InvestorQ : How do you see the impact of the enhanced FRP price fixed for sugar for the current year?
Rutuja Nigam made post

How do you see the impact of the enhanced FRP price fixed for sugar for the current year?

1 year ago

In the recent meeting of the Cabinet Committee on Economic Affairs or the CCEA, chaired by Narendra Modi, the government approved a hike in the Fair and Remunerative Price (FRP) of sugarcane that is payable to the farmers. This price hike will pertain to the sugar year 2022-23. In India, the sugar year extends from October to September next year. Last year the FRP for sugarcane was fixed at Rs290 per quintal, while for the coming sugar year it has been hiked by Rs15 per quintal to Rs305 per quintal.

However, the enhanced FRP of Rs305 per quintal for the sugar industry in sugar cycle year 2022-23 comes with a catch and that catch is called the sugar recovery rate. This is how it works. The higher price would be applicable only with basic sugar recovery rate of 10.25% on the cane. To incentivize farmers, there is a premium of Rs3.05 per quintal for every 0.1% increase in sugar recovery rate. Here is how it works. If sugar recovery rate goes up to 10.45%, then the sugarcane farmer earns an FRP of Rs311.10 (Rs305 + Rs6.10) per quintal.

However, farmers are not too happy and that is for two distinct reasons. Firstly, most farmes believe that the previous year the FRP wsa linked to sugar recovery rate of 10% while for the sugar year 2022-23, it is linked to sugar recovery rate of 10.25%. That largely dilutes the premium. Secondly, the farmes also believe that the hike in FRP is too insufficient practically, especially if you consider the sharp rise in input costs in the last few months, especially the cost of inputs, fertilizers and power.

However, the Commission for Agricultural Costs and Prices (CACP) has justified the price as being well through through. The CACP calculates the base sugar cost of production based on the forula of A2 + FL (i.e. actual paid out cost + imputed value of family labour). That is the benchmark cost of production of sugarcane considered for 2022-23. As per the CACP, the cost of productin works out to Rs162 per quintal. Therefore, the current FRP of Rs305 per quintal is a good 88% over the cost of production. This is in line with pricing commitment.

What about the sugar mills? The sugar mills are far from happy with this announcement. They believe that ifthe FRP has to really have a strong downstream effect, then the applicable sugar selling price for the mills must also be hiked proportionately. Otherwise, the mills would be left with a deficit and end up paying more for the sugarcane. In that case, the sugar mils have already cautioned that the dues to the sugarcane farmers may escalate once again, defeating the very purpose of the FRP hike to cane farmers.