Fair and Remunerative Price (FRP)

4th August, 2022 Economy

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Context

The Cabinet Committee on Economic Affairs, has approved Fair and Remunerative Price (FRP) of sugarcane for sugar season 2022-23 (October - September) at ₹305 per quintal.
The move will put pressure on sugar companies as they will have to pay more to procure and will come as a relief to the farmers as the sugarcane crushing season is set to start early this year.

What is Fair and Remunerative Price?

Fair and Remunerative Price or FRP is the price required to be paid by sugar mills and factories to sugarcane farmers. It was introduced in 2009 and replaced the concept of Statutory Minimum Price (SMP).
Under the FRP system, the price paid to farmers for sugarcane is not linked to the profits generated by sugar mills. Instead, FRP is based on the recovery rate of sugar from sugarcane.
Mills are required to pay the basic FRP within 14 days of purchase of sugarcane from growers.

What is the State Advised Price?

State Advised Price or SAP is the price announced by the state government, over and above the FRP.
Since sugar pricing comes under the concurrent list, the Supreme Court has held that both the centre and the state have the power to fix sugarcane prices — while the centre’s price is the minimum price, states can set an SAP that will always be higher than the centre’s FRP.

In a nutshell,

Pricing policy for sugarcane

Sugarcane prices are determined by the Centre as well as States.
The pricing of sugarcane is governed by the statutory provisions of the Sugarcane (Control) Order, 1966issued under the Essential Commodities Act (ECA), 1955.
Prior to 2009-10 sugar season, the Central Government was fixing the Statutory Minimum Price (SMP) of sugarcane and farmers were entitled to share profits of a sugar mill on 50:50 basis.
As this sharing of profits remained virtually unimplemented, the Sugarcane (Control) Order, 1966 was amended in 2009 and the concept of SMP was replaced by the Fair and Remunerative Price (FRP) of sugarcane.
The Centre announces Fair and Remunerative Priceswhich are determined on the recommendation of the Commission for Agricultural Costs and Prices (CACP) and are announced by the Cabinet Committee on Economic Affairs, which is chaired by Prime Minister.
The State Advised Prices (SAP) are announced by key sugarcane producing stateswhich are generally higher than FRP.
The amended provisions of the Sugarcane (Control) Order, 1966 provides for fixation of FRP of sugarcane having regard to the following factors:

cost of production of sugarcane;
return to the growers from alternative crops and the general trend of prices of agricultural commodities;
availability of sugar to consumers at a fair price;
price at which sugar produced from sugarcane is sold by sugar producers;
recovery of sugar from sugarcane;
the realization made from sale of by-products viz. molasses, bagasse and press mud or their imputed value.
reasonable margins for the growers of sugarcane on account of risk and profits.

How are FRP and SAP different from MSP?

While FRP and SAP are different versions of the price for sugarcane that need to be paid by the mills to farmers, MSP or Minimum Selling Price is the assured price of sugar for mills. Prices of sugar are usually market driven.
But to ensure that the industry gets, at least, the minimum cost of sugar production so as to clear cane price dues to farmers, the concept of sugar MSP has been introduced since 2018.

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