The positive news is often no news. Except for Financial Express , no other paper reported that food prices , in general were lower this Diwali than in the previous year. This was true not only for suagr,but also for pulses and potato, and there was no significant increase in the oprice of cereala in the open market.
This at a time, when the international prices of sugar are on the ascent on account of crop failures in South amercia, Philipines and Pakistan. Even as the government is muling over allowing the export of sugar, farmers’ organisations, state governetns,a nd the sugar mills are likely to be in a gridlock over the next few weeks to decide the SAP, FRP and MSP for this crop, especially as the crushing season is on, and the decsions on pricing have a direct impact on three important constituencies – the farmers, the sugar co-ops and corportaes, and the consumer. However before AgriMatters gets into the politcs of sugar, it is better to explain the three oft used acronyms in the scetor, viz,SAP, FRP and MSP.
We will take up MSP first because this is applied not just to this sector, but to most agricultural commodities. MSP is the statuory minimn price which is arrived at by the CACP (Commision on Agricultural Costs and prices) . This was based on the cost of cultivation,the cost of conversion as also the cost of ahrvesting and transport. This soon gave way to the FRP (Fair and Remunerative price) because as pointed out by the Bhargava Committee, sugar cane was the raw material for sugar,baggase, mollasses, pressed mud and co-generation of power. As such the Bhargava Committee had reccomended that farmers had to be compnesated for these additional factors as well. The FRP is announced by the Governemtn of idnia after taking all these factors into account. However, this is not all. State government salso announce a State Advised Price (SAP)and this depends, among other things, on the clout which the farmers organisations, political parties, sugar mils have vis a vis each other ! The SAP, as the name suggests varies from state to state, and everytime it is announced, there is the standard ritual of all partries to the transaction crying ‘foul’ as like the FRP, and MSP before it, there can be no ‘win-win ‘situaion , especailly as the exim policy and levy policy is governemtn driven. Also ,bcasue of the severe liquidity issues which the industry faces – the farmer wants payent upfront – but the trader wants credit – farmers payments are often staggered for over one year, and thus the SAP or FRP loses its relevance unless payments are made within a stipulated time frame. However, lest the reader assume that the transactions take place on SAP, here is a bit of a shocker… the SAP only sevres as the benchmark price against which the negotiations between farmers groups and sugar mills will begin. But every other development in this sector, including timely permission for exports to help industry in levergaing the reigning global prices, and the ethanol blending option are based on this price.
Last week, UP announced a hike of rs 40 per quintal for SAP of sugar for the current crushing season, fixing the prices for unapproved,common and early varieties at Rs 200,Rs 205 and rs 210 per qunital, as against the rs 139 per quintal for common variety fixed as the FRP by the Cente. Farmers organisations on the other hand , have been demanding Rs 300 per quintal as aginst rs 280 per quntial which was paid last year on accout of the perceived shortage. The SAP was rs 165 per quintal last year for the common apprved variety. The farmers point is that input costs (feryilizer, insecticies ) and labour costs have risen by 15 % and 40 5 respectively over the last year , and therefore the SAP of rs 205 per quintal was actaully less than what they had actaully extracted from the suagr mills last year! The sugar mills on the other hand maintain that at 10 % recovery, the price of cane works out to around rs 25 per kg, and if processing costs and incidentals are added, the cost of sugar works to Rs 30 per kg.
Will exports help ?
Yes, they will . The sugar industry can get higher returns, clear up the inventory, and offer a better price to the farmers as the international prices are ruling much higher than the domestic prices . However exports had to be calibrated to ensure that the price adantage is not lost on accoutn of sudden bursts of exports bythe Indian mills. Tus if the governemtn allows a phased export of sugar under an OGL, there is a possibility of getting out of the current impasse. The sugar production this year is expetced to touch 25 million tonnes,and therefore the domestic requirements are well covered. This is the first time in the last fiftenn years that Indian sugar indusrty finds itself in a positin of projected plenty even as the global market experiences shortages. Industry watchers also feel that this assymetry will not least for too long, and therefore this was an opportunity that had to be taken up immediately.
This will also help them out of their liquidity crunch, and ensure that the farmers get their payments on time. They feel that if the mills had to pay Rs 300 per quintal, then payments would have to be staggered as current prices will not provide them any scope of making such payments. In maharashtra, industry has offered that farmers organisations should take over the running of a mill to see if the SAP is vailbel at all !
Perhaps, the global market offers us a solution to a local problem at least in the current year !