Fair and Remunerative Prices: Maharashtra Issues Resolution

 

Fair and Remunerative Prices: Relevance

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

 

Fair and Remunerative Price sugarcane: Context

• Recently, Maharashtra Government has issued a resolution, which will allow sugar mills to pay the basic fair and remunerative price (FRP) in two tranches. The initiative has got mixed reforms from the concerned stakeholders.

 

Fair and Remunerative Prices news: Key points

• Though the sugar industry has welcomed the move, farmers have opposed it.

 

About FRP UPSC

• FRP is the price declared by the government, which mills are legally bound to pay to farmers for the cane procured from them.
• The cane price announced by the Central Government is decided on the basis of the recommendations of the Commission for Agricultural Costs and Prices (CACP) in consultation with the State Governments and after taking feedback from associations of sugar industry.

 

 

Payment under FRP

• The payment of FRP is governed by The Sugarcane Control order, 1966.
• The order mandates payment within 14 days of the date of delivery of the cane.
• Mills, however, have the option of signing an agreement with farmers, which would allow them to pay the FRP in instalments.
• Any delay in payment can attract an interest up to 15 per cent per annum.

 

Proposed changes in FRP

• The mills will now have to pay the FRP in two installments.
• Instead of relying on the recovery of the last season, they would have to pay as per the recovery of the current season.

 

 

Significance of the change in FRP

• Sugar mills paid farmers on the basis of the sugar recovery of the previous season.
  • 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.
• Thus, mills in the present season (2021-22) would pay as per the recovery of the 2020-21 season.
• The proposed changes make the payment system more systematic.
• Sugar mills raise money by ‘pledging’ their sugar stock, and use the realisations from sales to clear their debts.
• So, in a 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 instalments has been one of the long-standing demands of the industry. It has been argued that it would ease the liquidity burden on them.

 

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