New Ordinance may hit sugar industry

Chennai, The Centre has amended the Essential Commodities Act, 1955, through an Ordinance providing for fixing the levy price of sugar on a ‘fair and remunerative price’ to be announced by the Centre.

The move has raised serious concerns in the sugar industry which supplies one-fifth of its sugar production at a levy price markedly lower than the open market price to support the public distribution system.

This year, the industry is set to supply 20 per cent of its production at a levy price of about Rs 13.50 a kg as of now, fixed in 2003-04, against an open market price of about Rs 30 now. This represents a loss of revenue potential of a few thousand crore rupees to the sugar mills.

Fair price

The ordinance that comes into effect from October 21, makes the amendments effective from October 1, 1974. It says that the levy price of sugar would be computed based on a ‘fair and remunerative price’ for sugarcane that would be fixed by the Centre. The objective is to put in place a uniform norm to determine the levy price of sugar and ensure that when the State Governments hike the price of sugarcane, they bear the additional cost of levy sugar as a result of the higher sugarcane price.

The Ordinance takes effect from 1974 when the levy pricing of sugar has been a subject of controversy resulting in legal proceedings.

Till now the Centre announced a statutory minimum price (SMP) for sugarcane to which the State Governments add an additional component of State advised price (SAP) to augment farmers’ income.

The levy price for sugar took into account the SAP to compute the levy price of sugar, apart from the impact of provisions in the Sugarcane Control Order, 1966 which provide for an additional cane price at the end of the sugar season.

The ordinance amends the Essential Commodities Act that the levy price of sugar is based on the fair and remunerative price fixed for sugarcane by the Centre, manufacturing cost of sugar, duty or taxes paid, and securing reasonable returns on the capital employed in producing sugar. The levy price will not take into account the SAP or the additional price of sugarcane as provided under the Sugarcane Control Order.

INDUSTRY’s CONCERN

According to SISMA TN (South Indian Sugar Mills Association – Tamil Nadu), the ordinance leaves many issues unanswered and paves way for further legal complications at a time when the sugar industry is going through a volatile phase. With the Ordinance silent on amendment to the Sugarcane Control Order, the FRP would be an additional factor in sugarcane pricing just for levy sugar, return on capital would come down with the exclusion of cane cost over FRP for computing levy price of sugar.

The mechanism of State Governments sharing the subsidy of levy sugar on higher sugarcane pricing has not been presented. The Ordinance also rules out a retrospective hike (for 2008-09 season) in levy price which has not been revised for the past several years. The Ordinance holds a huge financial implication for the sugar industry.

For the 2009-10 season the SMP has been pegged at Rs 1,077.60 a tonne of sugarcane linked to a sugar recovery of 9.5 per cent. But the Tamil Nadu Government has hiked the price through a SAP that takes the sugarcane price to Rs 1,437.40 a tonne. Various State Governments hike the sugarcane price depending on local conditions.

Significantly, for the season, the sugarcane price is expected to range much higher, around Rs 1,600 in Tamil Nadu and going up to more than Rs 1,800 in other States. This is against the back drop of farmers’ demands of Rs 2,000-2,500 a tonne.

In 2008-09, India produced about 145 lakh tonnes of sugar against 283 lakh tonnes in 2006-07 reflecting the farmers’ preference for other more remunerative crops. The production in 2009-10 is not expected to be much higher over the previous season.

On an estimated production of about 160 lakh tonnes of sugar, the mills will supply 32 lakh tonnes of sugar for the PDS. This would mean a ‘loss of opportunity’ in revenue of more than Rs 3,000 crore for the industry.

Sugar prices have increased steeply in the last two years from about Rs 13 a kg ex-factory to hit peaks of more than Rs 30 a kg. This prompted the Centre to take various measures to control sugar prices including freeing imports

source: thehindubusinessline