Sugar mills to gain from new cane pricing system

Sugar mills to gain from new cane pricing system

New Delhi: The sugar mills need not bear the additional cost of cane if local authorities announce a higher price than what the federal government fixes, the government said on Monday.

This may discourage sharp increases in cane prices that accentuates the sugar cycle by encouraging a huge rise in sowing, which creates a glut, depresses sugar prices, and makes mills unable to pay for costly cane, leading farmers to switch over to other crops.

India, the world’s top sugar consumer, has seen sharp swings in cane cultivation and sugar output in recent years as the country imported 5 million tonnes of sugar in 2008-09 after exporting a similar amount last year.

The new rule replaces the existing system in which the federal government announces a minimum cane price, but some states such as Uttar Pradesh often declare a higher price to please farmers.

Under the new system, New Delhi will declare a “fair and remunerative price" for cane, which the mills would pay. If the states want farmers to be paid more, the difference should now be borne by them and not mills.

“The objective of the switchover is to discourage the states from fixing a higher price than the Statutory Minimum Price of the federal government," a trade official said on condition of anonymity.

The new pricing system has been put in place to ensure reasonable margins for millers at the time of a supply crunch, said an industry analyst.

Last week, India’s top cane-producing state of Uttar Pradesh announced a 17-18% rise in the price that mills must pay to the cane growers.

The state government had raised the price for early-maturing variety to Rs170 ($3.64) per 100 kg from Rs145 last year, while the price for the general grade was increased to Rs165 from Rs140.

The federal government has fixed the cane purchase price at Rs107.78 per 100 kg for 2009-10 season, as against Rs81.18 in the previous year.