Is govt's claim of hiking sugarcane FRP by Rs 20 per quintal an eyewash?

Activists and leaders say the actual realisation for the average farmer would be much less, as the hike has been linked to a higher recovery rate

The Centre has announced an increase of Rs 20 per quintal in the sugarcane Fair and Remunerative Price (FRP) for the 2018-19 season. However, activists and farm leaders said that the actual realisation for the average farmer would be much less than is being suggested, as the hike has been linked to a higher recovery rate. 

The hike will, of course, benefit farmers in states that follow the FRP as benchmark for payment. For others such as UP, which have their own advised prices (SAP), generally higher than FRP, the decision does not have much of an impact. 

For the 2017-18 sugar season ending September, the Fair and Remunerative Price (FRP) for sugarcane was Rs 255 per quintal, at an average base recovery of 9.5 per cent.

Thereafter, for every 0.1 per cent increase in recovery, a premium of Rs 2.68 was payable.  The recovery rate is the sugar output from one length of sugarcane. 

From the 2018-19 sugarcane season starting October, the Centre not only increased the base recovery rate from 9.5 to 10 per cent, but also raised the premium extra yield in sugar from Rs 2.68 per quintal to Rs 2.75 a quintal. The FRP of sugarcane for 2018-19 was fixed at Rs 275 a quintal.  For low-quality cane, that is those with a recovery of below 9.5 per cent, the FRP for 2018-19 was fixed at Rs 261.25, an increase of Rs 6.25 or 2.4 per cent from the previous season. 

Government sources said this was done because the average sugar recovery from cane has improved since the last season. So, farmers who produced better quality cane needed to be incentivised. 

According to reports, Union Food Minister Ram Vilas Paswan on Wednesday claimed that the base recovery rate has been increased, because 295 or about 54 per cent of the 550 sugar mills in operation in 2017-18 registered a recovery rate of 10 per cent or more. Eighty-two mills have registered a recovery rate of 9.5-10 per cent and only 127 sugar mills had a recovery rate below 9.5 per cent. 

In effect, an overwhelming majority of sugar mills, almost 68.54 per cent according to government’s calculations, have a recovery rate which is more than 9.5 per cent and hence needed to be incentivised. This would motivate others to improve their recovery rates and encourage farmers to invest in cane development. 

The average national sugar recovery rate, according to the government’s calculations, was 10.6 per cent. It was 10.20 per cent for Uttar Pradesh and 11.47 per cent for Maharashtra.  However, a simple back of the envelope calculation (all available recovery rates multiplied by the extra premium that they fetched in 2017-18 and that they will get in 2018-19) shows that sugarcane farmers who have a recovery rate of exact 9.5 per cent would get the maximum full Rs 20 per quintal increase in FRP. 

For sugarcane with 9 per cent recovery rate, the average increase in realisation due to the FRP hike would be somewhere around Rs6.25 per quintal, or an increase of 2.45 per cent. This could be the first time that farmers would get less for producing inferior quality sugarcane or cane with low sugar content. 

Sugarcane of slightly better quality, with recovery rate of 9.75 per cent, will fetch farmers around Rs 13.30 per quintal more in real terms or an increase of around 5.08 per cent.  For sugarcane, which has 10 per cent recovery, the actual increase in FRP would be somewhere around Rs6.25 per quintal or an increase of mere 2.32 per cent. 

In case of the national average sugar recovery rate, estimated to be 10.6 per cent, the actual increase works to about Rs 7.1 per quintal more than the FRP of 2017-18. 

Now, for sugarcane with still higher recoveries, the FRP of 2018-19 along with the new premium for every 0.1 per cent rise in recovery translates into just Rs 7.3 per quintal increase in real terms, a mere 2.47 per cent hike. In case of recoveries, about 11.50 per cent, the increase in FRP in real terms is about Rs 7.65 per quintal.  “In 2017-18, sugarcane FRP was Rs 255 a quintal at 9.5 per cent recovery with a premium of Rs 2.68 for every 0.1 per cent in recovery. So, at 10 per cent recovery it was Rs 268.40 per quintal. For 2018-19, it is Rs 275 a quintal at 10 per cent, so effective increase is only Rs 6.60 per quintal an increase of 2.5 per cent,” Sudhir Panwar, former member of UP Planning Commission said in tweet.