Cane Prices Likely To Be Linked To Sugar Prices From Next Season

Will the UP government bow further to the pressure of the powerful sugar lobby in the next crushing season? With the state government conceding to the demands of the sugar mills of paying state advisory price (SAP) to farmers in two installments in the current crushing season, all eyes are on the high power committee headed by the UP chief secretary that is likely to give its recommendation on linking cane prices with sugar prices in the next crushing season.



Sources said setting up such a committee was one of the crucial steps taken by the UP government which not only paved the way to break the deadlock between the state government and the millers but also infused some confidence in the industry to run the mills in the interest of farmers. The millers have been demanding application of the Rangarajan committee recommendations as a formula for determining cane prices in the next crushing season. If that happens, the SAP would automatically drop with the sugar prices. The new pricing formula, however, is likely to come into operation in the next crushing season, that is, after the Lok Sabha elections are over, when the SP government will not be under pressure of losing its crucial farmer vote bank.



Principal secretary cane development Rahul Bhatnagar said the state government will be looking at all the aspects of linking cane prices with sugar prices. "The state government will be looking into all aspects while determining the cane prices," he said. "It is better not to say that only Rangarajan committee recommendations will be taken into account," he added.



The Indian Sugar Mills Association (ISMA) has been demanding application of Rangarajan formula. Director general of ISMA, Abinash Verma said that the state government has assured the millers for coming up with 'long term sugarcane pricing policy'. "We will welcome the formation of committee to determine cane prices according to sugar prices," Verma said, speaking to TOI on Monday.



The Rangarajan Committee appointed by the Central Government, has recommended adoption of either of the following two formulas: a) Cane price should be 70% of the revenue realised from sugar, bagasse, molasses and press mud, or b) Cane price should be 75% of the revenue realised from sugar only (giving 5% weightage to revenue from the first stage by-products).



The committee had said in October last year that the benchmark price fixed by the Centre, called the fair and remunerative price (FRP), be the minimum price for cane purchases. The actual payment for cane dues should be in two steps. The first will be payment of a floor price based on the FRP as per the extant mechanism. The rest of the payment of cane dues will be done subsequent to the publication of half-yearly ex-mill prices on the lines indicated, the committee had said.



The millers have been citing drastic difference between the ex mill sugar prices in comparison to the SAP. According to a UP sugar mill association official, the average ex-mill sugar prices in UP in Oct-Nov, 2012 were Rs.3,500-3,600 per quintal, when these SAPs were fixed. The prices had moved up from July, 2012, but started falling from December, 2012, and have come down to Rs.2,850-2,950 per quintal in October, 2013. In other words, the ex-mill sugar prices in UP have fallen by over 18% in the last 12 months. The average ex-mill price during the 2012-13 sugar season was Rs 3,150 per quintal.



At the above cane price and at an average sugar recovery of 9.2%, the average cost of production of sugar for UP sugar mills was Rs 3,600per quintal. The UPSMA has already informed that due to the fall in sugar prices and the high cost of production in relation to that, the sugar industry in UP lost about Rs 3,000 crore in 2012-13. Consequently, farmers have yet to receive Rs 2,400 crore, out of the total price of sugarcane sold, even in October this year.



Undaunted by the difference, the state government went ahead fixing the same SAP for 2013-14 crushing season: Rs 290 per quintal for early varieties, Rs 280 per quintal for general varieties and Rs 275 per quintal for rejected varieties. This resulted in a raging deadlock between the millers and the state government, with the former unwilling to pay more than Rs 225 per quintal. The controversy assumed violent dimensions with farmers staging protests and demonstration seeking opening of the mills. Various political parties allegedly fueled the protest much to the embarrassment of the state government.



It was only on Sunday when state government partially conceded to the demands of the millers while allowing them to pay SAP in two installments, Rs 260 per quintal immediately and Rs 20 per quintal before the end of present crushing season.