The Centre’s announcement of an 8 per cent increase in the Fair and Remunerative Price (FRP) for sugarcane to ₹340 per quintal for the upcoming 2024-25 sugar season (October to September), strives for a fine balance between incentivising farmers to expand their cane area and keeping a lid on inflation. A hike in FRP was much needed this year because sugar production in India which was charting a smooth upward trajectory until 2021-22, has suffered a sharp setback in the last two years thanks to El Nino. Total sugar output for the 2023-24 season is now estimated at about 330 lakh tonnes, down from 366 lakh tonnes in 2022-23 (394 lakh tonnes the year before). Though the sugar industry claims that the current year’s output will comfortably meet domestic consumption of 280 lakh tonnes, past instances of sugar output undershooting estimates at the fag end of the season seem to have prompted the Centre to err on the side of caution.

Despite the 8 per cent hike in FRP this year, there’s not much danger of sugarcane eating into other crops or a spiral in market prices of sugar. The FRP for cane had inched up at an annual rate of just 3 per cent from 2017-18 to 2022-23, while support prices for other crops galloped much faster. The FRP of ₹340 per quintal is pegged to a high sugar recovery rate of 10.25 per cent, so farmers who supply cane with lower recovery rates will receive less.

More than the hike in FRP though, the sugar industry is likely to be hurt by curbs on exports and the ban on diversion of cane to ethanol. Sugar exports of 110 lakh tonnes and 65 lakh tonnes in the last couple of years had allowed mills to ship out their surpluses, without impacting domestic prices. This window of opportunity has been shut since October, with export restrictions extended. More than the export ban though, it is the Centre’s unexpected about-turn on the diversion of sugarcane to the ethanol blending programme that is an unkind cut. After setting ambitious targets for 20 per cent ethanol blending in fuel by 2025, the Centre has in recent years offered sops to sugar mills to set up over 730 crore litres of ethanol capacities, while pushing oil companies to lift ethanol at fixed prices. As recently as 2023, it was showcasing how cane-based ethanol had generated ₹94,000 crore in revenues over 10 years for the sugar industry, shaved over ₹24,000 crore off the oil import bill and prompted quick clearance of cane dues to farmers.

For it to turn around and ban the diversion of cane to ethanol, and allow only 17 lakh tonnes of existing stock this year to be put to such use comes as a bolt from the blue. If the Centre has done a rethink on its ethanol programme because of sugar output being more cyclical than it had expected, it needs to scale down blending targets. Such flip-flops without any roadmap for the future harms the industry and farming community in a way that a higher FRP cannot repair.