Sugar prices command 3-6% premium over MSP on hopes of hike in floor price

The sugar industry has estimated consumption to fall by almost half a million tonnes (MT) in the current season owing to the long spell of lockdown
Amid the anticipation of a hike in the minimum selling price (MSP) to Rs 33 a kg, the market price of sugar is holding firm and commanding a premium of 3-6 per cent over the prevailing MSP of Rs 31 a kg.

After the MSP was announced two years ago, such a premium over the floor price is seen for the first time as sugar fundamentally has remained in surplus. The MSP helps mills to earn a little around their cost of production to clear farmers dues without the government giving subsidies.

In Uttar Pradesh, the country’s top sugar producer, the ex-mill price is at almost Rs 33/kg, a premium of 6.5 per cent on the MSP. Similarly, the commodity commands a market price of around Rs 32/kg or 3.25 per cent higher vis-à-vis the MSP in Maharashtra.
The sugar price has witnessed a sharp upsurge in the past four weeks after talks of an imminent hike in the MSP gained currency following the recommendation of the NITI Aayog and demand by the states for an upward revision in the floor price to facilitate early settlement of farmers’ outstanding by the mills.

Domestic sugar mills have been facing Covid-19 headwinds, which not only hit the demand trajectory but also created impediments of transportation to key markets during the lockdown.

According to All India Sugar Trade Association (AISTA) Chairman Praful Vithlani, the sudden upsurge in the market price in the expectation of a hike in the MSP had cooled down a little, even as he exuded confidence that the floor price would soon be raised.

“I am confident that a hike in the MSP could be announced next week,” he said, adding it was the primary demand of all primary stakeholders to support the sector in the current circumstances.

A PTI report, quoting sources, stated a group of ministers headed by Union Home Minister Amit Shah on Wednesday recommended increasing the MSP of sugar by Rs 2 to Rs  33 a kg to ensure mills cleared pending cane arrears of around Rs 20,000 crore. The GoM directed the food ministry to move a Cabinet note with a proposal to hike the MSP of sugar as recommended by the NITI Aayog.

The NITI Aayog had recommended a hike in sugar MSP to Rs 33 a kg, apart from several other measures to augment the commercial viability of the domestic sugarcane value chain. The NITI Aayog recommendation had stated that the existing MSP of Rs 31 a kg did not cover the production cost vis-à-vis the cane fair and remunerative price (FRP) of Rs 275 a quintal, with the state advised prices standing still higher.

Dear Reader,

Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.

We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel