Fearing an inflationary spiral ahead of elections, the government is believed to have referred a proposed hike in the sugarcane support price to the Prime Minister’s Economic Advisory Council.
It is learnt that the Prime Minister’s Office (PMO) is not in favour of the 33 per cent rise in the statutory minimum price (SMP) of sugarcane to Rs 107.76 a quintal recommended by the Ministry of Agriculture. The SMP is Rs 81.18 a quintal for the 2008-09 season (October-September).
The ministry last month circulated a note suggesting hike in the cane prices as well as in the recovery rate, which is the quantity of sugar produced from a certain amount of sugarcane. Sources said there was no justification for hiking the cane price for the 2009-10 season as most of the input prices such as those of diesel, fertiliser, water and power have not increased.
They argued that if the SMP is hiked at this juncture, the wholesale prices of sugar would further increase, forcing the government to subsidise imports.
Official sources maintained that further liberalisation of sugar imports will not be beneficial for the industry and will also impact the government’s finances. Last month, the government liberalised sugar imports by allowing mills to buy raw sugar from abroad at zero duty and sell it in the domestic market after refining.
Industry experts say delay in announcement is not good for the sector as the government may not be able to declare the price after the model code of conduct comes into effect because the elections are likely to be held in April.
Considering the cost of production and the recovery rate of sugarcane, the agriculture ministry has recommended the SMP of cane at Rs 107.76 per quintal, based on a basic recovery rate of 9.25 per cent for 2009-10, a senior government official said.
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A 0.05 percentage point increase in the recovery rate would fetch a premium of 58 paise over and above the SMP, he said. The ministry has suggested an alternative formula where the SMP would be the same but the basic recovery rate would be at 9.5 per cent. Besides, a premium of Rs 1.13 would be given for every 0.1 percentage point increase in recovery.
The Commission for Agricultural Costs and Prices, the nodal agency that recommends the minimum prices of crops, had suggested raising the SMP from Rs 81.18 to Rs 125 per quintal for a basic recovery rate of 9 per cent, “subject to a premium of Rs 1.39 for every 0.1 percentage point increase in the recovery above that level” for the next season.