Bitter harvest

The Uttar Pradesh (UP) Government’s move to book eight sugar mills for not starting crushing operations in the current 2013-14 season is unprecedented and highly questionable. It is one thing to lodge FIRs for not paying growers against their cane supplies; there is a law requiring that such payments be made within 14 days of delivery at the factory gate. The issue this time is, however, different as the mills haven’t bought a single quintal of cane; in fact, not even placed purchase indents. Action has been taken against them for refusing to crush under the Essential Commodities Act 1955, which gives the Government powers to regulate “the production, supply and distribution” of certain commodities in the public interest.

The above statute was intended to ensure that certain commodities and food products reached the general public at a reasonable price by coming down on hoarding and other malpractices. Its origins go back to World War II, when regulations were framed to empower the Government to take drastic measures to address shortages. In this case, there is no emergency and no malpractice — the issue is only one of pricing. Millers are being coerced to start crushing and also pay a State ‘Adviced’ Price (SAP) of Rs 280/quintal for cane, which pushes up sugar production costs to over Rs 36 a kg against current realisations of Rs 29-30. In other words, they are being asked to run their factories at a loss or face arrest for violating a legislation that is a wartime relic. Just as there is no law that gives business the right to make profits, there is none giving the State the right to force business to operate at a loss. It isn’t as if the UP mills are unwilling to crush. Many of them are listed companies with huge capacities; the last thing they would want is idling plants. But it makes no sense to run them if even operational costs cannot be covered — leave alone interest on borrowed capital, depreciation and return on equity.

Sugarcane is no different from wheat, mustard or milk. The Government may want farmers to receive remunerative prices, but millers or processors cannot be made to pay a price that makes their operations unviable. If the UP Government wants cane growers to receive the SAP, it should foot the difference over what mills can afford to pay as per a transparent formula linked to sugar realisations. This excess can be directly credited to farmers’ bank accounts. This is implementable for cane as farmers have bank accounts and mills maintain records of purchases made from each farmer for transferring payments.