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The Brazilian Sugarcane Ethanol Experience

By Marcus Renato S. Xavier
(sent by Margareth Tse)

INTRODUCTION

Biofuels are attracting increasing interest around the world. Governments have announced strong commitments to biofuel programs as a way to both reduce greenhouse gas emissions and diversify energy sources. Advocates of biofuel subsidies and mandates frequently cite Brazil´s experience with sugar cane-based biomass ethanol as a success story and model for increasing energy security. Today, Brazil is the world’s largest biofuel market and Brazilian ethanol from sugarcane is arguably the first renewable fuel to be cost-competitive with a petroleum fuel for transport. The United States, where most ethanol is produced from corn, is the second largest biofuel market.
These two countries share some important characteristics. Geographically, both have continental dimensions. Both have great agricultural capabilities and well-developed domestic automobile industries. In absolute terms, the Brazilian and U.S. fuel ethanol markets are comparable in size. In 2005, Brazil produced 4,227 million gallons of ethanol; the United States produced 4,264 million gallons[1]. However, in biofuels’ market share, the difference is striking. In the United States, ethanol supplied only 3 percent of total motor fuel consumed in 2005, while in Brazil, ethanol supplied 40 percent[2].
One reason for this difference is simply the larger overall size of the U.S. motor fuel market, due to the greater number of cars in the United States. In Brazil, there are 23 million vehicles and 49.1 million households, an average of 0.47 vehicles per household. In the United States, there are 204 million vehicles for 107 million U.S. households, an average of 1.9 vehicle per household[3]. Cultural attachment to the automobile is also different in each country. Unlike in the United States, in Brazil, cars with small motors of up to 1.4 liters dominate the market.
Ethanol production is also more economical in Brazil than in the United States. This is due to several factors, including the superiority of sugarcane to corn as an ethanol feedstock, Brazil’s large unskilled labor force (sugarcane production is very labor intensive), and a climate ideally suited to growing sugarcane. While the U.S. and Brazil make about the same volume of ethanol, the U.S. uses almost twice as much land to cultivate corn for ethanol as Brazil does to cultivate sugarcane for the same purpose.
Given these advantages, the productivity and efficiency of the Brazilian sugarcane ethanol production are virtually unmatched by any other country. So it is far from clear that the United States can or should attempt to replicate Brazil’s biofuel policies or achievements.
One objective of this paper is to review the factors that have contributed to the success of the Brazilian bioethanol industry. The evolution of this industry offers some valuable lessons for other countries considering ethanol production. The paper will show that even in Brazil, where climate and labor market conditions favor ethanol production, ethanol is cost-competitive with gasoline only during periods when oil prices are high. For the United States, it seems implausible for ethanol production to have a significant impact on the market for oil, helping reduce America´s dependence on petroleum.

