FRP vs MSP

Context (IE): Protesting farmers have repeatedly called for an increase in the Minimum Support Price (MSP). Let us understand the differences between the two price support mechanisms (MSP vs Fair and Remunerative Price (FRP)).

MSP vs FRP

Features	MSP (Minimum Support Price)	FRP (Fair and Remunerative Price)
Who determines it?	Fixed by: Union government (Cabinet Committee on Economic Affairs (CCEA)). Recommended by: Commission for Agricultural Costs and Prices (CACP).	Fixed by: Cabinet Committee on Economic Affairs (CCEA). Recommended by: Commission for Agricultural Costs and Prices (CACP).
Purchased by?	Government	Sugar Mills
Crops Covered	22 crops + Sugarcane.	Specifically for sugarcane. Sugarcane has both FRP and Minimum Selling Price.
Payment Guarantee	The government commits to buying the crop at MSP if market prices fall below it. No Legal guarantee.	Legal obligation for sugar mills to pay FRP to sugarcane farmers. Backed by: Sugarcane Control Order (1966).
Basis of calculation?	Demand and supply. Cost of production. Market price trends (Domestic and international). Inter-crop price parity. Terms of trade. 50% margin over the cost of production. implications on consumers.	The FRP is based on the recovery of sugar from the cane. Sugar recovery is the ratio between sugar produced versus cane crushed, expressed as a percentage. The higher the recovery, the higher the FRP, and the higher the sugar produced from the cane.
Penalties for Non-Payment	No specific penalties were mentioned.	Cane commissioners can take action, including attachment of mill properties as arrears of land revenue if FRP dues are not cleared within 14 days of the sale.
Cabinet Committee on Economic Affairs (CCEA) members: The Prime Minister, the Defence Minister, the Home Minister, the Finance Minister, the Minister of Agriculture and Farmers Welfare and some other senior ministers. Commission for Agricultural Costs and Prices (CACP) members. It comprises a Chairman, a Member Secretary, one Member (Official) and two Members (Non-Official). The non-official members are representatives of the farming community and usually have an active association with the farming community.

Why does sugarcane have both the FRP and Minimum Selling Price?

FRP is to support Farmers: Since sugarcane has a very short shelf life, the responsibility of procurement of cane is on the sugar mills that are mandatorily expected to pay the FRP on purchase upfront.
Minimum selling price is to support sugar mills: The absence of shelf life prompts them to sell their produce at any price prevailing in the cane-crushing season, irrespective of demand and supply forces.
- So, the central government had introduced Minimum selling price for sugar in 2018.
- It ensures that the industry gets at least the minimum cost of production of sugar, allowing them to clear the sugarcane dues of farmers.

Persisting Issue

Mismatch between the FRP and MSP: FRP for sugarcane has consistently increased, whereas MSP has remained stagnant over the years. This has led to a market condition where the sugar is sold lower than the cost of production.