The Hindu Business Line : Sugar mills will no longer have to pay State advised prices for cane

Fair price
The Food Ministry amendment has effectively made the States Advised Prices toothless
It has replaced the statutory minimum price with ‘fair and remunerative price’ for cane

Harish Damodaran

New Delhi, Oct. 24 Sugar mills can heave a sigh of relief. They will no longer have to bear the burden of paying farmers cane prices that the State governments ‘advise’ (read, ‘force’) over and above what the Centre fixes.

In a major agricultural reform measure, the Union Food Ministry, through an order dated October 22, has made the State governments responsible for paying the difference between their State Advised Price (SAP) and the Centre’s declared cane rate. The mills would not have to cough up anything more than the latter price.

For the 2009-10 sugar season (October-September), Uttar Pradesh has ‘advised’ a cane price of Rs 162.5-170 a quintal (depending on the variety), with these being set higher at Rs 170-180 in Punjab and Haryana. Tamil Nadu has fixed an SAP of Rs 143.74, linked to a basic sugar recovery of 9.5 per cent.

These rates are way above the statutory minimum price (SMP) of Rs 107.76 a quintal, linked to 9.5 per cent recovery, announced by the Centre.

The Food Ministry has now amended the Sugarcane Control Order, 1966, which would render the SAPs toothless by reducing them to ‘advised’ prices in the true sense. The amendment has, first of all, done away with the SMP by replacing the ‘minimum’ price with a ‘fair and remunerative price’ (FRP) for cane.

The FRP would provide “reasonable margins for the growers of sugarcane on account of risk and profits”. This is in addition to the existing criteria covering production costs, returns from alternative crops and prevailing sugar prices at the ex-factory as well as consumer end.

Besides substituting the SMP with the FRP, the amendment has also dispensed with Clause 5A of the Order, containing the so-called Bhargava Formula for sharing of mills’ profits arising from ‘excess realisation’ with the growers. The FRP will henceforth make both SMP and additional cane price (under Clause 5A) redundant.

New clause

But more important is a new Clause 3B dealing with States declaring cane prices above the Centre’s FRP. In this case, the difference amount payable to the growers would have to be met by the State governments themselves and not the mills.

Thus, if the FRP for the current season is fixed at Rs 130 a quintal (going by reports), growers in Punjab cannot expect to realise the SAP of Rs 170-180 unless the State government bridges the Rs 40-50 gap. The mills’ liability is limited to Rs 130; they can pay more on their own volition if market considerations so dictate.

“It is a significant reform step that will bring about uniformity in cane price fixation by circumscribing the role of States. Ultimately, it should lead to total decontrol and de-politicisation of cane prices,” an industry official said.

Whether the States will take all this lying down is, of course, a moot point.

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