1. A Brief History of Brazil´s Ethanol Program

Brazil’s National Alcohol Program, PROALCOOL, was launched in 1975 as a policy to reduce the country’s dependence on oil imports. At the time, Brazil was importing 80 percent of its oil and the 1973 OPEC oil embargo and production cutback had raised concerns that oil dependency could endanger national security[4].
PROALCOOL was both an energy security program and an agricultural price support program. It aimed to increase production of sugarcane alcohol for use as a gasoline substitute, but it also sought to guarantee the profitability of the sugar industry after the sharp fall in sugar prices in 1974. The program allowed the excess production to be converted into alcohol (ethanol) in special distilleries close to the sugar mill. The ethanol thus produced would be blend with gasoline in a proportion of up to 24 percent.
As a first step, PROALCOOL aimed to increase the number of distilleries in the existing mills with the federal government offering extremely attractive credit guarantees and low-interest loans for construction of new refineries. These initial incentives accounted for nearly $2 billion in loans (nominal dollars) which represented 29 percent of the total investment needed[5]. The principal beneficiaries of the credit programs were the large producers[6].
Next, the government began using the state oil company PETROBRAS to make infrastructure investments for ethanol distribution and to keep the cost of ethanol to consumers significantly cheaper than the cost of gasoline. The distribution of ethanol by PETROBRAS was based on a cross-subsidy scheme whereby gasoline prices were artificially boosted to keep the price of ethanol at a competitive level. Through its involvement in the National Alcohol Program, PETROBRAS accumulated losses of around $4 billion[7].
These incentives were key to the rapid expansion of ethanol consumption in Brazil. In less than four years, ethanol production more than tripled[8].
When the Iranian Revolution triggered a second oil crisis in 1979, the Brazilian government expanded PROALCOOL to promote the production of vehicles especially designed for ethanol use. In the early 1980s, it signed agreements with major automobile manufacturers—including Fiat, Volkswagen, Mercedes Benz, General Motors, and Toyota—to increase the production of ethanol-fueled vehicles. Taxi drivers were given tax breaks to convert their car engines to run on 100 percent ethanol, and the government mandated the use of ethanol-fueled vehicles in its own fleet. As a result, between 1983 and 1988, ethanol-fueled cars accounted for over 90 percent of total auto sales. In 1984, ethanol-powered cars accounted for 94.4 percent of automobile production for the Brazilian market[9].
During the second half of 1980s, however, Brazil’s ethanol program began to experience problems. Huge fiscal deficits and high inflation led Brazil to start economic reforms that included a cutback on ethanol production subsidies. At the same time, world oil prices dropped sharply during 1985-1986, obviating the consumer benefit of replacing oil with ethanol. The economics became even more unfavorable in 1988 when the world sugar price rose considerably, and, at the same time, the government liberalized the sugar export market. As a result, sugarcane planters diverted crops to the sugar export market, leading to a severe ethanol shortage during the second quarter of 1989. In response, the government authorized ethanol imports, and, ironically, Brazil turned into a net importer of ethanol. Drivers stopped buying ethanol-fueled cars, and car manufacturers stopped producing them. By the mid-1990s, only taxis and rental cars were being produced to run on ethanol[10].

PROALCOOL First Incentives

* Guaranteed alcohol price lower than gasoline price
* Guaranteed remuneration to the producer
* Loans for alcohol producers to increase their capacity
* Tax reduction for alcohol cars
* Mandatory alcohol selling in Gas stations
* Maintenance of strategic alcohol stocks

During the 1990s, the Brazilian economy experienced profound transformation. Economic policy emphasized stabilization, privatization, and liberalization—priorities into which an industrial policy program like PROALCOOL did not fit. There was little political support for continued taxpayer-funded subsidies for sugar growers or distillers. The government gradually rescinded PROALCOOL’s incentives and subsidies and freed alcohol prices to fluctuate with the market. Nevertheless, throughout this period, the federal government continued to require that all gasoline sold in Brazil contain roughly 20 percent ethanol. The government’s rationale was environmental—ethanol would reduce emissions of lead and other pollutants. This helped sustain the industry through hard times.
An official evaluation of the total amount of investments in both the agricultural and industrial sectors for the production of ethanol for automotive use found that during 1975-1989 the government had spent a total of $12.3 billion in the National Alcohol Program[11].
Towards the end of 1990’s, some Brazilian engineers and policy makers sought to revive the ethanol fuel program. Ford launched its first flex-fuel prototype in 2002, with Volkswagen following in 2003. Flex-fuel cars able to run on ethanol, gasoline, or any mixture of the two caught on quickly. By March 2004, flex-fuel vehicles represented 16 percent of new cars sold in Brazil. By February 2006, the figure was 73 percent. (See Figure 1). The success of flex-fuel cars has led some automakers to announce plans to extend the technology for the production of all light vehicles in Brazil.











FIGURE1
Source: Anfavea, 2006











2. Ethanol in Brazil Today
The dramatic increase in flex-fuel vehicles has helped fuel the Brazlian sugarcane industry’s recent expansion. Today, Brazil is the world’s biggest sugar producer and exporter, and the world’s largest producer and consumer of sugarcane ethanol as a transportation fuel. In 2006, Brazil produced 4.2 billion gallons of ethanol. About 85 percent of the domestic production is concentrated in the Center South of the country and more than half of it is located in the state of São Paulo[12].























