Pricing of sugarcane and sugar
By M. Shafi Niaz
Agricultural Prices Commission (APCom) set up in 1981, was
required to advice the government on the support price of
about half a dozen important crops like wheat, rice, cotton,
sugarcane and oilseeds. In doing so, the APCom had to
consider about 15 different criteria.
These included the cost of production, export and import
parity price, domestic and world demand, supply and stock
position at the beginning of crop year, its effect on the
raising of other competing crops, especially those which
compete for water and land.
Amongst these criteria, working out the cost of production
was found to be the most difficult, complicated and
controversial one, because it differed from province to
province, district to district, and village to village and
farmer to farmer and field to field of the same farmer.
To find a scientific and agreeable solution, the APCom
adopted a random sampling technique followed
In the case of sugarcane, the APCom, through this mode,
selected about 1,165 farmers from the three cane-growing
provinces. Through visits to these farmers, data on various
expenditures the farmers incurred in raising the crop were
collected. These expenditures included cost of seed, land
preparation, fertilisers, irrigation, hoeing, harvesting
Then data for each province was compiled and analysed. Based
on this analysis, the cost of production was worked out as
it was at farm level, including and excluding land revenue,
including and excluding land rent, and at mill gate which
included transport costs to mills and development cess.
The issue of cost of sugar production and other issues
relating to the support price of cane were discussed at the
APCom standing committee on sugarcane. This committee had
representation of all stakeholders including growers, mill
owners and federal and provincial governments’
representatives. The committee used to discuss all relevant
issues to reach a broad consensus.
Based on this exercise, APCom made recommendations to the
ministry of food and agriculture (MINFAL) which, after
obtaining views of other federal and provincial ministries
concerned, would send a summary on the subject to the
cabinet based on technical analysis.
But the cabinet took its decision keeping in view the
political considerations which could be contrary to the
APCom recommendations. The cabinet fixed the minimum price
the farmers of each province should get for their produce
containing recovery of 8.5 per cent in the Punjab and the
NWFP and 8.7 per cent in Sindh. If recovery at the end of
crushing season was found to be higher than these benchmarks
by the mills, the farmers would get a ‘quality premium’, the
amount of which was announced at the time minimum support
price was declared.
Over the last few years, the procedure has been replaced
with a ‘free market system’. The provinces fix the price
which sometime creates problems for the federal government,
particularly the ministry of food and agriculture to
reconcile or solve them. It would be better if instead of
taking rather ad hoc decisions, the recommendations made by
the APCom [now the Agricultural Policy Institute (API)] are
adopted. My information is that API has not produced any
report for the sugarcane crop for 2008-09 and 2009-10. The
government does not seem to be interested in using the API
But I would suggest that the input from the API in the form
of a detailed report (to be prepared by them) should form
the basis for determining cane prices for the next
year.These prices would be on the basis of 8.5 per cent
recovery for Punjab and NWFP and 8.7 per cent recovery for
the Sindh crop. At the time the “quality premium” should
also be announced, but payable by every mill after the
crushing season is over and the recovery level is known.
This ‘quality premium’ would be payable after the crushing
season at the rate of an increase of 0.1 per cent recovery
over the base recovery level. Similarly, there should be
discounted “quality premium” if the average recovery of the
mill turns out to be less than 8.5 per cent in Punjab and
NWFP, and 8.7 per cent in case of Sindh. Such an action
would take care of one of the major objections of mills for
not starting the crushing season on schedule.
The prices should be announced at least 6-8 week prior to
the sowing season so that farmers could take decision about
their sowing plans in time.
In the 1980s, the ministry of industries used to calculate
sugar prices on the basis of cane support price. Dr
Mahboob-ul-Haq, the then minister for commerce and
industries, passed on this responsibility to the APCom.
Until recently, sugar prices were determined by it.
While sugarcane prices were approved by the cabinet, these
were fixed by the ECC presided over by the finance minister.
The system was working satisfactorily till such time the
so-called ‘free market’ system was adopted under the
influence of international financial institutions.
This system has created confusion in marketing of
sugar/sugarcane, wheat, rice/paddy, cotton, etc. Such
decisions should be left to local experts who are equally,
if not better, than their foreign counterparts.
Unfortunately, the sugar crisis is continuing. One of the
major reported reasons mills take as plea is that they
purchased cane at prices ranging from, say Rs60/40 kg to
Rs120 or more, and the price of sugar at Rs40 per kg fixed
by the court does not cover their cost.
I would like to suggest as to how an amicable solution to
the crisis could be found.
Every mill has a record of cane delivered by every farmer
and the price paid to him. At the end of the year, the mill
has all the data regarding the cane purchased, and the
prices paid to each supplier. It should not be difficult to
work out at the end of the year, an average weighted price
for the total cane crushed during the entire crushing period
of a mill.
All the mills, for example, in Punjab, would thus
have a similarly worked out weighted price paid for
the purchase of cane (by each of the mill) during
the crushing season. This average weighted price of
each mill can then be averaged for the whole
province. Thus one can have the weighted price of
cane for each cane growing province. If so required,
these prices of the provinces can be further
weighted averaged, which would give a better idea
based on scientific method, as to the price paid by
the mills for the purchase of cane in each province
or even for the country as a whole.
This is somewhat a lengthy exercise, but in this age
of computer, this is the best way to solve this
thorny problem facing the court and the
policymakers. On this basis, the production cost of
sugar can be determined. However, the differences on
factors in working out the cost of sugar can be
settled by mutual consultations. In anyway, the cost
of cane is the major (80 to 90 per cent) component
of the sugar cost.
The above exercise would greatly help reduce the
intensity of the crisis, if the government can
ensure that hoarders deliver sugar to the
government, and smuggling is checked.
Courtesy: The DAWN