In sugarcane pricing, an end to run of the mills on cards

NEW DELHI: In a desperate bid to avoid arrears estimated at Rs 11,000 crore and an annual increase of Rs 2,500 crore on purchase of levy sugar purchase from mills, the government may recast the sugarcane pricing regime through an ordinance, amending the Essential Commodities Act (ECA) within the next fortnight। Under the regime, the concept of statutory minimum price (SMP) would give way to a F&RP (fair and remunerative price), pegged at 60% higher than the SMP, in order to increase domestic cane production. The change would hit the sugar industry, which will have to pay higher prices to farmers from now on. Worse, in glut years, payment of a phenomenally high F&RP for cane could spell disaster for sugar mills. The ECA, however, falls under Schedule 9 of the Constitution and changes cannot be challenged by the industry, according to experts. But the implications are graver for other commodities: in the long run, the government could also end up paying more by way of food subsidy as there would be pressure to extend the new concept to other crops as well. The ECA amendment is likely to be done, with retrospective effect, through a ‘clarification’ to section 3 (3 c) of the ECA. This section requires that the government price levy sugar obtained from producers be based on a minimum price for sugarcane, besides some other elements of cost of sugar. Levy sugar is that part of the commodity (20% of the total output from the current sugar year: October 2009 to September 2010) from mills that has to be compulsorily supplied at subsidised price to the government for meeting its welfare needs. Powers under another key law, the sugarcane control order (SCO) could also be undermined. Clause 5 (a) of the SCO refers to the payment of additional sugarcane price to the growers through half of the profits made by mills on free sale sugar (FSS) in the open market. The changes planned seek to exclude the state advised price (SAP) and the additional cane price from the price of sugarcane for calculation of levy price, retrospectively from 1955. Further, an amendment to the SCO also aims to make state governments bear the burden of difference in levy price between one based on the SAP (usually 3-4 times higher than the Centre’s floor price) and the SMP, although a 2004 apex court order empowered states such as UP to announce the SAP. These changes would effectively nullify all dues on levy sugar price to mills with retrospective effect, besides doing away with future dues by withdrawing the “minimum” price for cane, the basis of the apex court’s ruling on higher levy sugar price to mills. Mills took to court the Centre’s decision to not base levy sugar price on the higher SAP paid to sugarcane farmers in some states. A March 31, 2008 Supreme Court ruling reinforced the right of the mills to claim levy sugar price based on SAP and not just the SMP. But far worse are the implications for the food subsidy bill if the SMP is replaced with an F&RP. The latter could well be cited as a precedent by other commodity sectors such as wheat, rice, edible oilseeds, cotton, and pulses, highly distorting the market and leading to record agflation and food inflation, besides ballooning the food subsidy bill. (ई टी)