With temperatures rising over the Centres new sugarcane pricing policy,and states adding to the confusion,our correspondent explains what lies behind the storm: What are the different sugarcane pricing regimes,like SMP and SAP,and how are they different from minimum support price (MSP) for foodgrains? The statutory minimum price (SMP) is announced by the central government based on the cost of cultivation estimated by the Commission for Agricultural Costs and Prices (CACP). This is the basic price which the sugar mills must pay sugarcane growers. However,citing differences in cost of production,productivity levels and also as a result of pressure from farmers groups,some states (Uttar Pradesh,Punjab,Haryana,Tamil Nadu and Uttarakhand) used to declare state-specific sugarcane prices called State Advised Prices (SAP),usually higher than the SMP. These states also argued that SMP was merely the minimum price which could be enhanced to protect farmers interests. Even though the name suggest that SAPs are advisory prices,litigation in courts has established that the mills in these states mandatorily pay SAP to farmers in these states. Unlike the MSP for wheat or paddy announced by the Centre,where the government procures a commodity from farmers directly in case market prices go below the MSP,the government never procures sugarcane from farmers directly. It is only sugar mills or khandsari units that buy it from farmers at the prices which shouldnt fall below that determined by the government (SMP or SAP). What has been the problem with this arrangement that has been working over the years? What created a problem is that whenever the central government,which imposes levy quota on the sugar produced by these private mills,purchases sugar from these mills for its ration shops,it pays them the price based on SMP rates. Even in case of the states where mills had to pay a higher price for their sugarcane under state government imposed SAP,the mills would be paid the levy price determined SMP which is usually lower than the SAP. The problems of the mills are compounded by fact that state governments,which do not pay any amount to mills as they get sugar for ration shops from Centre at lower prices,continue to raise the SAP under their logic that farmers need to be paid higher prices. The interests of sugar mills,farmers and government have clashed on this issue leading to rounds of litigation among them over years. The last major litigation that forced the Centre to re-think its pricing regime was between Mahalakshmi Sugar Mills Company Ltd. and Others versus Union of India and Others where the Supreme Court,in its judgment dated 31.3.2008,laid down that the central government should factor in SAP,and not only its SMP,while fixing the levy price on which its buys sugar for ration shops. It also directed the Centre to refix prices of levy sugar for over 20 years,which would have meant a huge burden on the Central Exchequer (over Rs 10,000 crore in one go). Since this order last year,the Centre has been facing contempt notices for not acting on the order. What is this Fair and Remunerative Prices (FRP)? In the backdrop of Supreme Court directives,which the government claimed was conflicting with another earlier judgment regarding levy prices,the government decided to change its pricing policy that would not only reform the sugarcane pricing system but would also remove ambiguities in this regard. Consequently,the government amended Section 3 (3C) of the Essential Commodities Act,1955,replacing the concept of Minimum Price by Fair and Remunerative Price (FRP) of sugarcane with consequential amendments to the Sugarcane Control Order,1966. An ordinance to the effect was promulgated on October 21 this year. Under the fair and remunerative price regime,the government has included risk and profit as factors,over and above the cost of production used for SMP,in calculating the FRP based on the overall sugarcane and sugar production scenario. The government has announced its first FRP (about Rs 130 a quintal) well above the SMP (Rs 107 a quintal) it had announced earlier this year. Why is there a problem? Theoretically,the FRP being above the SMP,the states should not have any problem as it would take care of their contention that SMP was low and they need to announce SAP. But despite the Rs 130 a quintal FRP being above the SMP this year,it is well below over Rs 140 a quintal SAP for sugarcane to farmers in UP last year. In a year when sugar prices are ruling high,farmers are demanding prices over Rs 200 a quintal. What has further irked the farmers is the Centres attempt at discouraging the states from fixing a state advised price (SAP) and instead opting for an uniform FRP. Farmers apprehend that this is a ploy by the Centre to stop them from getting higher prices for their produce. The protests in UP are a fallout of this. What is the way ahead? The Centre has yet not clarified which agency/body would be responsible to recommend FRP and how it is going to be estimated. A transparent and participative mechanism for calculating risk and profit would only restore the confidence of farmers and state governments in this new regime. The government also needs to clarify that the FRP will not come in the way of sugar mills paying prices higher than the FRP due to competition with the khandsari industry.
