Relevance: GS-3 :Issues related to direct and indirect farm subsidies and minimum support prices.

Key Phrases: FRP, SAP, CACP, Farmer Protest in Maharashtra, FRP Calculation Method, Recovery Rate, FRP Installments

Why in News ?

• Recently, Maharashtra’s government issued a government resolution which will allow sugar mills to pay the basic fair and remunerative price (FRP) in two tranches.
• While the sugar industry has welcomed the move, farmers have opposed it, and some leaders have spoken about going to court to challenge it.
• Last season over Rs 25,000 crore was paid to farmers by way of FRP.

About FRP

• Background
  • FRP is the price declared by the government, which mills are legally bound to pay to farmers for the cane procured from them.
  • It was introduced in 2009 and replaced the concept of Statutory Minimum Price (SMP).
• Determination of 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 center’s price is the minimum price, states can set an SAP that will always be higher than the center’s FRP.
  • The Central Government announces Fair and Remunerative Prices in consultation with state governments and sugar industries.
  • These prices 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 the Prime Minister.
  • SAP- State Advised Price or SAP is the price announced by the state government, over and above the FRP.

• Factors Considered for FRP
  • Factors that are taken into account for calculating FRP, other than sugar recovery, include-
    • Cost of production of sugarcane,
    • General trend of agricultural commodities’ prices,
    • Availability of sugar to consumers at a fair price.
    • Reasonable margins for sugarcane growers are also to be taken into consideration, as per the amended provisions of the Sugarcane (Control) Order, 1966.
• Payment of FRP
  • The payment of FRP across the country is governed by The Sugarcane Control order, 1966 which mandates payment within 14 days of the date of delivery of the cane.
  • Mills have the option of signing an agreement with farmers, which would allow them to pay the FRP in installments.
  • Delays in payment can attract an interest up to 15 per cent per annum, and the sugar commissioner can recover unpaid FRP as dues in revenue recovery by attaching properties of the mills.
  • Assured payment is one of the major reasons why cane is a popular crop with farmers.
• Recovery Rate
  • The FRP is based on the recovery of sugar from the cane.
  • For the sugar season of 2021-22, FRP has been fixed at Rs 2,900/tonne at a base recovery of 10 per cent.
  • Sugar recovery is the ratio between sugar produced versus cane crushed, expressed as a percentage.
  • The higher the recovery, the higher is the FRP, and higher is the sugar produced.
• Recovery Rate in Mahrashtra
  • Thus, mills in Sangli and Kolhapur, which have an average recovery of 13.18 per cent, have an average FRP (inclusive of harvesting and transport charges of Rs 600/tonne) of Rs 3,822.2.
  • Mills deduct the harvesting and transport charges from the final payment — and therefore, farmers in these two districts would be paid an average rate of Rs 3,222.20/tonne of cane.
  • On the other hand, in the Nagpur region, the average recovery is just 10 per cent, and farmers are paid a much lower rate of Rs 2,000/tonne, net of harvesting and transport charges.

Proposed Changes

• Rationale Behind the Changes
  • Since the beginning, sugar mills have paid farmers on the basis of the sugar recovery of the previous season.
    • Thus, mills in the present season (2021-22) would pay as per the recovery of the 2020-21 season.
  • Mills raise money by ‘pledging’ their sugar stock, and use the realizations from sales to clear their debts.
  • Thus, in a difficult year when sales are lean, or in a year of bumper production, mills face severe liquidity crises, and fail to pay both their creditors as well as the farmers.
  • This ultimately leads them to financial insolvency, which can end with the mill being sold off or rented out.
  • Payment of the basic FRP in installments has been one of the long-standing demands of the industry.
  • It has been argued that it would ease the liquidity burden on them.
  • Of the 197 mills in operation in the state, around 100 already have agreements with farmers to make payments in parts.
  • Around 75-80 per cent of the FRP would be paid within 15 days of the cane being delivered, and the rest would come in equal installments during the time from the end of the current season to the start of the next.
• New Mechanism
  • Recent government resolutions make the payment system more systematic.
  • The mills will now have to pay the FRP in two installments — and instead of relying on the recovery of the last season, they would have to pay as per the recovery of the current season.
  • The state has been divided into two recovery zones of 10 per cent and 9.50 per cent.
  • The districts of Pune, Satara, Sangli, Kolhapur, Solapur, Nashik, Ahmednagar, Dhule, Nandurbar, and Jalgaon have been put in the 10 percent recovery bracket.
  • While the rest of the state has been put under 9.50 per cent.
  • From the 2022-23 season, mills will pay the FRP in two installments.
  • The first installment would have to be paid within 14 days of delivery of cane, and would be as per the average recovery of the district.
  • Farmers would get the second installment within 15 days of the closure of the mill after calculation of the final recovery, which would take into account the sugar produced, and the ethanol produced from ‘B heavy’ or ‘C’ molasses.
  • Thus, instead of relying on last season’s FRP, the government resolution says farmers would be paid as per the current season’s recovery.
  • Mills would have to henceforth declare their FRP in two widely circulated newspapers.

Reasons for Farmer Protest

• Farmers have protested strongly and called it daylight robbery.
• According to farmers, what this order essentially says is that they would be paid as per the average recovery band of their district within 14 days of cane delivery, and the final payment would happen after the final recovery is calculated after the season.
• Therefore, farmers in Sangli and Kolhapur who were paid at the minimum rate of Rs 3,222.20/tonne, would now get the first installment of Rs 2,900/tonne (provided FRP is not raised for the next season).
• For farmers in Nanded and other parts of Marathwada, the first installment would be of around Rs 2,755/tonne, which is almost similar to the FRP they are being paid currently.
• The final recovery, which would be calculated within 15 days of the season ending and would depend on the sugar and ethanol produced from B heavy or C molasses, can be both higher or lower than the previous season, industry insiders say.
• Farmers from Sangli and Kolhapur argue that this method would impact their incomes.
• They point out that while FRP will be paid in installments, and will depend on an unknown variable, their bank loans and other expenses are expected to be paid for as usual.
• Farmers must require a lump sum at the beginning of the season (October-November), because their next crop cycle depends on it.
• Farmers questioned the state government’s authority to tinker with the payment schedule of FRP, arguing that is the prerogative of the central government.

Conclusion

• The mills will not be in financial distress as they will have some time to pay the second installment. They often have to cut salaries and other operational costs when forced to pay the FRP in one go.
• But farmers' apprehensions also need to be accommodated and the payment process should be more efficient .

Source: Indian Express

Mains Question:

Q. How is the Fair and Remunerative Price (FRP) for sugarcane determined in India? Discuss the issues with respect to fair and remunerative price (FRP) of sugarcane with special emphasis on profitability of sugar mills.