FRP/SAP dues 15,000 crores- Ensuring viability of sugar factories: Urgent need for government support
The sugar industry in our country has long been a cornerstone of rural livelihoods, providing employment to millions of farmers and workers while contributing significantly to the national economy. However, in recent years, the sector has faced mounting challenges that threaten its sustainability and the well-being of those dependent on it.
One of the primary challenges confronting sugar factories today is the delay in Fair and Remunerative Price (FRP) and SAP payment to sugarcane farmers. Despite legal provisions mandating timely payments within 14 days of cane supply, many factories are struggling to meet this obligation, exacerbating financial strain on farmers and aggravating tensions between stakeholders.
Moreover, the discrepancy between the Fair and Remunerative Price (FRP) for sugarcane and the Minimum Support Price (MSP) for sugar has created a dire situation for sugar factories. While the cost of production, including the FRP, continues to rise, the MSP remains stagnant, leaving factories unable to cover their expenses and resulting in widespread losses.
Talking to ChiniMandi, P.G. Medhe said, “By the end of 15th March, 2024, FRP/SAP payments of sugarcane supplied to sugar factories dues in India increased upto ₹ 15,000 crores. As per the provisions of the Essential Commodity Act and correspondence Sugar Control Orders issued, sugar factories are required to pay FRP of sugar cane supplied within 14 days from the supply of sugar cane to the factory by the cane cultivators. But due to several reasons, sugar factories are not in a position to make the payment of the FRP of the sugar cane supplied by the cane cultivators.”
Govt. Of India fixing the FRP of cane on the basis of the recommendations of the Commission for Agricultural Cost & Prices, the Chairman of the said committees is the Prime Minister of India. On the basis of the reports of the Committee from time to time, Govt. has revised the FRP of sugar cane as follows:
Year…………… FRP Fixed (Per Tonne)
2019-20……………2750
2020-21…………. 2850
2021-22…………..2900
2022-23…………..3050
2023-24……………315
2024-25……………3400
When FRP fixed @ ₹2750/- , MSP of sugar was fixed @ ₹ 3100/- per Qntl. But subsequently there is no proportionate increase in the MSP of sugar. As per the Rangarajan Committee report, MSP of sugar should be revised proportional to the increase in FRP which has not happened since 2019-20. Govt. continued revising the FRP only and not taken into consideration the increased cost of production of sugar due to revision in the FRP of sugar cane. This has created the Miss-match and sugar factories are unnecessarily incurring the losses due to increased cost production of the sugar against the realisation of from the sale of sugar in the market.
The detailed data about the cost of production of the sugar is as follows:
Sr.No.Particulars. Per Tone / Per Qntl
1) Fixed cost.
A) FRP——————– 3150 / 3073
2) Variable cost………… 502 / 489
a) Power…………………..14
b) Chemicals……………..33
c) Wages………………… 230
d) Packing…………………45
e) Repairs…………………82
f) Overhead………………98
3) Financial
Experience……………. 313/ 305
a) Working capital
Interest …………………..217
b) Term Loan…………… 96
Total Expenditure …………3965 / 3867
Above calculations are on the basis of FRP ₹3150/- per Tonne (2023-24). For the next 2024-25 crushing season expenditure will be increased as FRP for the year is declared as ₹3400/- per MT.
Hence, above data about the cost of production itself is self explanatory, why FRP/SAP dues have increased up to ₹15000 crores. This is going on since the last three years which resulted in increased burden of interest, default in payment of loan instalments, heavy burden of loan amount, negative net worth/NDR and NPA’s. During the last three years FRP dues have been paid by the factories by raising loans. Due to such financial constraints, Bankers are not ready to give additional loans.
In the light of these challenges, it is imperative for the government to intervene and provide much needed support to the sugar industry. There may be short term and long term measures to address the pressing issues faced by the sugar factories of the country.
SHORT TERM MEASURES:
1) Urgent revision in the MSP of sugar –
There is prompt action from the government in needed to increase the MSP of sugar from ₹ 3100/- to ₹ 4000/- per Qntl of sugar to reflect the current cost of production, including the Fair & Remunerative Price(FRP) for sugar cane. In addition, strict attention may be given towards the corresponding revision of MSP, wherever FRP of sugar cane is revised.
2) Restructuring and Rescheduling of all types of loans other than SDF –
Due to various reasons mentioned above , sugar mills are facing the problem of adverse net worth and NDR- which becomes the obstacles in easy a availability of funds from the Banks and further recurrence of accumulation of FRP payments of the cane cultivators, salaries and wages of the employees as well as payments of material suppliers. Hence, there is a necessity of restructuring all types of outstanding loans for a period of 10 years giving 3 years moratorium period. This will help extend the time limit for qualifying accounts to become NPAs.
3) Provisions of working capital/ Margin money loans at subsidised rates through NCDC –
NCDC being the exclusive apex federal body for helping Co-operatives to meet their financial contingencies, Union Govt. may consider infusing appropriate funds to NCDC for the same to help in reducing the financial stress and go a long way in revival of sugar mills facing financial stringencies.
LONG TERM MEASURE:
Implementation of Dual Pricing Policy for Sugar- It is established data that out of average domestic sugar consumption of 260 to 275 Lmts, Industrial buyers consume 65 to 70% and only 30 to 35 % of the sugar is required for domestic consumption.
Hence, in order to bring financial stability to the Sugar Industry of the country one for all, Duel Pricing Policy of Sugar is the need of the hour. Industries using sugar as a raw material for their products are making huge profits as there is no control over the prices of their final products. There will not be any problem in implementing this policy by using recently developed Internet technology and data management with help of Food Corporation of India.
It is crucial for policymakers to recognise the urgency of the situation and take prompt action to implement these measures. Delayed decisions and inaction will only exacerbate the crisis facing sugar factories and deepen the hardships faced by the farmers and workers across the country.
Mr. P.G. Medhe is the former Managing Director of Shri Chhatrapati Rajaram Sahakari Sakhar Karkhana Ltd and sugar industry analyst. He can be contacted at +91 9822329898.
Source Link : https://www.chinimandi.com/frp-sap-dues-15000-crores-ensuring-viability-of-sugar-factories-urgent-need-for-government-support/
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