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[Economy] Sugar Pricing and Decontrol, Rangarajan Committee, FRP vs SAP meaning, issues, explained « Mrunal

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.by Mr.Shiva Ram How does Government control Sugar industry? To look at this one must look

To look at this one must look into the production lineup of sugar.government both state and centre over the sugar industry. Let us understand the sugar producing process

Let us understand the sugar producing process first.at this one must look into the production lineup of sugar. This simple diagram will explain

This simple diagram will explain the processsugar. Let us understand the sugar producing process first. Now the government control on the major

process first. This simple diagram will explain the process Now the government control on the major

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:

Mills must have a distance of 15kms between them.

1. Distance

The mill owners must compensate the farmers according to 2 different

Pricing of

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

Sugar

The other products such as Molasses, Bagasse, Press Mud are very

Pricing of

1. useful side products of sugar industry.Their remuneration to the farmer is not fixed and varies with the time.

Other

products

The mill owners must give 10% of their production to the central

Levy of

1. government which they use to supply to the state governments for their state Public Distribution Systems (PDSs).

Sugar

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

1. intensive jute industry.)

Packaging

The market is also heavily government controlled.The export and import

1. of sugar is decided by the government depending upon the domestic demand.

Market

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.at the difference between FRP and SAP. What is FRP and SAP? This is the minimum

This is the minimum price that they pay to the farmers for the sugarcane.at which the mill owners will reimburse the farmers. FRP Fair Remunerative Package Central Government issues

FRP

Fair Remunerative Package

Central Government issues price.(Has no voice)

Generally lower.

SAP

State Administered Price

State government issues price(Has most voice).

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

Recommendation

Remarks

Control

Sugar

crop area

Mill

distance

Pricing of

Sugar

Packaging

Levy of

Sugar

Market

Do away with reserved area.Give farmer option to trade with any mill.

Do away with minimum distance between mills.

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.

Do

away with the jute packaging

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.

Ease the market control of government on export and import.

Empowering the farmer to do better business.

To enable competition.

Double stage strategy to have better cash flow to mills.Putting proper system for remuneration.

Can save about 1000 crores.

Can ease central subsidy tension.The levy savings is about 2000 crores.

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.

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.the market is risky. Conclusion to all the UPSC aspirants: So most probably these recommendations will

So most probably these recommendations will also bite the dust like others.(2009) and Nandakumar (2010) had similar recommendations. Previous Posts 1. [Economy] Dedicated Freight Corridors

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