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6/24/13 Mrunal [Economy] Sugar Pricing and Decontrol, Rangarajan Committee, FRP vs SAP meaning, issues, explained Print

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[Economy] Sugar Pricing and Decontrol, Rangarajan Committee, FRP vs
SAP meaning, issues, explained
This is a guest-post by Mr.Shiva Ram
1. How does Government control Sugar industry?
2. Stage #1: Crops and Farmer
3. Stage #2: Sugar Mills:
4. What is FRP and SAP?
5. Rangarajan Committee:Recommendations
6. Conclusion to all the UPSC aspirants
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
6/24/13 Mrunal [Economy] Sugar Pricing and Decontrol, Rangarajan Committee, FRP vs SAP meaning, issues, explained Print
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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.
2. Pricing of
Sugar
The mill owners must compensate the farmers according to 2
different norms for giving them the sugarcane FRP and SAP.
(explained below).
3. Pricing of
Other
products
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.
4. 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).
5. Packaging
The sugar must be packaged in jute bags. (this is done to
promote labour intensive jute industry.)
6. 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
6/24/13 Mrunal [Economy] Sugar Pricing and Decontrol, Rangarajan Committee, FRP vs SAP meaning, issues, explained Print
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Remembering the earlier diagram of the sugar process and the government control,
the Rangarajan committee report recommendations can be easily mapped.
Government
Control
Recommendation Remarks
Sugar
crop area
Do away with reserved area.
Give farmer option to trade with
any mill.
Empowering the farmer to
do better business.
Mill
distance
Do away with minimum distance
between mills.
To enable competition.
Pricing of
Sugar
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.
Packaging
Do away with the jute packaging
Can save about 1000
crores.
Levy of
Sugar
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.
Market
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.
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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rangarajan-committee-frp-sap-meaning-issues-explained.html
Posted By On 08/01/2013 @ 10:04 In the category Economy