CANE PRICING POLICY 2017-18 SS

INDIAN SUGAR MILLS ASSOCIATION, NEW DELHI

FRP has increased by almost 77% in 7 years

2

129.84

139.12

145

170

210

220

230 230

100

110

120

130

140

150

160

170

180

190

200

210

220

230

240

2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17

Rs. /qtl.

FRP versus avg. ex-mill sugar price

3

129.84

139.12145

170

210

220

230230

2950

2700

2950

3150

2900

2492

3100

2000

2100

2200

2300

2400

2500

2600

2700

2800

2900

3000

3100

3200

3300

100

110

120

130

140

150

160

170

180

190

200

210

220

230

240

2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17

FRP Ex-Mill Price

Rs. /qtl.

Sugar Price Realisation as per RSF

4

129.84

139.12145

170

210

220

230

2950

2700

2950

3150

2900

2492

3100

1855

1987

2071

2429

3000

3143

3286

1800

1900

2000

2100

2200

2300

2400

2500

2600

2700

2800

2900

3000

3100

3200

3300

3400

100

110

120

130

140

150

160

170

180

190

200

210

220

230

240

2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16

FRP Ex-Mill Price Realisation

Rs. /qtl.

Production cost vs. Avg. ex-mill prices

3053

3200

32753300 3300

2950

3150

2900

2500

3100

2000

2200

2400

2600

2800

3000

3200

3400

2011-12 2012-13 2013-14 2014-15 2015-16 (E )Cost of Production Average ex-mill price

5 Rs./quintal

Resultant cane price arrears in March (last 5 years)

8577

12702

1864820099

13530

2011-12 2012-13 2013-14 2014-15 2015-16

Rs. Crore

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Source: Government of India

2013-14: Avg. sugar prices in v/s CACP projected prices

2876 2882

2816

2768

2652

2836

30543081

3000

3067 3058

2950

2500

2800

3100

3400

3700O

ct' 1

3

Nov' 13

Dec' 13

Jan

' 14

Feb' 14

Mar.

' 14

Apr.

14

May' 14

Jun

'14

Jul'14

Aug'1

4

Sep'1

4

7

Ex-mill price projected by CACP for 2013-14SS - Rs. 3000 to 3700/qtl.

Rs. per qtl

2014-15: Avg. sugar prices in v/s CACP projected prices

2854

2793

26652613

2544

24572417 2401

2313

2152

2252

2429

2100

2400

2700

3000

3300

Oct' 14 Nov' 14 Dec' 14 Jan' 15 Feb' 15 Mar.' 15 Apr. 15 May' 15 Jun'15 Jul'15 Aug'15 Sep'15

8

Ex-mill price projected by CACP for 2014-15 SS - Rs. 3000 to 3400/qtl.

Rs. per qtl

2015-16: Avg. sugar prices v/s CACP projected prices

2519

2583

2695

29102991

3170

33753400

34153450 3455

3425

2100

2300

2500

2700

2900

3100

3300

3500

Rs. per qtl

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Ex-mill price projected by CACP for 2015-16 SS - Rs. 3000-3500/qtl.

FRP for 2017-18 SS

As per media reports:

CACP has recommended FRP of Rs.255/ qtl. for 2017-18 SS

A clear 10% increase over 2016-17 SS

It would result in:

Higher cost of production

Indian sugar will become even more uncompetitive internationally

Increased sugar prices by 10% i.e. by around Rs.4 per kilo

Else, losses to mills, NPAs and arrears of farmers

Remuneration from sugarcane will further outstrip competing crops

More farmers will shift to cane, resulting in more surplus sugarcane

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FRP of Sugarcane Vs MSP of Paddy & Wheat

1000 1000

1080

1250

13101360

1410

14701298

1391

1450

1700

2100

2200

2300 2300

1100 1120

1285

13501400

1450

1525

800

1000

1200

1400

1600

1800

2000

2200

2400

2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17

Paddy (Rs./qtl.) Sugarcane (Rs./ton) Wheat (Rs./qtl)

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As it is, 2017-18 will be bumper/surplus

Cane area across the country will be much better, due to:

Better monsoon and water availability in reservoirs

Possibility of higher and timely cane price payments because of strong

competition amongst millers in 2016-17 SS

Better yields and recovery

Due to more area under 15 and 18 month crops

Better care of crop, incl. irrigation, by farmers

No other crop giving equivalent returns

In fact, despite arrears, farmers are still growing ‘surplus’ sugarcane

With better and timely payments, area will increase further

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Imp. to remember that ……

Govt. fixes price of 17 crops

But, except sugar and edible oil, none of the products made out of these

crops are essential commodities

Prices of none of those other products are so strictly and closely

monitored or controlled by Govt.

