Fair and Remunerative Price (FRP) of sugarcane

Why in news?

The Cabinet Committee on Economic Affairs chaired by Prime Minister has recently hiked the Fair and Remunerative Price (FRP) of sugarcane to Rs 285 per quintal for the sugar season 2020-21.

What is Fair and Remunerative Price (FRP)?

The “Fair and Remunerative price” of sugarcane is determined under Sugarcane (Control) Order, 1966.

The Fair and Remunerative Pricing is used in sugarcane industry to replace the MSP. It is based on the Rangarajan Committee report of reorganizing the sugarcane industry.

The FRP is determined on the basis of recommendations of Commission for Agricultural Costs and Prices (CACP) and after consultation with State Governments and other stake-holders.  FRP is arrived at by taking into account various factors such as cost of production, overall demand-supply situation, domestic and international prices, inter-crop price parity, terms of trade prices of primary by-products, and likely impact of FRP on general price level and resource use efficiency.

What are the concerns behind FRPs?

1 . 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.
2 . 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.
3 . 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.