Centre raises fair price of sugar cane

Context:

The Central government has hiked the minimum price that sugar mills must pay to cane farmers setting the fair and remunerative price (FRP) at ₹290 a quintal for the 2021-22 sugar season.

Relevance:

GS-III: Agriculture (Agricultural Pricing and Marketing, Food Security)

Dimensions of the Article:

1. Sugar Industry in India and its isssues
2. What is (Fair and Remunerative Price (FRP) for Sugarcane?
3. What are the Concerns behind FRP for Sugarcane
4. MSP for Sugar

Click Here to read about Sugar Industry in India and Payment Arrears

What is (Fair and Remunerative Price (FRP) for Sugarcane?

• FRP is fixed under a sugarcane control order, 1966 and it is the minimum price that sugar mills are supposed to pay to the farmers.
• However, states determine their own State Agreed Price (SAP) which is generally higher than the FRP.

Factors considered for FRP of Sugarcane

• The amended provisions of the Sugarcane (Control) Order, 1966 provides for fixation of FRP of sugarcane having regard to the following factors:
  1. cost of production of sugarcane;
  2. return to the growers from alternative crops and the general trend of prices of agricultural commodities;
  3. availability of sugar to consumers at a fair price;
  4. price at which sugar produced from sugarcane is sold by sugar producers;
  5. recovery of sugar from sugarcane;
  6. the realization made from the sale of by-products viz. molasses, bagasse, and press mud or their imputed value;
  7. reasonable margins for the growers of sugarcane on account of risk and profits.

What are the concerns behind FRPs for Sugarcane?

• FRPs would adversely affect the financial health of the sugar factories in times of low sugar prices where the companies has to pay the MSP even though the sugar prices are low.
• The FRPs are not market-based and are priced at artificially inflated levels by governments.
• This, in turn, puts pressure on the sugar mills who have to purchase the crop from the farmers at these inflated FRPs.
• And while the government has raised ethanol prices dramatically to help sugar mills find an alternative source of demand to pay for the excessively priced sugarcane, once oil prices fall to reasonable levels, oil PSUs won’t be able to afford the ethanol.

Minimum Selling Price (MSP) for Sugar

• The price of sugar is market-driven & depends on the demand & supply of sugar.
• However, with a view to protecting the interests of farmers, the concept of MSP of sugar has been introduced since 2018.
• MSP of sugar has been fixed taking into account the components of Fair & Remunerative Price (FRP) of sugarcane and minimum conversion cost of the most efficient mills.

Basis of price determination

• With the amendment of the Sugarcane (Control) Order, 1966, the concept of Statutory Minimum Price (SMP) of sugarcane was replaced with the Fair and Remunerative Price (FRP)’ of sugarcane in 2009-10.
• The cane price announced by the Central Government is decided on the basis of the recommendations of the Commission for Agricultural Costs and Prices (CACP).
• This is done in consultation with the State Governments and after taking feedback from associations of the sugar industry.

-Source: The Hindu