Govt. will continue to protect the farmers and guarantee a

price to them for their produce

Therefore, some solution has to be found within this framework

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Best way forward ……

There should be a direct relationship between revenue realisation

from sugar & primary by-products and sugarcane price

The best system, followed world over, is a revenue sharing formula (RSF)

Under which, cane price is automatically determined at a certain % of

revenue realised by the millers

Cane price moves alongwith the price of sugar and by-products

In other words, cane price to farmers can also decrease in some years

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RSF in India and challenges thereof …

Small & marginal farmers here, where the Govt. would want to

guarantee a minimum cane price at FRP

No problem, if cane price as per RSF is above or equal to FRP

But if that cane price is below FRP

FRP becomes unaffordable & unpayable by mill

But farmers would still need to be given minimum FRP

So, who will pay and from where??

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So what is the best solution ??

As mentioned above, the problem is mainly when the cane price

as per RSF is lower to the FRP

CACP has continuously recommended since 2015-16 SS

Miller to pay as per RSF

Difference between RSF and FRP be borne by Government

Difference to be financed from a Price Stabilisation fund (PSF)

Payment/ benefit from PSF may be made directly to farmers

The question remains how to fund PSF??

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Self sustaining model within sugar sector

Surplus Sugar

Low ex-mill sugar prices Low retail sugar prices

Cane price arrears Low cane price as per RSF Cess on sugar

Govt. subsidy or incentives

Direct payment to farmers Rs.1/kg cess = Rs. 2500 crore

Normal or Low retail priceCollection/Credit into PSF

(Rs. 2500 crore = Rs 10/qtl. of cane price)

(Farmers get FRP)

(No budgetary requirement)

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A win-win situation for all stakeholders

Farmers: Will get their FRP, largely from mills and balance from

PSF. No cane price arrears.

Consumers: The cess is levied only when retail prices are low, so

there is no extra burden on them

Millers: They pay cane price as per RSF, and thus will remain

viable and competitive

Government: No budgetary support or subsidy. The funds

collected from sugar consumers and spent in the sector itself

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Govt. has experimented with this model ….

Sugar cess increased by Rs.1 per kilo wef 1st Feb, 2016

Which would give Govt. approx. Rs.2500 crore in a year

Which will broadly support Rs.10 per quintal of cane in one season

Given Rs.4.50 per quintal of cane as production subsidy

Only thing is this structure needs to be formalised and linked to

actual price realisation

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ISMA’s request before Government

To adopt revenue sharing formula (RSF)

With Price Stabilisation Fund (PSF) to fill gap between RSF& FRP, if any

Disbursement from PSF may be made directly to the farmers

If Govt. wants to guarantee FRP, it should adopt PSF, otherwise there

should be no minimum FRP

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ISMA’s request before Government

The cane price payment needs to be in two instalments

Since with RSF, sugar price and recoveries will need to be determined

Which can be done only at the end of the season

An independent institution or regulator be appointed to collect

prices of sugar /products to determine cane price in the RSF model

Should have a level playing field for all sugar producers i.e. have a

uniform cane price across the country, linked to sugar recovery

5 States are distorting the sugarcane economy, even when GOI tries to maintain

uniformity in sugar and ethanol prices

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Global practice of cane price payment

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3143

3286

Structure Brazil Australia Thailand

Cane pricing body CONSECANA Queensland Sugar

Ltd.

Thai Cane and

Sugar Board

Millers Body UNICA Queensland Sugar

Ltd.

Thai Sugar Millers

Corporation

Sugarcane growers ORPLANA Cane growers

association

-

Revenue sharing 60 – 40 66 – 33 70 – 30

Explicitly linked to Sugar and Ethanol

Price

Sugar Price Sugar and Molasses

price

Cane price paid as per RSF in 3 exporting countries and

India having fixed FRP

Year

Cane price paid (Rs. per ton)

Brazil Australia ThailandIndia

FRP Average

recovery

2011-12 1946 1692 1530 1565 10.25%

2012-13 1734 1947 1625 1795 10.03%

2013-14 1641 1631 1710 2261 10.23%

2014-15 1623 1733 1683 2402 10.37%

2015-16 1179 1442 1683 2580 10.65%

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Thank you