The National Federation of Co-operative Sugar Factories (NFCSF) has called on the central government to increase the Minimum Selling Price (MSP) of sugar, which has remained at Rs. 31 per kg since the 2018-19 season. The current production cost of sugar is Rs. 41.66 per kg, and NFCSF wants the MSP adjusted to match the rising production costs.
NFCSF has written a letter to the Union Food Secretary urging immediate measures to save the sugar industry from a potential collapse. As the 2024-25 sugar season begins across the country, NFCSF highlighted the growing challenges facing the sector in its letter to the government. The increasing sugar stocks and rising production costs have put a significant financial strain on the industry, which could become irreversible.
The stock of sugar at the start of the season is nearly 80 lakh metric tonnes, with an estimated total production of 325 lakh metric tonnes during the season, not including sugar diverted to ethanol.
It is estimated that 290 lakh metric tonnes of sugar will be required for domestic consumption. In this scenario, around 115 lakh metric tonnes of sugar remain in the warehouses of 535 factories across the country, with 55 lakh metric tonnes being the normative closing stock at the end of the season.
The government has announced an increase in the Fair and Remunerative Price (FRP) to Rs. 3,400 per tonne (an 8 percent increase) for the 2024-25 season to support sugarcane farmers. While this is a positive step, the sugar industry still faces significant financial challenges. The industry needs Rs. 1.5 lakh crore to continue operations, with 75 percent of this amount used for timely payments to farmers, and the remaining 25 percent for factory operations.
NFCSF expressed concern about the uncertain financial future of the sugar industry, citing the delay in the ethanol price hike despite the increased FRP, as well as the government's December 2023 decision to reduce sugar use in ethanol production, which has negatively impacted the industry. A record of sugar production is expected in the 2025-26 season, further exacerbating financial issues. NFCSF has urged the central government to urgently address these concerns.
To address these challenges, NFCSF has requested an increase in the MSP of sugar to align with production costs. Given that 80-85 percent of the industry's total revenue comes from sugar sales, a prompt increase in MSP is critical for the sector's financial stability. The current situation is causing significant losses for each kilogram of sugar sold.
NFCSF has also requested the government to raise the ethanol prices for B-Heavy molasses and cane juice, as well as to increase the allocation of ethanol from the sugar sector. The Ethanol Supply Year (ESY) 2024-25 is crucial for the Ethanol Blending Program (EBP), with a 20 percent blending target to be achieved. The ethanol requirement is 940 crore litres, with oil marketing companies allocating 837 crore litres. Of this, 37 percent (317 crore litres) is expected from the sugar industry, which will divert about 40 lakh metric tonnes of sugar. However, despite the increase in FRP, the price of ethanol from B-Heavy molasses and sugarcane juice has not been adjusted for over a year, reducing the sector's economic viability.
"The sudden restrictions on ethanol purchases by the central government in December 2023 led to a significant decline in the sugar sector's contribution to ethanol production, dropping from 83 percent in 2021-22 to just 37 percent now. To maintain the sugar industry's role in the ethanol blending program, the prices of sugarcane juice/syrup and B-Heavy molasses ethanol should be revised to Rs. 73.14 per litre and Rs. 67.70 per litre, respectively. Additionally, an increased allocation of ethanol production from the sugar sector is necessary to counterbalance the economic impact of rising sugarcane prices and ensure the sector's stability," NFCSF stated in its letter.