Explainer: Centre’s ‘historic’ hike in sugarcane FRP and its politics and economics

Tribune Web Desk

Vibha Sharma

Chandigarh, February 22

Ahead of the upcoming Lok Sabha election, Prime Minister Narendra Modi on Thursday underlined his government’s commitment towards fulfilling its pledge for the welfare of farmers, calling the “historic” hike in sugarcane price a part of such efforts.

This will benefit crores of sugarcane farmers, he said, highlighting the decisions taken by the Union Cabinet on Wednesday. However, the day after the announcement of hike in the minimum price that sugar mills will have to pay to growers for the 2024-25 season, shares of sugar companies slipped.

What is FRP

FRP or Fair and Remunerative Price is the minimum price that sugar mills are supposed to pay to sugarcane farmers for their produce for a sugar season. However, states determine their own State Agreed Price (SAP) which is generally higher than the FRP.

On Wednesday, the Cabinet headed by PM Modi hiked the FRP by Rs 25 to Rs 340/quintal for the 2024-25 season starting October.

“The new FRP will ensure the prosperity of sugarcane farmers. It is noteworthy that India is already paying the highest price of sugarcane in the world and despite that the government is ensuring the world's cheapest sugar to domestic consumers,” according to an official statement. 

The FRP of Rs 340/quintal is at the sugar recovery rate of 10.25%.

It is about 8% higher than FRP for the current season 2023-24 and will be applicable with effect from October 2024.

“At 107% higher than A2+FL cost of sugarcane, the new FRP will ensure prosperity for sugarcane farmers. India is already paying the highest price of sugarcane in the world and despite that the government is ensuring the world’s cheapest sugar to domestic consumers of Bharat.

“This decision of the Central government is going to benefit more than 5 crore sugarcane farmers (including family members) and lakhs of other persons involved in the sugar sector. It re-confirms fulfilment of Modi ki Guarantee to double farmers’ income,” the statement added.

Sugar recovery and price

Sugar mills will now have to pay FRP of sugarcane at the rate of Rs 340/quintal at recovery of 10.25%.

With each increase of recovery by 0.1%, farmers will get an additional price of Rs 3.32 while the same amount will be deducted on reduction of recovery by 0.1%.

However, Rs 315.10/quintal is the minimum price of sugarcane which is at a recovery of 9.5%.  In other words, if sugar recovery is lesser, farmers are assured of FRP of Rs 315.10/quintal.

Officials said that 99.5% cane dues of previous sugar season 2022-23 and 99.9% of all other sugar seasons are already paid to farmers leading to the lowest cane arrears pending in history of the sugar sector.

SAP—the politics

Cane-producing states, including Uttar Pradesh, Maharashtra Punjab, Haryana and Uttarakhand, fix their own SAP. Just like MSP for food grain, sugarcane rates are also governed by requirement and politics. Meanwhile, farmers always claim their growing costs to be higher than prices fixed by either the state or the Centre.     

For example, the AAP government in Punjab last year hiked the sugarcane price by Rs 11/quintal. Chief Minister Bhgwant Mann said the new rate of Rs 391/quintal was the “highest” in the country. “With an increase of Rs 11, the new rate will be Rs 391 per quintal, which is the highest in the country,” Mann said.

Farmers, however, called the appreciation in cane price “meager” and termed the state government’s move “betrayal”.

They had been holding protests, demanding an increase in sugarcane price from Rs 380 to Rs 450 a quintal.

Cane price—sugar mills

According to mill owners in Punjab, sugar SAP should not have been increased. The increase will affect their economics, they said, adding that the government should link the price with sugar content.

As per available data, Punjab has the lowest sugar recovery at 9.7% while Maharashtra has sugar content of almost 12%.

Sugarcane shares came under pressure today as the market is now expecting a rise in input cost of sugar making companies after the rise in FRP.

FRP, sugar recovery

FRP is the price declared by the government which mills are legally bound to pay to farmers for the cane procured from them. 

Its payment is governed by the Sugarcane Control order, 1966.

Assured payment is one of the major reasons why cane is a popular crop with farmers.

The FRP is based on the recovery of sugar from the cane.

Sugar recovery is the ratio between sugar produced versus the cane crushed in percentage. Therefore, higher the recovery, higher is the FRP and sugar produced.

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