New govt plan may be sweet for cane farmers

In what could pave way for a handsome increase of up to 30 per cent in incomes of sugarcane farmers, the government is keen to bring in a revenue-sharing formula that will allow the sugar industry to share the upside in revenues from sugar with the farmers.

This formula will also take into account revenues from by-products such as molasses and bagasse.

Prime Minister Manmohan Singh, after meeting Food and Agriculture Minister Sharad Pawar earlier this month over sugar decontrol, suggested the formation of a committee to formulate such a sharing mechanism.

The committee will be headed by C Rangarajan, former RBI governor and chairman of the prime minister’s Economic Advisory Council, said a person close to the development.

While farmers will have a guaranteed sugarcane price in the form of the fair and remunerative price (FRP), they will also be a partner in the upside. Sugar mills in the world’s biggest sugar producing nation, Brazil, also resort to a revenue-based sharing formula. In his presentation to Singh on decontrol, Pawar also referred to a formula-based revenue sharing with farmers based on price of sugar and by-products.

For every quintal or 100 kg of sugarcane crushed, mills produce roughly 10 kg of sugar, 4.5 kg of molasses and 30 kg of bagasse (of which 21-22 kg is used for meeting in-house steam consumption requirements, leaving a surplus of 8-9 kg).

At current ex-factory realisations of Rs 25/kg for sugar, Rs 2/kg for molasses and Rs 1.10 for bagasse in Uttar Pradesh, the gross realisation from sale of 10 kg sugar, 4.5 kg molasses and 8 kg bagasse would be around Rs 268. Two-thirds of this would work out to nearly Rs 180 a quintal for cane, while the FRP is about Rs 139 per quintal. This will especially benefit farmers in states such as Maharashtra that follow the FRP. However, farmers in states like Uttar Pradesh (which follow a state advised price or SAP) will also benefit considering that SAP was Rs 165 for the 2009-10 season.

“It is a step in the right direction to ultimately follow best global practices and will lead to tempering of the industry’s cyclical nature. Brazil, for instance, emerged as the world’s biggest sugar producer after decontrol in 1997 and is consistently producing 30-32 million tonnes sugar every year,” said Vivek Saraogi, managing director, Balrampur Chini Mills and president of the Indian Sugar Mills Association (ISMA).

This idea was initially mooted by the apex industry body ISMA in July this year in its representations for decontrol. The association had suggested sharing 62 per cent realisation from the main product (that is a global benchmark), which is sugar, and the two byproducts — bagasse and molasses.