The food ministry will soon place a proposal before the Cabinet Committee on Economic Affairs to raise the benchmark price of sugarcane by Rs 10 a quintal for the next marketing year starting October, a senior government official said on Tuesday.

The Commission For Agricultural Costs and Prices (CACP) last year suggested the fair and remunerative price (FRP) of cane be raised to Rs 220 per quintal for 2014-15 from Rs 210 this year, after factoring in the cost of production, the official told FE.

The FRP is usually linked to a basic recovery rate of 9.5%, subject to a premium of Rs 1.46 for every 0.1 percentage point increase in recovery beyond that. The recovery rate is the quantity of sugar that is produced out of a quintal of cane.

Although the Centre fixes the FRP, a state is free to determine the minimum price at which sugar mills within its boundary must purchase cane. The cane price set by an individual state, however, is much higher than the FRP as the ruling party often uses the pricing policy as a tool to woo farmers who form the majority of vote bases. Earlier, a move by the Centre to introduce the FRP to discourage states from fixing higher prices for cane purchases by mills was opposed by them.

In Uttar Pradesh, the state advised price of cane for 2013-14 stands at Rs 280 per quintal, compared with the FRP of Rs Rs 210.

While suggesting the FRP last year, the CACP had cautioned that any further increase in the state advised prices (SAP) of cane would drive up production costs of sugar mills. It had advised that state governments adopt revenue-sharing formula for sugarcane pricing.

Mills in Uttar Pradesh faced an unprecedented crisis this year despite the partial decontrol after banks had refused to provide working capital loans even to the major ones, citing mills' continued losses due to a drastic mismatch between cane and sugar prices and delaying the crushing operation.

The cane price in UP was 20% higher than in Central Maharashtra last year.