovery and a corresponding incremental premium of Rs 0.82 per quintal.

"The note basically conveys the Agriculture Ministry/CACP's recommendation to fix a base SMP of Rs 73 per quintal, while making a passing reference to the Finance Ministry's reservations on this count," official sources told Business Line. The Finance Ministry has, in fact, suggested that the basic SMP be set at Rs 64.50 per quintal, which was what the Centre had originally declared for the 2002-03 season on July 30, 2002. It was only subsequently, on December 19, 2002, that the SMP was revised upwards to Rs 69.50 per quintal, with the Rs 5 per quintal increase being doled out as a special `one-time' drought relief to cane growers.

The Finance Ministry's position to freeze this season's SMP, not just at the revised 2002-03 level of Rs 69.50 but at the originally proposed Rs 64.50 per quintal, is based on two arguments. First, there has been no drought this year to warrant the incorporation of even the Rs 5 per quintal special rate that was declared as a one-time measure of relief to farmers. Second, a significant chunk of mills have not been able to pay last season's SMP of Rs 69.50 per quintal, thereby necessitating Central assistance of over Rs 2,653 crore to clear cane payment arrears for the season. The latter includes Rs 1,885 crore worth of additional borrowings sanctioned to State Governments and Rs 678 crore granted to States, who `advise' cane prices over and above the SMP.

Going by the present indications, however, it looks as though the views of the Finance Ministry and the industry would be given the short shrift. Those defending an increase in the basic SMP to Rs 73 per quintal again cite two factors. One, open market prices of sugar have risen by over Rs 2 per kg in the last couple of months, which has significantly enhanced the payment capacity of mills. Two, most States, including Uttar Pradesh, have decided not to `advice' any cane price this season over and above the Centre's SMP, which, therefore, calls for some `reciprocation' from the Centre. Indeed, the UP Chief Minister, Mr Mulayam Singh Yadav, has demanded that the Centre fix a base SMP of not less than Rs 87 per quintal in return for the State Government not `advicing' any cane price this season!

A silver lining for mills

The Rs 73 per quintal cane SMP likely to be fixed by the Centre for the current season is bad news for the sugar industry. But there is a silver lining in the cloud: factory-wise SMPs this time round may be determined on the basis of the `average' sugar recovery recorded during the previous season. This is as against the prevailing norm based on the `peak' recovery recorded by the mill during the season.

To understand what this implies, Balrampur Chini's three mills in UP are reported to have recorded an average recovery of 10.4 per cent last season. At a basic SMP of Rs 73 per cent, this translates into an effective cane price of about Rs 89 per quintal. But if computed as per the existing `peak' recovery formula, the effective price would work out to almost Rs 95 per quintal, considering that peak season recovery levels are usually 0.5-1 per cent higher than the average for the season. In other words, there is a saving of Rs 5-6 per quintal on account of the new formula.

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