‘The Government should keep out of cane pricing’

Sakthi Sugars Executive Chairman M Manickam says FRP has become a political tool

The going gets tough for sugar mills with sugar prices hitting rock bottom. M Manickam, Executive Chairman, Sakthi Sugars, spoke to BusinessLine on the challenges facing the industry and why the Centre has to stop fixing cane prices. Excerpts:

What is the reason for the industry’s current problem of high output and low sugar prices?

Over the past few years, the Centre has been increasing the FRP (fair and remunerative price) of sugarcane disproportionate to other crops — a yearly increase of 8-10 per cent when general inflation has been 3-4 per cent. So, farmers planted more cane and, now, the market is flooded with sugar.

The government is talking about revenue-share pricing in cane. What is the situation now?

The Government is considering either 75 per cent of sugar revenue or 70 per cent of aggregated revenue, but, both work out to almost the same. So, 75 per cent of ₹27/kg that I get today will be not more than ₹20/kg; but I pay the FRP of ₹25.5/kg …In Uttar Pradesh, in fact, mills pay ₹32/kg (because of the state advised price or SAP).

The Government talks about a revenue share of 70 per cent, but mills in UP are paying over 100 per cent of their revenue for one raw material when they have to also spend on wages and other items of cost. So, I think we are over-pricing cane.

Rangarajan Committee says FRP should be the minimum support price. Do you agree?

Fixing of FRP itself has become political today. They have increased it like crazy and now mills are making losses at FRP itself.

The government forces us to pay the FRP when nobody is paying the MSP (minimum support price) for other crops. Pulses are selling below MSP… there is nobody to question this. But sugar mills get trapped because they are identifiable bodies and limited in number.

At an FRP of ₹255 per quintal, what margin does a farmer make on cane? How is it when compared to Brazil?

The Indian farmer makes a huge margin. See, the cost of cultivation in cane is not more than ₹1,200-1,300 a tonne, be it here or in Brazil. But, the Indian farmer gets FRP of ₹2550/tonne. The problem is because the size of the holding is small. Typically, an Indian farmer has two acres, in which he produces about 60-70 tonnes of cane. To make an income of at least ₹70,000 a year, he needs a margin of ₹1,000 per tonne of cane and the Government, through FRP, promises him a margin of ₹1,200-1,300 per tonne. On the other hand, a Brazilian farmer has 10,000 acres. He doesn’t take much profit. He keeps a margin of only $1-2 per tonne and will still make a lot of money as his farm is 10,000 acres. His $2 per tonne works out to ₹130 per tonne, while the Indian farmer gets a margin of ₹1,300 per tonne.

So, either we should reverse the land ceiling and give the cane farmers more land or the government should not be announcing such a premium.

What do you think is the solution?

The Government has to get out of pricing — there should be no FRP/SAP. If, however, the Government wants FRP, it must procure cane from farmers directly and give us just milling charges. We will be happy if we are paid ₹300-400 for every tonne of cane crushed.

Tamil Nadu too is moving to revenue-share pricing in cane from this season. So, what will be the price paid to the farmer?

Mills are paying the FRP now. If there is any excess based on the revenue-share formula, that will be paid to the farmers at the end of the season.

What’s troubling sugar mills in Tamil Nadu now?

We have had drought for two years in a row. In fact, even in the last four years, rainfall has been below normal. So mills here are going through a bad cycle. The other problem is that we have too many factories. We don’t need 43 factories in Tamil Nadu; there are factories even in locations which are not viable.

Are you getting cane? What is the capacity utilisation of mills in the State now?

There is shortage of cane. Mills are running at about 20 per cent capacity utilisation. Transporting cane from Maharashtra or UP is costly and there is the risk of spoilage. The cane needs to be crushed within a day, ideally within three hours.

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