Govt announces Fair and Remunerative Price for sugarcane: How FRP differs from MSP

Meanwhile, the demand for hiking the Minimum Support Price (MSP) has also repeatedly come up amid the ongoing farmers’ protests around the borders of New Delhi. Here, we explain how the two price support mechanisms differ and the unique case of sugar.

What is FRP?

FRP is the price that the Centre’s Cabinet Committee on Economic Affairs (CCEA) decides. This committee includes the Prime Minister, the Defence Minister, the Home Minister, the Finance Minister, the Minister of Agriculture and Farmers Welfare and some other senior ministers.

As earlier reported in The Indian Express, sugar mills must legally pay this price to the sugarcane farmers for procurement. There is also a threat of action by cane commissioners, in case of failure to clear FRP dues within 14 days of the cane being sold by farmers. Non-clearance can lead to the attachment of mill properties as arrears of land revenue. To avoid the penalty, mills try to accelerate sales. In 2018, this haste had seen sugar prices dropping down against the cost of production.

Also as part of the process for bringing sugar to the market, the mills pledge their sugar to financial institutions to raise working capital well before the sugar season. The same is recovered by selling sugar through tenders, keeping in view both the cost of production and other margins.

The FRP is based on the recovery of sugar from the cane. For the sugar season of 2024-25, FRP is Rs 340/quintal at a recovery of 10.25%. “With each increase of recovery by 0.1%, farmers will get an additional price of Rs 3.32 while the same amount will be deducted on reduction of recovery by 0.1%,” an official statement said.

Sugar recovery is the ratio between sugar produced versus cane crushed, expressed as a percentage. The higher the recovery, the higher the FRP, and the higher the sugar produced from the cane.

And how does FRP differ from the MSP?

Sugar is one of the 23 crops for which the government provides MSP.

MSPs serve as a basic, guaranteed payment for farmers given the various vulnerabilities involved in agriculture, such as unfavourable weather conditions. In such scenarios, fluctuations in production could lead to price changes, shortage of food items for consumers and a lack of income for the farmers to support themselves.

To address this, the government announces the MSP every year for certain crops. It is the price at which the government is supposed to procure/buy that crop from farmers if the market price falls below it.

Therefore, as earlier reported, MSPs provide a floor for market prices and ensure that farmers receive a certain “minimum” remuneration so that their costs of cultivation (and some profit) can be recovered. The price is fixed based on the recommendations of the Commission for Agricultural Costs and Prices (CACP).

It comprises a Chairman, a Member Secretary, one Member (Official) and two Members (Non-Official). “The non-official members are representatives of the farming community and usually have an active association with the farming community,” its website states.

While recommending the MSP, the following factors are considered:

* the demand and supply of a commodity;
* its cost of production;
* the market price trends (both domestic and international);
* inter-crop price parity;
* the terms of trade between agriculture and non-agriculture (that is, the ratio of prices of farm inputs and farm outputs);
* a minimum of 50 per cent as the margin over the cost of production; and
* the likely implications of an MSP on consumers of that product.

Why does sugarcane have both the FRP and MSP?

In 2020, the government’s think tank NITI Aayog released the final report of its task force on the Sugar and Sugarcane industry.

It said, “Since sugarcane has a very short shelf life, the responsibility of procurement of cane is on the sugar mills that are mandatorily expected to pay the FRP on purchase upfront. Additionally, other crops that are under the MSP can be sold at prices higher than the MSP itself. However, with regard to sugarcane, the absence of shelf life prompts them to sell their produce at any price prevailing in the cane-crushing season irrespective of demand and supply forces.”

Also, it noted certain issues raised by farmers in Uttar Pradesh. One of these was a mismatch between the FRP and MSP. “A concern was voiced with regard to increasing rate of FRP for sugarcane and near stagnant MSP for sugar over the years. This has resulted in sugar mills having significant outstanding dues to the farmers.”

The central government had introduced MSP for sugar in 2018. It was fixed at Rs 2,850 per quintal which was subsequently raised to Rs 3,100 per quintal. This was part of the measures announced to arrest the constant slide of sugar and to keep the demand and supply ratio to a safe limit. The Centre had also fixed mill-wise sales quota. Mills which breached either of the conditions were liable for action under the Essential Commodities Act, 1955 which would include a fine as well as a jail term (ranging from 3 months to 7 years) or both.

It was reasoned that these measures would help mills generate enough revenue to pay their farmers the FRP.