The government has set up a five-member panel, led by former Niti Aayog member Ramesh Chand, to review sugarcane pricing and the financial health of sugar mills. This committee will address the long-standing gap between the stagnant minimum selling price of sugar and rising farmer payments. The findings could impact the profit margins and cash flow of major sugar companies.
The central government has formed a five-member committee, chaired by former Niti Aayog member Ramesh Chand, to re-examine the sugar sector’s pricing policy. This panel will investigate the balance between farmer income and the financial stability of sugar mills. For years, the industry has dealt with the challenge of paying farmers the Fair and Remunerative Price (FRP) while selling sugar at a government-mandated minimum price, or MSP.
The sugar industry has long requested a hike in the minimum selling price of sugar, which has remained fixed at ₹31 per kilogram since the 2018-19 season. During this same period, the government has frequently increased the FRP, the price mills are legally required to pay farmers for sugarcane. This mismatch has often squeezed profit margins for sugar producers, leading to higher debt levels as mills struggle to clear payment dues, known as arrears, to farmers.
For investors, this review is significant because it directly touches on the operating margins of major sugar manufacturers like Balrampur Chini Mills, Triveni Engineering, and EID Parry. When sugar prices are kept low by regulation, mills often rely on by-products like ethanol to support their earnings. A potential revision in the MSP could provide relief to these balance sheets, though any decision remains subject to government policy priorities, which often balance industrial health against consumer price inflation.
The committee’s scope also extends to operational issues, such as the accuracy of cane weight measurement and deductions related to mechanical harvesting. These practices have been a source of conflict between farmers and mills, leading to supply disruptions during the crushing season. By addressing these, the government aims to create a more predictable environment for both sides.
Investors should note that the sugar sector remains highly sensitive to government intervention. While the committee will provide recommendations, the timing and extent of any price revision are not guaranteed. The key event to watch will be the release of the committee's final report and whether the government decides to implement a hike in the minimum selling price, which could impact the profitability and cash flow of sugar companies in the coming seasons.