 "Is FRP for both cane and sugar the way out for the sector?")
Sugar factories have an intermediary role between millions of cane growers across many states and the market for the sweetener. The role vests in the industry the responsibility to share proceeds from sugar sold at ex-factory rates with farmers in a way that should fully compensate them for the cost of growing the crop, plus a fair margin. Only this could be an insurance against diversion of cane land, which since the 2011-12 sugar season (October to September) has remained well over five million hectares to competing crops. As the system obtains in the country, the Centre fixes a Fair and Remunerative Price (FRP) for cane every season while some states, most importantly Uttar Pradesh, will force its way between factories and growers by fixing a controversial State Advised Price (SAP). Even while many controls such as supply of 10 per cent industry production at way below the cost for the Public Distribution System (PDS) and regulated sugar release mechanism were dispensed within April 2013, based on the Rangarajan committee's recommendations, the government continues to believe that to protect growers' interest, it should continue to fix FRP. Price fixing is done on the recommendation of the Commission for Agricultural Costs and Prices (CACP), which uses "scientific tools and a fair methodology to make cane growing a sustainable proposition".
FRP has a rational basis. Arbitrariness creeps in when states get into the act of deciding their own cane prices. Whatever prices may be fixed, for growers to get it on time will depend on at what rates factories are selling sugar. Falling ex-factory prices are resulting from supply torrents for five years in a row leading to 2014-15 end season inventory build-up of 11 million tonnes (mt) and also a global glut that has kept New York Intercontinental Exchange futures at a multi-year low of 10.59 cents a pound. What further makes the sugar outlook bearish is the prospect of India producing a record 28.5 mt to 29 mt in 2015-16. "Mill cane dues at one point this season climbing to Rs 21,000 crore - mercifully, these are now down to around Rs 17,000 crore - and a large number of cane growers taking their lives are a stark reminder that sugar policy should be such that the industry will realise enough from sweetener sales to meet payment obligation to the community supplying the raw material," says Om Prakash Dhanuka, a former president of Indian Sugar Mills Association (Isma).
Rangarajan committee's recommendation of sharing revenues from sale of sugar and its by-products in a 75:25 ratio is universally acclaimed. But as it would happen for narrow political considerations, the United Progressive Alliance government shied away from implementing it citing the need for consultations with the states. Without the revenue sharing formula in place, FRP in a crisis situation like now is destined to fall on its face causing impoverishment to growers. Isma and National Federation of Cooperative Sugar Factories (NFCSF) have said in a joint representation to the government that since cane alone constitutes around 75 per cent of sugar production cost, average revenue realisation of Rs 2,200 a quintal of sugar in 2014-15 restricts cane price paying capacity of crushing mills to about Rs 150 a quintal. And as the outlook for the commodity is destined to remain grim, Isma finds cane FRP of Rs 230 a quintal for 2015-16 'clearly unaffordable' for the industry.
No point will, however, be served in contesting CACP's FRP recommendation which makes elaborate enquiries into cane production cost using scientific tools. Dhanuka says the answer lies in the government simultaneously fixing FRP for sugar using the one for cane as the base and enforcing it under the Essential Commodities Act. The recommended move will oblige factories to sell sugar to the trade at least at FRP. This will create the condition for factories to settle cane bills on time. Moreover, with profitability returning to the industry, bank accounts of sugar companies now on the verge of becoming non-performing assets will become regular. In the meantime, in view of 'huge losses' that factories continue to incur, banks are not inclined to provide further accommodation to the industry. Funds shortage, therefore, is not allowing factories to do annual repair and maintenance of plant and machinery to be ready in time to start crushing operation when cane will mature for harvesting in 2015-16. Isma and NFCSF are concerned "mills will be hard pressed to even start crushing operation next season". As a result, "large quantities of cane will remain unharvested" causing indescribable pain to growers.
FRP has a rational basis. Arbitrariness creeps in when states get into the act of deciding their own cane prices. Whatever prices may be fixed, for growers to get it on time will depend on at what rates factories are selling sugar. Falling ex-factory prices are resulting from supply torrents for five years in a row leading to 2014-15 end season inventory build-up of 11 million tonnes (mt) and also a global glut that has kept New York Intercontinental Exchange futures at a multi-year low of 10.59 cents a pound. What further makes the sugar outlook bearish is the prospect of India producing a record 28.5 mt to 29 mt in 2015-16. "Mill cane dues at one point this season climbing to Rs 21,000 crore - mercifully, these are now down to around Rs 17,000 crore - and a large number of cane growers taking their lives are a stark reminder that sugar policy should be such that the industry will realise enough from sweetener sales to meet payment obligation to the community supplying the raw material," says Om Prakash Dhanuka, a former president of Indian Sugar Mills Association (Isma).
Rangarajan committee's recommendation of sharing revenues from sale of sugar and its by-products in a 75:25 ratio is universally acclaimed. But as it would happen for narrow political considerations, the United Progressive Alliance government shied away from implementing it citing the need for consultations with the states. Without the revenue sharing formula in place, FRP in a crisis situation like now is destined to fall on its face causing impoverishment to growers. Isma and National Federation of Cooperative Sugar Factories (NFCSF) have said in a joint representation to the government that since cane alone constitutes around 75 per cent of sugar production cost, average revenue realisation of Rs 2,200 a quintal of sugar in 2014-15 restricts cane price paying capacity of crushing mills to about Rs 150 a quintal. And as the outlook for the commodity is destined to remain grim, Isma finds cane FRP of Rs 230 a quintal for 2015-16 'clearly unaffordable' for the industry.
No point will, however, be served in contesting CACP's FRP recommendation which makes elaborate enquiries into cane production cost using scientific tools. Dhanuka says the answer lies in the government simultaneously fixing FRP for sugar using the one for cane as the base and enforcing it under the Essential Commodities Act. The recommended move will oblige factories to sell sugar to the trade at least at FRP. This will create the condition for factories to settle cane bills on time. Moreover, with profitability returning to the industry, bank accounts of sugar companies now on the verge of becoming non-performing assets will become regular. In the meantime, in view of 'huge losses' that factories continue to incur, banks are not inclined to provide further accommodation to the industry. Funds shortage, therefore, is not allowing factories to do annual repair and maintenance of plant and machinery to be ready in time to start crushing operation when cane will mature for harvesting in 2015-16. Isma and NFCSF are concerned "mills will be hard pressed to even start crushing operation next season". As a result, "large quantities of cane will remain unharvested" causing indescribable pain to growers.