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DAILY NEWS ANALYSIS

  • 26 August, 2021

  • 12 Min Read

FRP and Sugar Pricing Policy in India

FRP and Sugar Pricing Policy in India

  • With the amendment of the Sugarcane (Control) Order, 1966 on 22.10.2009 and the concept of Statutory Minimum Price (SMP) of sugarcane was replaced with the ‘Fair and Remunerative Price (FRP)’ of sugarcane for 2009-10 and subsequent sugar seasons.
  • 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) after consulting the State Governments and associations of the sugar industry.
  • The amended provisions of the Sugarcane (Control) Order, 1966 provide 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
  • Under the FRP system, the farmers are not required to wait till the end of the season or for any announcement of the profits by sugar mills or the Government.
  • The new system also assures margins on account of profit and risk to farmers, irrespective of the fact whether sugar mills generate profit or not and is not dependent on the performance of any individual sugar mill.
  • In order to ensure that higher sugar recoveries are adequately rewarded and considering variations amongst sugar mills, the FRP is linked to a basic recovery rate of sugar, with a premium payable to farmers for higher recoveries of sugar from sugarcane.
  • Accordingly, FRP for the 2017-18 sugar season has been fixed at Rs. 255 per QTL. linked to a basic recovery of 9.5% subject to a premium of Rs.2.68 per QTL for every 0.1 percentage point increase above that level.

FRP of Sugarcane in 2021-22

  • Government has approved the Fair and Remunerative Price (FRP) of sugarcane for sugar season 2021-22 (October - September) at Rs. 290/- per quintal.
  • The cost of production of sugarcane for the sugar season 2021-22 is Rs. 155 per quintal. This FRP of Rs. 290 per quintal at a recovery rate of 10% is higher by 87.1% over production cost, thereby giving the farmers a return of much more than 50% over their cost.
  • In the current sugar season 2020-21, about 2,976 lakh tons of sugarcane worth Rs. 91,000 cr was purchased by sugar mills, which is at all-time high level & is the second highest next to the procurement of paddy crop at Minimum Support Price.
  • Keeping the expected increase in the production of sugarcane in the ensuing sugar season 2021-22, about 3,088 lakh tons of sugarcane is likely to be purchased by sugar mills. The total remittance to the sugarcane farmers will be about Rs. 1,00,000 crore. The Government through its pro-farmer measures will ensure that sugarcane farmers get their dues in time.
  • The FRP approved shall be applicable for purchase of sugarcane from the farmers in the sugar season 2021-22 (starting w.e.f. 1st October, 2021) by sugar mills.
  • In last 3 sugar seasons 2017-18, 2018-19 & 2019-20, about 6.2 Lakh Metric Tonne (LMT), 38 LMT & 59.60 LMT of sugar has been exported. In the current sugar season 2020-21 (Oct – Sept.), against the export target of 60 LMT, contracts of about 70 LMT have been signed & more than 55 LMT has been physically exported from the country, as on 23.8.2021. The export of sugar has improved the liquidity of sugar mills enabling them to clear cane price dues of farmers.
  • Government is also encouraging sugar mills to divert excess sugarcane to ethanol which is blended with petrol, which not only serves as a green fuel but also saves foreign exchange on account of crude oil import. In last 2 sugar seasons 2018-19 & 2019-20, about 3.37 LMT & 9.26 LMT of sugar has been diverted to ethanol. In the current sugar season 2020-21, more than 20 LMT is likely to be diverted.
  • In the past 3 sugar seasons about Rs. 22,000 crore revenue was generated by sugar mills/ distilleries from the sale of ethanol to Oil Marketing Companies (OMCs).
  • In the current sugar season 2020-21, about Rs. 15,000 cr revenue is being generated by sugar mills from the sale of ethanol to OMCs at 8.5%.
  • This is expected to significantly increase in the next 3 years as we go up to 20% blending by 2025.
  • In the previous sugar season 2019-20, about Rs. 75,845 crores cane dues were payable, out of which Rs. 75,703 crores has been paid & only Rs. 142 crore arrears are pending. Even, in the current sugar season 2020-21, out of cane dues payable of Rs. 90,959 crores, Rs. 86,238 crores cane dues have already been paid to farmers. An increase in export & diversion of sugarcane to ethanol is ensuring timely cane price payments to farmers.

De-regulation of Sugar sector on the recommendations of C. Rangarajan Committee report

  • The year 2013-14 was a watershed for the sugar industry.
  • The Central Government considered the recommendations of the committee headed by Dr. C. Rangarajan on the de-regulation of the sugar sector and decided to discontinue the system of levy obligations on mills for sugar produced after September 2012 and abolished the regulated release mechanism on open market sale of sugar.
  • The de-regulation of the sugar sector was undertaken to improve the financial health of sugar mills, enhance cash flows, reduce inventory costs and also result in timely payments of cane price to sugarcane farmers.

C Rangarajan Committee report

  • Cane Area Reservation: Over a period of time, states should encourage development of such market-based long-term contractual arrangements, and phase out cane reservation area and bonding. In the interim, the current system may continue.
  • Minimum Distance Criteria: It is not in the interest of the development of sugarcane farmers or the sugar sector, and may be dispensed with as and when a state does away with cane reservation area and bonding.
  • Sugarcane Price : Revenue Sharing: Based on an analysis of the data available for the by-products (molasses and bagasse/cogeneration), the revenue-sharing ratio has been estimated to amount to roughly 75 per cent of the ex-mill sugar price alone.
  • Levy sugar may be dispensed with. The states which want to provide sugar under PDS may henceforth procure it from the market directly according to their requirement and may also fix the issue price. However, since currently there is an implicit cross-subsidy on account of the levy, some level of Central support to help states meet the cost to be incurred on this account may be provided for a transitory period.
  • Regulated Release Mechanism: This mechanism is not serving any useful purpose, and may be dispensed with.
  • As per the committee, trade policies on sugar should be stable. Appropriate tariff instruments like a moderate export duty not exceeding 5 % ordinarily, as opposed to quantitative restrictions, should be used to meet domestic requirements of sugar in an economically efficient manner.
  • By products: There should be no quantitative or movement restrictions on by-products like molasses and ethanol. The prices of the by-products should be market-determined with no earmarked end-use allocations. There should be no regulatory hurdles preventing sugar mills from selling their surplus power to any consumer.
  • Compulsory Jute Packing: May be dispensed with.
  • The recommendations of the Committee relating to Cane Area Reservation, Minimum Distance Criteria and adoption of the Cane Price Formula have been left to State Governments for adoption and implementation, as considered appropriate by them.

Source: PIB


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