About 80 percent of the country's total ethanol production is for domestic consumption, but exports have been growing for several years. By 2010, Brazilian companies are expected to invest about $10 billion in dozens of new sugar mills to boost ethanol production, while aiming to double exports.
In Brazil, sugar and ethanol are produced on an integrated basis. Currently, there are 306 operational mills producing 55 million tons of sugar or ethanol. The option to produce more or less of each product is influenced by the relative prices. When sugar prices increase, for example, producers can divert sugarcane production from ethanol to sugar. The production process also generates 100 million tons of waste—bagasse and straw— that can be used as fuel for heat and power generation. This is one significant advantage of sugarcane-based ethanol. Today, Brazilian mills and distilleries are nearly entirely self-sufficient in energy supply, and a few even sell surplus electricity.
Another advantage of sugarcane is its highly favorable energetic balance when compared with other ethanol sources. Under conditions in Brazil, sugarcane’s productivity is roughly twice that of corn-based ethanol. As long as raw material accounts for roughly 60 percent of production costs, the comparative advantages of sugarcane is crucial to Brazilian ethanol’s commercial feasibility. It is also worth noting that almost all sugarcane production, which is water-intensive, grows in rain-fed cultivated areas. Brazilian scientists have produced cane varieties that are genetically resistant to the main crop diseases. There are more than 500 commercial varieties of cane, of which 20 varieties are used in 80 percent of the cane area[13].

Figure 2
Physical Productivity Comparison
Source: Ministry of Agriculture - Brazil
















Production costs for ethanol in Brazil are the world´s lowest. The average production cost is approximately $ 0.75 per gallon, according to UNICA, the industry association. Factors contributing to Brazil’s competitiveness include favorable climate conditions, low labor, costs and mature infrastructure built over at least three decades. As Figure 3 shows, productivity gains have been substantial. Between 1975 and 2000, modernization of the sugarcane yield per hectare increased by 33 percent and ethanol yield from sugar rose by 14 percent. If ethanol could also be produced efficiently from cane bagasse, a process that is under development in Brazil, future productivity increases could be even greater[14]. These efficiency gain achieved over a three-decade “learning curve,” combined with the aforementioned factors unique to the country, allow Brazil to sell ethanol close to or below the market price of gasoline.

Figure 3 - Productivity Gains



























Unlike the Brazilian Alcohol Program’s early days, today the Brazilian sugar program does not rely on any governmental price support mechanism. There are currently no production subsidies and no indirect costs paid by other sectors. The government’s main intervention is the aforementioned requirement for all gasoline sold to contain a minimum percentage of ethanol. This is partly due to environmental rather than economic concerns. The introduction of ethanol as a substitute for lead additives has helped improve air quality in large cities, particularly São Paulo.
As ethanol provides fewer miles per gallon than gasoline, Brazilian drivers know that ethanol is price competitive only when it costs no more than 70 percent of the price of gasoline. In March 2006, the blending ratio was reduced from 25 percent to 20 percent after ethanol prices soared to all-time highs. Brazillian drivers stopped using pure ethanol as the price reached $ 0.90, about 85 precent of the price of gasoline. Since both sugar ethanol and oil prices remain volatile, analysts diverge about the trajectory of ethanol as a fuel in Brazil. The beginning of the sugarcane crop season turned ethanol cost competitive with gasoline, at least in the regions near the production areas. In the North and Northeast of Brazil, high transportation costs still limit the economic viability of using ethanol as fuel.
Ethanol, gasoline and the consumer choice in two major cities in Brazil

São Paulo Rio de Janeiro

Ethanol price = US$ 2.70 Ethanol price = US$ 3.30
Gasoline price (E20) = US$ 4.20 Gasoline price (E20) = US$ 4.40

Currently, ethanol price is 64 percent of the price of gasoline in São Paulo and 75 percent in Rio de Janeiro. Ethanol is not cost competitive with gasoline in this latter. Price instability is still a problem to be faced, even near production areas like São Paulo.

At the prevailing exchange rate of U$1 = R$2.15, average price of gasoline (E20) in São Paulo was US$4.20 per gallon while ethanol was US$ 2.70. At these prices Brazilian drivers still benefit using ethanol. In Rio de Janeiro, to use gasoline is still more economical than ethanol.[m1]

Brazil: World’s Lowest-cost Sugar Producer – Summary of Advantages

Favorable climate, abundance of land, fertile, and plentiful rainfall in Center-South

Production areas near the major consumption centers.

Use of bagasse for plant energy use and surplus electricity sales

Between 1975-2000, sugarcane yield per hectare increased by 33 percent, sugar content of cane 8 percent, ethanol yield from sugar 14 percent, and fermentation productivity 150 percent

More than 500 commercial varieties of cane (each plant processes around 15 varieties)

Hybrid sugar mill/distillery complexes

Planting, harvesting, and plant operations computerized.

