MSP on sugar: Industry demands and likely impact on retail prices
On June 14, the National Federation of Cooperative Sugar Factories (NFCSF) urged the government to raise the minimum selling price (MSP) of sugar to ₹42 per kg, citing rising production costs. The MSP has remained ₹31 per kg since 2019, despite annual increases in the fair and remunerative price (FRP) for sugarcane. Analysts predict any MSP hike may take 3-4 months and be lower than industry demands.
Industry body National Federation of Cooperative Sugar Factories (NFCSF) on June 14 urged the government to increase the minimum selling price (MSP) of sugar to at least ₹42 per kg to help mills manage rising production costs.
The MSP has remained at ₹31 per kg since 2019, despite the government raising the fair and remunerative price (FRP) paid to cane growers each year.
MSP is the government-set minimum price at which sugar mills can sell sugar, aimed at covering production costs while FRP is the minimum price sugar mills must pay to farmers for sugarcane, ensuring fair compensation.
In a statement, Harshvardhan Patil, President of NFCSF, which represents the co-operative sugar mills in the country, said the federation provided data to Food Ministry officials, highlighting a consistent rise in sugar production costs.
This data supports the need to adjust the MSP in line with the FRP for sugarcane.
“The sugar industry can be viable if the minimum selling price of sugar is increased to ₹42 per kg,” a PTI report said quoting Patil.
The NFCSF and National Cooperative Development Corporation are jointly working on a scheme to provide cane harvesting machines to cooperative mills based on their crushing capacity from the upcoming season starting in October 2024, he said.
Sugar analysts, however, believe a potential increase in the MSP, which may not happen at least for another 3-4 months, if not longer, will not have any material impact on prevailing sugar prices.
Analysts also expect the MSP hike, if any, may be lower than the industry demands.
The prices have remained resilient despite the increase in production, Prashant Biyani, VP of Institutional Equity Research and Sector Lead for Agri-Inputs, Sugar, and Hotels at Elara Securities said in an interview with CNBC-TV18.
“The industry has been asking for a revision of MSP essentially to make this as a kind of an institutional, rather institutionalise the whole process because FRP keeps getting increased and the MSP doesn’t move. So if this is increased then it will send the right signal and it will also give the signal to the farmers that their money is going to be assured in future as the industry is not going to lose money,” said Atul Chaturvedi, Executive Chairman at Shree Renuka.
Biyani anticipates that for the remainder of the current season, most ethanol demand will focus on C-heavy ethanol and grain ethanol, for which the government has already increased prices.
Consequently, no further price hikes are expected this season. For the next season, the government will set prices as part of their annual revision.
