FRP keeps rising while the Minimum Selling Price of sugar has not changed since 2019. Examine how this mismatch causes cane arrears and suggest a sustainable pricing framework.

The Fair and Remunerative Price (FRP) of cane is fixed by the Centre on CACP advice under the Sugarcane (Control) Order, 1966 [8]. It has risen from ₹285/qtl in 2020-21 [1] to ₹365/qtl for 2026-27 [2]. Over the same period, the ex-mill Minimum Selling Price (MSP) of sugar has stayed at ₹31/kg since February 2019 [3]. Mills' costs keep rising while their guaranteed revenue does not, and this gap is the structural root of cane arrears.

How the mismatch creates arrears

• Two prices with no link between them: FRP follows cultivation cost (A2+FL ₹182/qtl; FRP ~100% above it) [2]. Mill income follows sugar prices, which are protected only by a frozen floor [3].
• Margin squeeze: each FRP hike raises the mill's legal payment duty. Its revenue floor does not move, so the gap widens every season.
• Price-slump cycle: in surplus years, ex-mill prices fall, unsold stocks pile up and mills delay payment. NITI Aayog's Task Force (2020) linked low sugar prices to arrears and farmers leaving the crop [4].
• Bailout dependence: the MSP was itself raised in 2019 to give mills liquidity to clear dues [3]. Separately, mills received ₹7,402 crore in soft loans in 2018-19 [5]. These were one-season fixes.
• Eased but not cured: 99.5% of dues for 2022-23 have been cleared [6], but the structural gap reopens with every FRP revision.

FRP ↑ (cost-linked) ──► mill cane bill ↑
MSP frozen (₹31/kg) ──► revenue capped in slumps
            └──► cash gap ──► cane arrears ──► bailouts

Fig: Mismatch-to-arrears cycle

A sustainable pricing framework

• Revenue sharing: adopt the Rangarajan Committee's (2012) 70:30 farmer–mill split of sugar and by-product revenue, with FRP as the floor [7].
• Formula-based MSP: index the sugar MSP to FRP and production cost and revise it every season. The NITI Task Force suggested ₹33/kg with periodic review [4].
• Stabilisation fund: create a cess-funded Sugar and Sugarcane Development Fund for liquidity in slump years [4].
• Federal restraint: states should avoid declaring a State Advised Price above the formula [7].
• Accurate payment: use transparent recovery testing and weighment, which are within the ToR of the Ramesh Chand Committee (2026) [9].

Cane arrears come from linking farmers' pay to costs while capping mills' income in bad years. A rule-based framework that shares revenue, indexes the MSP and adds a buffer fund would replace ad hoc bailouts with predictability. The Chand Committee's mandate to align the MSP with production cost, market realisation and mill viability [9] offers that chance, and it would serve both farmers' incomes and SDG 2.