Sugar sector demands MSP hike by Rs 7/kg; may push up the retail price

Facing an unprecedented crisis of surplus production, the Indian sugar industry has demanded the government hike the minimum sale price (MSP) of sugar to Rs 36 a kilo (kg), from the current Rs 29 and mandatorily fix a quota of export of 7 million tonnes (mt) for the 2018-19 season that starts from October.
 
The increase in the MSP by Rs 7 a kg would immediately push up the retail price of sugar by Rs 4-5 per kg, but industry players said it would still be lower than the rate at which sugar was selling in the open markets last year.

 
“Somebody has to pay. Either the consumer pays or the government. Else sugarcane dues accruing to farmers will climb to dangerous levels by March 31, 2019,” Abinash Verma, director-general (D-G) of Indian Sugar Mills Association (Isma), said. He was talking to reporters on the sidelines of an International Sugar Conference in the Capital on Wednesday.
 

A few months back, the Centre had fixed a MSP of sugar, below which mills are not allowed to sell. However, with sugar exports looking unviable due to global market plunge, the industry is demanding an increase in the benchmark price.
 
Verma said alongside raising the MSP, the government should immediately do away with the monthly quota mechanism or else mills would not be able to take advantage of the export window.

 
With India’s mounting sugar surplus threatening to climb to 19 mt by end of the 2018-19 crop, the country’s surplus situation and ways to deal with it dominated the opening day of the two-day global conference.
 
Even though the government has announced a new ethanol blending policy which for the first time has fixed a purchase price for ethanol produced directly from sugarcane juice and B-heavy molasses, industry players said unless pricing is corrected, things won’t move much.
 
Meanwhile, Verma of Isma said the government should enforce compulsory exports by having a provision for penalty for those mills that don’t export their allocation quota.

 
Industry players said unless India ships out 7-8 mt of sugar by December 2018, sugarcane dues accruing to farmers might touch Rs 400-500 billion by April end, against the current Rs 120 billion.
 
Isma President Gaurav Goel said the government should come up with an export policy for the 2018-19 marketing year as liquidating surplus stock in the overseas markets was essential for sugar mills to survive.
 
“The government should announce compulsory sugar export quota of 7 mt for 2018-19. There should be penalty on those mills that do not export,” he said.
 
The sugar stock would reach 19 mt if mills do not export, Goel said.

 
“We need an export policy since much of the shipments will have to be in the form of raw sugar that mills need to produce from next month,” he added.
 
Goel said there is a window of opportunity till March for India to export; after that, sugar from Brazil, Australia, and other countries would hit global markets.
 
Verma said the MSP should be raised to partly compensate for losses incurred in exports.
 
Mills would get an average price of Rs 32 per kg from sales in domestic and exports markets, Isma D-G said.
 
The government had asked mills to export 2 mt in 2017-18, but only 450,000 tonnes have been shipped so far. The food ministry has extended the time period to export by three months till December.

 
Food policy expert and former chairman of the Commission for Agriculture Costs and Prices Ashok Gulati said that putting too much emphasis on getting a higher price for ethanol through state-fixed methods might be counter-productive in the long run; it could lead to a further rise in production.
 
“Ethanol rates should be linked to crude oil prices after adjusting for the calorific values or else farmers won’t be disincentivised from growing sugarcane in the years of surplus,” Gulati said.