The ₹10 per quintal increase in FRP (fair and remunerative price) on sugarcane announced by the government recently is likely to lead to some cost escalation but it should not pose a problem as the macro environment is supportive. This usually translates into higher ethanol prices and possibly even a higher MSP (minimum support price) on sugar.

The Cabinet Committee on Economic Affairs (CCEA), had last week, approved the hike in FRP for the 2023-24 season (October-September) to ₹315 a quintal for a basic recovery rate of 10.25 per cent, up from the current ₹305 a quintal.

According to Vivek Saraogi, Chairman and Managing Director, Balrampur Chini Mills, the government has, in the last few years, put in place a macro-environment to support the sector thereby ensuring that the industry generates revenue to defray the cost, and also making sure that the farmer gets paid.

“The government keeps changing the MSP or FRP on agri products. Normally there is cost escalation for farmers’ products. MSP on rice and wheat changes, so this ₹10 per quintal is ok. The government had put in a formula behind this whole programme. What they did was, while fixing this (FRP) cost, they took adequate steps to provide the macro environment so that the revenue (of millers) is able to defray the cost and their main agenda of farmer benefit is also fulfilled,” Saraogi told businessLine.

Cane FRP to push up cost

Industry estimates suggest that the current increase in FRP is likely to translate into around four per cent increase in cost of production of sugar. The higher cost on cane FRP is likely to translate into higher ethanol price. The government might also announce excess production to be exported so as to offset the higher cost.

“Once they do FRP, since input price has gone up, ethanol price gets changed. So the heavy molasses price and juice price both get tweaked upwards based on cost escalation which is cane FRP. They also say that the excess production should get exported, so give export announcement as well. This usually happens after assessment of the crop,” he said.

The quantum of exports would depend on the production outlook which becomes clear around September-October.

The third thing that the government does is increase the MSP (minimum support price) of sugar. While the exercise (of increasing MSP) was started earlier, it has not kept pace with the hike in FRP over the last few years, Saraogi said and added that the macro environment created by the government has helped keep prices at “certain level” thereby ensuring revenue of mills and their ability to pay the farmers.

“The basic environment the government is giving is very conducive to farmer, miller and everyone,” he pointed out.