3. Concluding remarks and some lessons from Brazil
Given Brazil’s natural and acquired advantages for ethanol production, it is difficult to imagine the United States matching Brazil’s level of ethanol consumption—40 percent of the motor fuel market—at a reasonable economic cost. In the U.S., corn-based ethanol would be viable only if it were to compete in the market on the same basis as other fuels. American taxpayers today pay twice for ethanol: once in crop subsidies to corn farmers and again in a 51-cent subsidy for every gallon of ethanol. Without such a subsidy, ethanol simply wouldn't be cost competitive with gasoline.
Corn based ethanol produced in quantities large enough to displace a significant percentage of U.S. petroleum consumption could have significant environmental impacts. According to the Worldwatch Institute[15], ethanol may damage the environment as much as fossil fuels when it is produced on a large scale from low-yielding crops such as corn. In these cases it may generate as much or more greenhouse gas emissions than do petroleum fuels.
A point rarely noted in discussions of the Brazilian biofuel program is that, along with ethanol, oil self-sufficiency has been a long-term goal of the Brazilian government. After the crisis with PROALCOOL during the late 1980s, the Brazilian government, through PETROBRAS, has put much more emphasis on increasing oil production. Based on its excellent performance on offshore exploration, PETROBRAS increased oil production by an average of 9 percent per year since 1980, in the range of 1.8 million barrels per day. In 2006, Brazil achieved self-sufficiency in oil and expects to export an estimated 500,000 bpd by 2010.
If ethanol was truly key in displacing oil imports, the Brazilian ethanol program also shows that biofuels should not be considered a panacea for the world’s energy challenges. Brazil’s ethanol infrastructure model required huge taxpayer subsidies over decades before it could become viable. The ethanol program became uneconomical when petroleum prices fell in the late 1990s. Even today, during a period of high oil prices, ethanol volatile prices have not freed Brazilians from losing money on the E20 blend mandated by their government. The Brazilian ethanol program is not a suitable model for U.S. energy policy reform.

About the Author

Marcus Renato S. Xavier is an economist at the Federation of Industries of the State of Minas Gerais and Professor of Economics at IBMEC Business School and Fundação João Pinheiro and Senior Fellow of Instituto Liberdade. He received his B.A in Economics from Federal University of Minas Gerais and his Master degree from University of São Paulo. He is also a senior fellow from Instituto Liberdade.

The findings, interpretations, and conclusions expressed in this paper are entirely responsibility of the author and should not be attributed in any manner to those organizations
[1] F.O. Licht Database 2006 <http://www.agra-net.com/portal/>
[2] Masami Kojima and Todd Johnson. Potential for Biofuel for Transport in Developing Countries. Energy Sector Management Assistance Programme. World Bank, October 2005. Pg. 1.
[3] Leslie Miller. Cars, trucks now outnumber drivers. Salon. 29 August 2003. http://www.salon.com/tech/wire/2003/08/29/cars_and_drivers/index.html
[4] Petrobras (Petróleo Brasileiro S.A) 2006. Data from http://www.petrobras.com.br/.
[5] J. R. Moreira and J.Goldemberg. The Alcohol Program. Energy Policy 27 (1999) 229-245. Pg. 232
[6] Masami Kojima and Todd Johnson. Op cit. Pg. 48.
[7] J. R. Moreira and J.Goldemberg. Op. cit. Pg. 235.
[8] Jaime Buarque de Hollanda and Alan Douglas Poole. Sugarcane as an Energy Source in Brazil. INEE. pg.2 <www.inee.org.br/down_loads/forum/SUGARCANE&ENERGY.pdf>
[9] ANFAVEA (Associação Nacional dos Fabricantes de Veículos Automotores) 2006. Data from www.anfavea.com.br.
[10] Jaime Buarque de Hollanda and Alan Douglas Poole. Op. cit.. Pg.4.
[11] J. R. Moreira and J.Goldemberg. Op.cit. Pg 229.
[12] Unica (União da Agroindústria Canavieira de São Paulo), 2002. Data from www.unica.com.br.
[13] Plínio M. Nastari.. “Informativo Datagro” Report on the cane, sugar and alcohol industry, São Paulo, Brazil, 2005, Numbers 1. Pg.12
[14] Goldemberg, José, Suani Teixeira Coelho, Plinio Mário Nastari, and Oswaldo Lucon. 2004. “Ethanol Learning Curve—the Brazilian Experience.” Biomass & Bioenergy 26: 301–304.
[15] Worldwatch Institute. Biofuels for Transportation: Global Potential and Implications for Sustainable Energy in the 21st Century. May 4, 2006.
[m1]Updated.

