FRP AND SAP OF SUGARCANE - AGRICULTURE
News: Uttar Pradesh unlikely to announce SAP for sugarcane this season
What's in the news?
● The
Uttar Pradesh Government is expecting a bumper crop as sugarcane harvest is at
the peak in the State, but it is unlikely to announce the State Advised Price
(SAP) for sugarcane for this season.
● U.P’s
SAP for 2021-22 is ₹350 for the best variety and ₹340 for common varieties of
sugarcane. When the BJP came to power in 2017, the SAP was ₹315 for a quintal.
● Last season, the SAP was announced in September. SAP is announced every year during the harvest or before the beginning of harvest.
FRP:
● 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.
SAP:
● 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 center 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.
Sugarcane prices:
● Sugarcane
prices are determined by the Centre as
well as States.
● The
Centre announces Fair and Remunerative Prices which 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.
● The
State Advised Prices (SAP) are announced by key sugarcane producing states
which are generally higher than FRP.
● SAP announced by respective states is more than FRP.
Factors considered for 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 the 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.
Minimum Selling Price (MSP) for Sugar:
● The
price of sugar is market-driven & depends on the demand & supply of
sugar.
● However,
with a view to protecting the interests of farmers, the concept of MSP of sugar
has been introduced since 2018.
● MSP of sugar has been fixed taking into account the components of Fair & Remunerative Price (FRP) of sugarcane and minimum conversion cost of the most efficient mills.
Sugarcane:
Favorable Conditions:
● Temperature:
Between 21-27°C with hot and humid climate.
● Rainfall: Around
75-100 cm.
● Soil Type:
Deep rich loamy soil.
● It can be grown on all varieties of soils ranging from sandy loam to clay loam given these soils should be well drained.
Production:
● Top
Sugarcane Producing States are Uttar
Pradesh, Maharashtra, Karnataka, Tamil Nadu, Bihar.
● India is the second largest producer of sugarcane after Brazil.
Key takeaways:
● It
needs manual labor from sowing to harvesting.
● It
is the main source of sugar, gur (jaggery), khandsari and molasses.
● Scheme
for Extending Financial Assistance to Sugar Undertakings (SEFASU) and National
Policy on Biofuels are two of the government initiatives to support sugarcane
production and the sugar industry.
● Sugarcane has the least water use efficiency ratio and highest water intake among agricultural crops.
North vs South debate in Sugarcane:
● Peninsular
India has tropical climate which gives higher
yield per unit area as compared to north India.
● The
sucrose content is also higher in
tropical varieties of sugarcane in the south.
● The
crushing season is also much longer
in the south than in the north.
● For
example, the crushing season is of nearly four months only in the north from
November to February, whereas it is of nearly 7-8 months in the south where it
starts in October and continues till May and June.
● The
co-operative sugar mills are better
managed in the south than in the north.
● Most of the mills in the south are new and are equipped with modern machinery.
Issues in Sugar Production:
● Lower
yield of sugarcane
● Short
crushing season
● Fluctuating
production trends
● Low
rate of recovery
● High
cost of production
● Small
and Uneconomic size of mills
● Old
and obsolete machinery
● Regional
imbalances in distribution
● Lower
margins have made companies heavily dependent on debt
● Min
Distance Criterion
● Unpaid
dues to Farmers
● Lower
per capita consumption
● FRP
vs SAP
● High Export prices.
Measures taken:
Implementing Rangarajan Committee Recommendations:
1. Removing Distance Norm:
● In
order to increase competition and ensure a better price for farmers, the
Committee recommended that the distance norm be reviewed.
● Removing
the regulation will ensure better prices for farmers and force existing mills
to pay them the cane price.
2. Reviewing Revenue Sharing Policy:
● States
should not declare their own SAP. The pricing shall be done on the basis of
scientific and economically viable principles.
● The
committee suggested that sharing of revenue generated under the sugarcane
supply chain shall be divided on the basis
of 70:30 to farmers and mill owners respectively. This method will be
applicable for by products as well.
● The
payment shall be paid to farmers in two installments:
○ First
Floor or FRP should be paid to farmers at time of purchase of sugarcane.
○ Second,
the balance should be paid after the final price of sugar is decided and sold
by mill.
3. Duties:
Import and export duty should not be more than 10%.
4. Long term agreements:
States should encourage development of market-based long-term contractual
arrangements, and phase out cane reservation areas.
5. Exports and Byproducts: No more outright bans on sugar exports. No restrictions on sale of by-products and prices should be market determined.
WAY FORWARD:
1. Price Rationalization:
Cane-pricing policies need immediate rationalization and brought in tune with
global practices, for the Indian sugar industry to export the surplus
successfully.
2. Ethanol Blending:
● The
new National Policy on Biofuels 2018,
expands the scope of raw material for ethanol production by allowing use of
Sugarcane Juice.
● Ethanol
production should be promoted. Such diversion will cut oil import bills and
bring profits for the sugar industry - A win–win situation.
● Brazil,
the world’s biggest sugarcane producer, depends on ethanol, and not sugar, as
the main revenue source from sugarcane and blends 27 percent ethanol with
petrol.
● The
new Biofuel Policy 2018 has fixed a target of achieving 20 percent ethanol blending with petrol by 2025.
3. R&D:
Intense Research should be funded for developing high yielding, early maturing,
frost resistant and high sucrose content varieties of sugarcane.
4. Crushing Season:
Increase the crushing season by sowing and harvesting sugarcane at proper
intervals in different areas adjoining the sugar mill. This will increase the
duration of supply of sugarcane to sugar mills.
5. Yield: Intense research
is required to increase the sugarcane production in the agricultural field.
6. Production Cost:
● Production
cost can be reduced through proper utilization of by-products of the industry.
● For
example, bagasse can be used for
manufacturing paper pulp, insulating board, plastic, carbon cortex etc.
● Molasses
comprise another important by-product which can be gainfully used for the
manufacture of power alcohol.
7. Technology:
There is a dire need of Technological upgradation in age old mills to improve
efficiency in production.
8. Export promotion:
Tweaking of policies to boost exports when Domestic consumption is less than
production.
9. Diversification:
Mills should be incentivized to produce more alcohol and its export should be
deregulated. This will improve the economic situation of the mills.
10. SSI:
● SSI
provides practical options to farmers for improving the productivity of their
land, water and labor, all at the same time.
● SSI
is a set of practices based on principles for producing ‘More with Less’ in agriculture.
● Example:
Reducing overall pressure on water resources - Highly relevant for water
guzzling Sugarcane crop.