Sugarcane floor price to rise at least 18% next year

Sugar producers face the prospect of a minimum 18 per cent increase in the procurement cost of cane, with the Commission for Agricultural Costs and Prices (CACP) recommending a floor price of Rs 171 a quintal for the 2012-13 harvested crop.

It has also suggested that as a larger output is expected in 2011-12, the government should allow export of 1.5 million tonnes of sugar and create a reserve of another 1.5 mt.

The Union government’s Fair and Remunerative Price (FRP) for cane in the season beginning October this year is Rs 145 per qtl. CACP's recommendation on increasing this price would be applicable from October 2012.

FRP is the minimum price that sugarcane farmers are legally guaranteed. Sugar mills are free to offer any price above this. CACP’s recommendation is with the agriculture ministry and would then go to the Cabinet Committee on Economic Affairs. Usually, the government accepts the cane price recommended by CACP.

The FRP is fixed after taking into consideration the margins for cane farmers on account of risk, as well as profit on the cost of production, including transportation expense. The FRP is followed by the cane producing states of Maharashtra, Karnataka, Andhra Pradesh and Bihar. That has implications for mills operated by Renuka Sugars, Rajshreee Sugars, Birla Sugars (Oudh and Upper Ganges) and Bannari Amman Sugars, among others.

However, other big cane producing states such as Uttar Pradesh, Uttarakhand, Punjab, Haryana and Tamil Nadu declare their own State Advised Price (SAP) for cane. The SAP is much more than the FRP. For the 2010-11 sugar season, the FRP was Rs 139.12 per qtl, while the SAP in UP, the second biggest sugar producing state, was Rs 205 per qtl.

The difference disadvantages mills in SAP-states, since their cost of production is higher but they have to compete with sugar produced in FRP-paying mills. In years of low sugar prices, mills often fail to pay SAP and the arrears in this regard get accumulated, which discourage a further round of cultivation.