‘Increase in cane FRP not to pose a problem as macro environment is supportive’
The $10 per quintal increase in FRP (Fair and Equivalent Price) on cane sugar recently announced by the government is likely to lead to some escalation in cost but should not be a problem as the overall environment is supportive. This usually translates to higher ethanol prices and possibly even a higher MSP (minimum support price) on sugar.
Last week, the Cabinet Committee on Economic Affairs (CCEA) approved the increase in FRP for the 2023-24 season (October-September) to ₹315 quintals for a basic recovery rate of 10.25 per cent, up from the current level of ₹305 quintals.
According to Vivek Saraoji, Chairman and Managing Director of Balrampur Chini Mills, the government has, in the past few years, created a macro environment to support the sector thus ensuring that the industry generates revenue to defray the cost, and also make sure that the farmer gets paid.
“The government keeps changing the MSP or FRP on agricultural products. There’s usually a higher cost for farmers’ products. It changes the MSP on rice and wheat, so $10 per quintal is fine. The government has put a formula behind this whole program. What they’ve done is, while Fixing this cost (FRP), they have taken sufficient steps to provide the macro environment so that the revenues (of the mills) are affordable and their main agenda for the benefit of the farmers is also achieved,” Saraoji said. business line.
FRP cane to raise the cost
Industry estimates indicate that the current increase in FRP is likely to translate into about a 4% increase in the cost of producing sugar. The higher cost on FRP canes will likely translate to a higher ethanol price. The government may also declare excess production to be exported to offset the high cost.
“Once they do FRP, since the price of input goes up, the price of ethanol changes. So the price of heavy molasses and the price of juice are adjusted up based on cost escalation which is the FRP cane. They also say surplus production has to be exported, so give a declaration on export as well. This happens. Usually after evaluating the yield.
The volume of exports will depend on the production forecast which becomes clear in the September-October period.
The third thing the government is doing is increasing the MSP (Minimum Support Price) for sugar. While the practice of (increased MSP) had begun earlier, it has not kept pace with the rise in FRP over the past few years, Saraoji said, adding that the macro environment created by the government has helped keep prices at a “certain level.” Securing mill revenues and their ability to pay farmers.
He noted, “The basic environment that the government provides is very favorable to the farms, the mill and everyone else.”