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‘Hike floor price for sale of sugar by mills’

The domestic sugar industry has urged the Union government to increase the minimum selling price (MSP) of sugar to ₹35-36 a kg from the existing ₹31 to make it possible for the mills to clear farmers’ arrears and cut losses.

This request was made by Indian Sugar Mills Association (ISMA) in a letter written to PK Mishra, Principal Secretary to the Prime Minister early this month. In the letter, a copy of which was seen by BusinessLine, ISMA President Niraj Shirgaokar said: “Since February 2019, there has not been any increase in the MSP of sugar. Since ₹31 per kilo of ex-mill sugar price was not adequate for sugar mills to be able to pay the FRP (Fair and remunerative price) on time to the farmers, and cane price arrears were getting accumulated continuously, the State Governments, including UP, Bihar, Maharashtra and Karnataka, requested the Central Government to increase the MSP of sugar from ₹31 to ₹33-36 per kilo.”

What hold the Govt back

Niti Aayog, in its report on sugar submitted to the Government in March 2020, too, recommended an increase in MSP, he said. As there are rumours that the government may announce an increase in FRP by ₹5 per quintal ahead of the forthcoming sugar season, ISMA said that an MSP of ₹35-36 a kg would be needed to tide over the crisis till the ethanol industry matures.

One factor that may be holding back the Centre from increasing the MSP — despite a recommendation made by a Group of Ministers led by Home Minister Amit Shah — could be rising inflation. Increasing MSP ahead of the festival season could lead to inflation going up further. A sugar industry source, however, said since the current ex-mill prices are around ₹34-35 a kg, declaring a higher MSP will not have an impact on the inflation trends.

Poll-bound UP

The industry is hopeful on two counts. First, with Uttar Pradesh Assembly elections are round the corner, the ruling BJP cannot afford to keep the cane dues high as it may impact its poll prospects. Currently, sugarcane arrears in the State is around ₹7,500 crore and the current sugar season gets over in a month-and-a-half. Moreover, Prime Minister Narendra Modi has made a promise to farmers in the State to get the dues cleared at the earliest. “Our cost of production of sugar is around ₹35-36 per kg and therefore, most of sugar mills are incurring huge losses and hence are either unable to pay FRP to the sugarcane farmers or repay the loans to the banks,” the letter said.

Increase in the MSP to ₹34-34.50 a kg not only improves the revenue realisation of sugar mills from sale of sugar, and therefore their capability to pay sugarcane price to the farmers, but also enhances the valuation of sugar by ₹3-3.5 per kg, that the banks consider and on the basis of which they sanction working capital loans to the sugar mills, Shirgaokar said.

Date: 16 Aug 2021
Source: The Hindu Business Line
Reporter: TV Jayan
News ID: 49982


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