RUN-UP TO THE BUDGET: SUGAR. Need for a realistic sugarcane pricing system

The sugar industry is hoping for a shift to a long-term, rational sugarcane pricing formula to overcome some of the immediate challenges facing it.

It would be a huge boost for the industry and rural economy if the Union Budget spells out a viable sugarcane pricing mechanism that does away with political interference, say industry representatives.

The Centre announces a Fair and Remunerative Price for sugarcane every season but State governments invariably recommend a higher price, over and above the FRP, without taking into consideration the price of sugar, the main product, and the revenue from byproducts like molasses and bagasse. The current season clearly illustrates the mismatch, with sugar prices not even covering the basic price of sugarcane.

In addition, sugar mills need policy support for sugar exports to tackle the domestic surplus and a market intervention mechanism by creating a buffer stock.

Ram V Tyagarajan, Chairman and Managing Director, Thiru Arooran Sugars, said implementing export subsidy, creating a buffer stock of sugar to address the surplus in the market and shoring up domestic sugar prices are immediate requirements. As of now, the ex-factory price of sugar does not support even the sugarcane FRP.

The Centre also has to ensure oil marketing companies source ethanol from sugar mills for the ethanol-blended fuel programme.

These are some important immediate measures the industry is hoping for in the Union Budget, he said.

N Ramanathan, Managing Director, Ponni Sugars Erode Ltd and former President, South Indian Sugar Mills Association – Tamil Nadu, said the huge disconnect between the raw material and product price has to be addressed.

The current season has taught the industry a new lesson. Normally, it is the State Advised price which is an issue and sugar mills manage to pay the FRP fixed by the Centre. But the current sugar prices do not even provide for an FRP, said Ramanathan.

Sugar mills are not against paying a high price for sugarcane as long as it is viable.

A realistic sugarcane pricing system that balances the needs of farmers and sugar mills is needed. Industry can pay up to 75 per cent of the sugar price for cane and the balance, including the price of bagasse and molasses, are needed for viable operations of the sugar mills, he said.

If either the Centre or the State set a higher price, the excess will have to be paid as subsidy by the government concerned.

Delivering subsidy to the farmers directly will be easy as all sugarcane payments are through banks anyway, he said.

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