Govt hikes sugar FRP, rules out raise in MSP

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28 August 2021, New Delhi: Union Cabinet Wednesday approved a 1.7% increase in the assured price millers pay to sugarcane growers in the 2021-22 season to ₹290 per quintal (100 kgs), a move that will benefit about 50 million farmers in the country. But the government ruled out any immediate increase in sugar prices for household consumers.

Consumer affairs and food minister Piyush Goyal announced the new cane rates but when asked if there would be a commensurate hike in the selling price of sugar, he answered: “Not necessarily.”

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India is the world’s largest sugar consumer, but 90% of the sweetener goes into commercial food products while 10% is bought by households. Sale and output of the commodity is tightly regulated by the government.

India has produced ample sugar in the range of 28-31 million tonne of sugar in the past couple of years, while domestic consumption is about 26 million tonne. Cane prices are a big issue for farm unions, who are an influential voting bloc especially in western Uttar Pradesh, where assembly polls are due early next year.

Extreme weather in Maharashtra in the past two months could affect domestic prices in the new season, experts say.

“Maharashtra is key for domestic sugar production and prices. Currently, over 20% of the area under sugarcane in Maharashtra has been affected because of heavy rainfall,” said Hetal Gandhi, an economist with Crisil Research Ltd.

The so-called fair and remunerative price of ₹290 per quintal, the price which millers mandatorily pay to farmers, will be applied for a basic recovery rate of 10%, which is the amount of sugar extracted from a given quantity of raw cane.

If mills are able to extract less than 9.5% from cane, farmers will be paid ₹275 per quintal.

White sugar prices reached $504 per tonne in August 2021, according to industry trade data, because of which exporters were able to earn ₹37 per kg without any subsidy against the domestic price of ₹31-32 per kg.

“That has led them to sign export contracts above the target of 6 million tonne set by the government for sugar season 2021, which ends in September,” Gandhi said.

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