CACP recommends dual price policy for sugar trade for farmers' benefit

To cost corporate users 20-30% more than kitchen consumers

The Commission for Agricultural Costs and Prices (CACP), a decentralized agency which suggests the government on agricultural commodities, has recommended the government to frame a dual price policy for sugar trade in India for the benefit of farmers.

Vijay Paul Sharma, Chairman, CACP, said, “It is high time for the government to consider dual pricing of sugar with a reasonable price for kitchen consumers and high prices for industrial users depending upon the cost of production and availability.”

Sugar prices have jumped marginally by Re 1-2 a kg in the wholesale markets due to lower production estimates in India and improving prospects for exports. With this increase, sugar M at the factory gate in Uttar Pradesh is quoted between Rs 33-34.50 a kg while sugar S in Maharashtra is traded at around Rs 32 a kg. The government has set the minimum selling price of sugar of Rs 31 a kg across the country.

According to industry sources, corporate or bulk consumers including cold drink and sweets makers in addition to other bulk users contribute nearly 60 per cent of India’s sugar consumption of an estimated 26 million tonnes annually. Kitchen consumers share only 40 per cent. Most importantly, industrial consumption of sugar is increasing unabatedly but, kitchen use is decreasing due to consumers’ deferring use of direct sugar intake.

“High prices for corporate consumers would help sugar mills increase their incomes which would translate into fast clearance of cane dues. With this, farmers would be encouraged to grow more cane which has yielded higher income than most other agricultural products. We support all such initiatives which would benefit farmers,” said Suresh Rana, Cane Minister Uttar Pradesh.

Meanwhile, rating agency Icra in its latest study estimates sugar mills’ profitability to improve in near term on Rs 2 per kg increase average sugar prices to Rs 32.5-33 a kg for the nine month period ending December. At the same time, sugarcane prices remained stable due to unchanged State Advised Prices (SAP) by the government of Uttar Pradesh which has narrowed the difference between the SAP and fair and remunerative price (FRP) announced by the Centre.

“We expect the closing sugar stocks for SY2020 at around 12-12.5 million tonnes, a decline from 14.5 million tonnes in the last sugar season due to the decline in the sugar production by 21 per cent y-o-y to 26 million tonnes owing to lower cane availability in Maharashtra and Karnataka. This along with the monthly sugar release mechanism, creation of 4 million buffer stock and also the export subsidy of Rs 10.44 / kg of sugar exported has supported the sugar prices which are likely to sustain in the near term. The higher sugar prices and the static cane prices are likely to support the profitability of sugar mills in the near term,” said Sabyasachi Majumdar, Senior Vice President and Group Head, Icra.

In the current over-supply scenario, the diversion of sugarcane to manufacture ethanol remains critical from the perspective of maintaining profitability, liquidity and capital structure of sugar mills by correcting the supply-demand imbalance in the industry.