Ravindra Singh Advocte,Allahabad,says: Interim Order of the Apex Court allowing sugarmills to pay cane price @110/ per quintal of sugarcaneis just and proper and it will protect the both sugar mills as well as
farmers

Ravindra Singh Advocate,Allahabad,says: Interim Order of the Apex Court passed on sept.8/2008 allowing sugarmills to pay cane price @110/ per quintal of sugarcaneis just and proper and it will protect the both sugar mills as wellas farmers.Mr Singh representing the U.P. Cooperatve Cane Union Fed Ltdpointed out before the supreme court that U.P. sugar mills have fullpotential to pay the SAP determined by the U.P. Government as centralgovernment has already given several crores to sugar mills for paymentof sugar cane dues for season 2006-07 and 2007-08 by way of loan/subsidy, beside this sugar prices are around Rs 2000/ per

quintal.However the Bench observed that these facts will be seen at
the final stage. As per Mr.Singh sugar prices have nothing to do with
the sugarcane growing cost,sugar producer shold be thakfull to the
U.P. Government that despite of the inflation in sugarcane production
cost about Rs 12/ per quintal it had not increased the rate of SAP
taking into consideration the steep fall in the sugar prices.He is of
the opinion that in the next season sugarcane prices should be atleast
Rs 142/ plus bonus as per supplementary report recommendation of the
CACP .He said that when prices of almost have every commodity have
been increased by 9 to 11 % during last two years then why sugarcane
prices should remain static.

Allahabad High Court in a significant judgment has ruled that where a industrial company continues its activities in spite of a reference pending before the BIFR and liabilities are incurred subsequent to the cut-off date those liabilities will have to be honored by the concerned company ,the court held that these liabilities will not become a part of the scheme or of the package of rehabilitation.



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The court has further held that sugarcane is being purchased as a raw material subsequent to the cut off date, the price there fore will have to be paid.



Allahabad High Court in a significant judgment has ruled that where a industrial company continues its activities in spite of a reference pending before the BIFR and liabilities are incurred subsequent to the cut-off date those liabilities will have to be honored by the concerned company ,the court held that these liabilities will not become a part of the scheme or of the package of rehabilitation.



The court dismiss the writ petition preferred by the Dewan Sugar Mills Ltd located at Moradabad District Challenging recovery of sugarcane price and consequential proceedings on the ground that petitioner sugar mill is a sick unit registered under BIFR on 3rd Feb 2005, a draft scheme has been submitted on 21st April 2006 and Allahabad Bank has been appointed as a operating Agency.



The court has held that sugarcane is being purchased as a raw material subsequent to the cut off date, the price there fore will have to be paid. The above judgment has been passed by Chief Justice H.L.Gokhle and Mr. Justice. Vineet Saran JJ after hearing at length .Senior Advocate Mr Bharat ji Agrawal appearing for the sugar mill, Mr. S.P. Kesharwani for State of Uttar Pradesh and Mr. Ravindra Singh Counsel representing the concerned cane growers’ co-operative societies supplier of sugarcane to the mill.



Senior Advocate Mr. Agrawal submitted to the court that coercive measures be injuncted in view of provisions of section 22 of the Sick Industrial Companies (special provisions) Act,1985.The Cane commissioner of Uttar Pradesh on June 14th issued the recovery certificate for recovery of cane dues amounting to Rs 15.68 crores.



Mr. Ravindra Singh submitted before the court that under Sugar Cane Control Order ,1966, Order 3(3A), the factory has to make the payment within 14 day’s of the delivery of sugarcane failing which 15% interest per annum is payable for the period of delay. If the sugarcane is purchased, the company can not turn back and say that it can not pay and the farmers may go to BIFR. He submitted that Protection of section 22 is not applicable in the present case, as sugarcane purchase’s were made with full knowledge of the proceedings of SICA.



