Why the Government Must Increase the MSP of Sugar?

Dilip Patil

The Minimum Selling Price (MSP) of sugar is a critical policy tool that ensures the financial stability of sugar mills, protects farmers’ incomes, and maintains the overall health of the sugar industry. Given the current challenges facing the industry, there is a strong justification for the government to increase the MSP of sugar.

Here are the key reasons:

Rising production costs present a significant challenge for the sugar industry. The Fair and Remunerative Price (FRP) for sugarcane has risen to ₹340/quintal, significantly increasing the cost of raw material for sugar mills. Additionally, fertilizer, labor, and transportation costs have surged by 20-30% since 2021, further squeezing profit margins. A potential 15% wage hike for workers adds to the financial burden on sugar mills. Without an MSP hike, mills cannot cover these rising costs, leading to financial losses and operational challenges.

Lower sugar production estimates have further strained the industry. Erratic monsoons and water stress have led to a downward revision of sugar production estimates for 2024-25 to 259-264 lakh metric tons (LMT), compared to previous years. Reduced cane crushing and yields have further constrained production. Lower production means reduced revenue for mills, and an MSP hike would help offset the revenue shortfall and ensure mills remain financially viable.

Stagnant ethanol prices compound these challenges. Ethanol prices for Sugarcane Juice (SCJ) and B-Heavy Molasses (BHM) have remained unchanged since 2023, making ethanol production less profitable for mills. Mills are caught between rising sugarcane costs and stagnant ethanol prices, reducing their ability to diversify revenue streams. An MSP hike would compensate for the lack of growth in ethanol revenues, ensuring mills can continue to invest in ethanol production as part of India’s renewable energy goals.

The sugar industry is facing a severe liquidity crisis. Sugar mills are struggling with cash flow issues, making it difficult to pay farmers on time due to the gap between production costs and sugar sales revenue. Delayed payments to farmers can lead to social unrest and disrupt the agricultural economy. Increasing the MSP would improve cash flow for mills, enabling them to clear farmer arrears and maintain trust in the sugar supply chain.

Mill viability and prevention of closures is another critical concern. Many sugar mills, especially smaller ones, are on the verge of closure due to financial distress. Without financial relief, mills may delay start-ups or operate at reduced capacity, impacting sugar supply and employment. An MSP hike would provide the necessary financial support to keep mills operational, ensuring a stable sugar supply and protecting jobs in rural areas.

Supporting national goals is also an important consideration. The government aims to achieve 20% ethanol blending with petrol by 2025. However, stagnant ethanol prices and rising sugarcane costs are making it difficult for mills to contribute to this goal. A stable sugar industry is essential for ensuring food security and maintaining affordable sugar prices for consumers in the long term. An MSP hike would align with national goals by supporting ethanol production and ensuring the sustainability of the sugar industry.

Balancing inflation and consumer impact requires careful consideration. While an MSP hike could push retail sugar prices to ₹48-50/kg (from the current ₹44-45/kg), the increase would be moderate and manageable for consumers. The government can mitigate inflationary pressures by implementing targeted subsidies or export bans to stabilize domestic sugar prices. The benefits of an MSP hike—mill viability, farmer payments, and industry stability—outweigh the temporary impact on retail prices.

Long-term industry sustainability is at stake without government intervention. Without an MSP hike, the sugar industry risks collapse, which would have far-reaching consequences for farmers, workers, and the rural economy. Higher MSP revenues would enable mills to invest in modernization, improving efficiency and sustainability. An MSP hike is a necessary intervention to ensure the long-term sustainability of the sugar industry and its contribution to the economy.

International competitiveness is another factor to consider. India is the world’s second-largest sugar producer and a major exporter. However, the global sugar market is highly competitive, with countries like Brazil benefiting from lower production costs. An appropriate MSP increase would help Indian mills remain competitive in international markets while ensuring they can meet domestic demand. This balance is crucial for maintaining India’s position in the global sugar trade while protecting domestic interests.

Rural employment and social stability are deeply connected to the sugar industry. The sector employs millions of workers directly and indirectly, particularly in states like Uttar Pradesh, Maharashtra, and Karnataka. A collapse of sugar mills would trigger massive unemployment and social unrest in rural areas. By increasing the MSP, the government would be safeguarding not just an industry but also the livelihoods of millions of rural families who depend on it.

Historical precedent supports MSP adjustments. Past instances of MSP increases have successfully stabilized the industry during crisis periods. For example, the 2018 MSP hike from ₹29/kg to ₹31/kg helped mills weather financial difficulties and improved payment flows to farmers. Given that production costs have risen substantially since then, a proportionate increase now would be consistent with established policy approaches.

The government should increase the MSP of sugar to address the financial crisis facing the industry, support farmers, and ensure the long-term viability of sugar mills. While there may be a modest impact on retail prices, the benefits of an MSP hike—such as stabilizing the industry, clearing farmer arrears, and supporting national ethanol blending goals—far outweigh the costs. This intervention is essential to prevent the collapse of the sugar industry and its cascading effects on the rural economy.

The Author Dilip Patil is Managing Director of Karmyogi Ankushrao Tope Samarth Co-op Sugar Factory, Ambad -Jalna. (Maharashtra)