Maharashtra Government Rescinds Sugarcane Payment Order

The Maharashtra government revoked a previous order that allowed sugar mills to pay farmers in two instalments. This decision was made following a High Court ruling that reinstated the original payment system. The Fair and Remunerative Price (FRP) for sugarcane is determined by the Central Government, ensuring farmers receive timely payments.

About the Fair and Remunerative Price (FRP)

The FRP is set annually by the Cabinet Committee on Economic Affairs. This committee is led by the Prime Minister and takes advice from the Commission for Agricultural Costs and Prices. The FRP is based on the sugar recovery rate from sugarcane. If mills fail to pay the FRP within 14 days, they face penalties.

Previous Payment Structure

In February 2022, the MVA government introduced a new payment structure. This allowed sugar mills to pay farmers in two instalments based on recovery rates. The first payment was made at the start of the season, while the final payment was calculated after the season ended. This approach was intended to benefit farmers by aligning payments with the current season’s recovery.

High Court Ruling

On March 17, 2025, the High Court ruled against the two-instalment payment system. The court declared it unconstitutional and restored the original single-payment system. It emphasised the need for timely payments to prevent farmers from falling into debt. The court brought into light that farmers should not have to wait for payments until the end of the crushing season.

Impact on Sugar Mills

The ruling poses challenges for sugar mills. They typically sell sugar and use the proceeds to pay farmers and service loans. Paying the FRP in one lump sum could strain their finances. The sugar industry had welcomed the earlier instalment system, believing it would ease financial pressures.

Future Implications

The High Court’s ruling may be appealed in the Supreme Court. The Maharashtra government has strong ties to the sugar industry, which may influence future decisions. Farmers, represented by leaders like Raju Shetti, are keen to ensure their voices are heard in any legal proceedings.

Legal Framework and Regulations

The FRP and sugar pricing are governed by several laws, including the Sugarcane (Control) Order, 1966. This legislation ensures that sugarcane prices are regulated to protect farmers. The Essential Commodities Act, 1955, also plays a role in controlling sugar prices.

Current Market Dynamics

Sugar mills are currently under pressure due to the reinstated payment structure. Farmers are hopeful for timely payments to support their livelihoods. The relationship between sugar mills and farmers is critical for the sustainability of the sugar industry in Maharashtra.

Questions for UPSC:

1. Critically examine the role of the Central Government in determining the Fair and Remunerative Price for sugarcane.
2. Discuss the implications of the High Court ruling on the sugar industry in Maharashtra.
3. Explain the significance of the Essential Commodities Act, 1955 in regulating agricultural prices.
4. What are the challenges faced by sugar mills in maintaining financial stability? How can these be addressed?

Answer Hints:

1. Critically examine the role of the Central Government in determining the Fair and Remunerative Price for sugarcane.

1. The Central Government sets the Fair and Remunerative Price (FRP) annually through the Cabinet Committee on Economic Affairs (CCEA).
2. The decision is based on recommendations from the Commission for Agricultural Costs and Prices (CACP), ensuring a structured approach to pricing.
3. FRP is linked to the sugar recovery rate, which incentivizes farmers based on the efficiency of sugar production.
4. The FRP is legally binding, requiring sugar mills to pay farmers within 14 days, providing a safeguard for farmers’ rights.
5. The Central Government’s role aims to balance the interests of farmers and the sugar industry while ensuring food security and rural livelihoods.

2. Discuss the implications of the High Court ruling on the sugar industry in Maharashtra.

1. The High Court ruling reinstated the original payment system, requiring sugar mills to pay farmers in one lump sum, impacting cash flow for mills.
2. This decision is expected to protect farmers from delayed payments, reducing their financial vulnerability and potential debt.
3. It may strain the financial management of sugar mills, as they typically rely on staggered payments to manage operational costs.
4. The ruling could lead to increased tensions between farmers and millers, especially in negotiations over future payment structures.
5. Potential appeals to the Supreme Court may prolong uncertainty in the industry, affecting market stability and planning for both farmers and mills.

3. Explain the significance of the Essential Commodities Act, 1955 in regulating agricultural prices.

1. The Essential Commodities Act provides the legal framework for regulating prices of essential goods, including sugar and sugarcane.
2. It ensures that prices remain stable and fair, protecting both consumers and producers from market fluctuations.
3. The Act empowers the government to control the supply and distribution of essential commodities, preventing hoarding and black marketing.
4. In the context of sugarcane, it ensures that farmers receive a fair price, thereby promoting agricultural sustainability and food security.
5. The Act plays important role in maintaining the balance between agricultural interests and consumer needs, encouraging a stable economic environment.

4. What are the challenges faced by sugar mills in maintaining financial stability? How can these be addressed?

1. Sugar mills face cash flow issues, especially when required to pay farmers in a lump sum, straining their financial resources.
2. High operational costs and fluctuating sugar prices in the market can lead to financial instability for mills.
3. Debt accumulation from loans taken to finance operations can lead to a cycle of financial distress.
4. To address these challenges, mills can explore better financial management practices, such as securing flexible financing options.
5. Collaboration with farmers to establish mutually beneficial payment plans and improving efficiency in sugar production can also enhance financial stability.