[Economy] Sugar Pricing and Decontrol, Rangarajan

Committee, FRP vs SAP meaning, issues, explained

Mrunal
http://mrunal.org/2013/01/economy- sugar- pricing- decontrol- rangarajan- committee- frp- sap- meaning- issues- explained.html
Februray 2, 2013

[Economy] Sugar Pricing and Decontrol, Rangarajan Committee,

FRP vs SAP meaning, issues, explained
This is a guest -post by Mr.Shiva Ram

How does Government control Sugar industry?

There is a lot of control by the government both state and centre over the sugar industry.
To look at this one must look into the production lineup of sugar.
Let us understand the sugar producing process first.
This simple diagram will explain the process

Now the government control on the major aspects can be visualized easily. So the control by
government at every stage is:

Stage #1: Crops and Farmer

The farmers must sell their produce to the nearest mill. And just the converse of this, the sugar
mills have to purchase sugarcane from reserved areas.

Stage #2: Sugar Mills:

1. Distance

Mills must have a distance of 15kms between them.

1. Pricing of
Sugar

1. Pricing of
Other
products

The mill owners must compensate the farmers according to 2 different

norms for giving them the sugarcane FRP and SAP.(explained below).

The other products such as Molasses, Bagasse, Press Mud are very
useful side products of sugar industry. Their remuneration to the farmer is
not fixed and varies with the time.

1. Levy of
Sugar

The mill owners must give 10% of their production to the central
government which they use to supply to the state governments for their
state Public Distribution Systems (PDSs).

1. Packaging

The sugar must be packaged in jute bags. (this is done to promote labour
intensive jute industry.)

1. Market

The market is also heavily government controlled. The export and import
of sugar is decided by the government depending upon the domestic
demand.

Before going into the recommendations of the committee let us look at the difference
between FRP and SAP.

What is FRP and SAP?

The FRP and SAP are prices set by the different governments at which the mill owners will
reimburse the farmers.
This is the minimum price that they pay to the farmers for the sugarcane.

FRP

SAP

Fair Remunerative Package

State Administered Price

Central Government issues

price.(Has no voice)

State government issues price(Has most voice).

Generally lower.

Generally higher.(To fulfill the votebank issues as

sugarcane farmers form a large votebank).

When the state government issues its SAP then the mills in the state are bound to pay by that
amount only. This was held valid in a Supreme Court judgment in 2009.

Rangarajan Committee:Recommendations
Remembering the earlier diagram of the sugar process and the government control, the

Rangarajan committee report recommendations can be easily mapped.

Government
Control

Sugar
crop area
Mill
distance
Pricing of
Sugar

Recommendation

Remarks

Do away with reserved area. Give farmer

option to trade with any mill.

Empowering the farmer to do

better business.

Do away with minimum distance

between mills.

To enable competition.

1. Give the farmers FRP price at the 1st

stage and do away with SAP.2. Share
70% of the sold value of
sugar+molasses+bagasse+press mud at
the 2nd stage.

Double stage strategy to have

better cash flow to mills.Putting
proper system for remuneration.

Do away with the jute packaging

Can save about 1000 crores.

Do away with the 10% sale to the

central government. Instead, pass on the
subsidy to state government, which can
buy the sugar from the market and give
it subsidized.

Can ease central subsidy

tension. The levy savings is
about 2000 crores.

Ease the market control of government

on export and import.

The move is to help India(17%

of world production) to enable
its exports(only 4% of world
export), but leaving it all to the
market is risky.

Packaging
Levy of
Sugar

Market

Conclusion to all the UPSC aspirants:

This is similar to many other committees formed by the government to recommend the
sugar industry decontrol. Committees under Mahajan (1998), Tuteja (2004), Thorat (2009)
and Nandakumar (2010) had similar recommendations.
So most probably these recommendations will also bite the dust like others.

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