Agreeing with submissions of Mr. Singh and state counsel the court observed that there can not be any escape for preventing the recovery of the amounts of sugarcane by coercive method will therefore have to be rejected. The court took the note of the facts that sugarcane price was to be paid as per Luck now Bench order@110/per quintal and the Apex Court in appeal on15 th May 2008 directed that the rate fixed by Luck now Bench will be applicable(Now the petition in the Luck now Bench has been disposed off on 07.07.2008 and the SAP has been fixed at Rs.125/ per quintal .It is to be paid within two months from the date of the order.

Allahabad High Court in a significant judgment has ruled that where a industrial company continues its activities in spite of a reference pending before the BIFR and liabilities are incurred subsequent to the cut-off date those liabilities will have to be honored by the concerned company ,the court held that these liabilities will not become a part of the scheme or of the package of rehabilitation.



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It's unfair to woo Tatas at this juncture: Karunanidhi
No work at Tata's Singur unit for second day
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The court has further held that sugarcane is being purchased as a raw material subsequent to the cut off date, the price there fore will have to be paid.



Allahabad High Court in a significant judgment has ruled that where a industrial company continues its activities in spite of a reference pending before the BIFR and liabilities are incurred subsequent to the cut-off date those liabilities will have to be honored by the concerned company ,the court held that these liabilities will not become a part of the scheme or of the package of rehabilitation.



The court dismiss the writ petition preferred by the Dewan Sugar Mills Ltd located at Moradabad District Challenging recovery of sugarcane price and consequential proceedings on the ground that petitioner sugar mill is a sick unit registered under BIFR on 3rd Feb 2005, a draft scheme has been submitted on 21st April 2006 and Allahabad Bank has been appointed as a operating Agency.



The court has held that sugarcane is being purchased as a raw material subsequent to the cut off date, the price there fore will have to be paid. The above judgment has been passed by Chief Justice H.L.Gokhle and Mr. Justice. Vineet Saran JJ after hearing at length .Senior Advocate Mr Bharat ji Agrawal appearing for the sugar mill, Mr. S.P. Kesharwani for State of Uttar Pradesh and Mr. Ravindra Singh Counsel representing the concerned cane growers’ co-operative societies supplier of sugarcane to the mill.



Senior Advocate Mr. Agrawal submitted to the court that coercive measures be injuncted in view of provisions of section 22 of the Sick Industrial Companies (special provisions) Act,1985.The Cane commissioner of Uttar Pradesh on June 14th issued the recovery certificate for recovery of cane dues amounting to Rs 15.68 crores.



Mr. Ravindra Singh submitted before the court that under Sugar Cane Control Order ,1966, Order 3(3A), the factory has to make the payment within 14 day’s of the delivery of sugarcane failing which 15% interest per annum is payable for the period of delay. If the sugarcane is purchased, the company can not turn back and say that it can not pay and the farmers may go to BIFR. He submitted that Protection of section 22 is not applicable in the present case, as sugarcane purchase’s were made with full knowledge of the proceedings of SICA.



Agreeing with submissions of Mr. Singh and state counsel the court observed that there can not be any escape for preventing the recovery of the amounts of sugarcane by coercive method will therefore have to be rejected. The court took the note of the facts that sugarcane price was to be paid as per Luck now Bench order@110/per quintal and the Apex Court in appeal on15 th May 2008 directed that the rate fixed by Luck now Bench will be applicable(Now the petition in the Luck now Bench has been disposed off on 07.07.2008 and the SAP has been fixed at Rs.125/ per quintal .It is to be paid within two months from the date of the order.

>Issue of Transport Rebate by Sugar Mills is still open for interperation –Says Ravindra Singh Counsel for Ganna Sangh/ Cane Unios
As per Central Govt order dated 22nd March, 2004 passed under sugarcane Control Order ,1966 maximum rebate could only be to the extent of Rs 5.83/quintal of sugarcane for carrying the sugarcane from purchase centre to factory , that too after liquidation of sugarcane price .However in the petition filed by the Bajaj group Allahabad High Court allowed deduction of 10.58/ by observing that , “we are of the opinion that the rate of 10.58 per quintal per km. is fairly reasonable as against the demand of the petitioner of Rs. 13.33 per quintal which should be paid to the petitioner or petitioner should be made entitled to deduct the same from the minimum price payable by the petitioner for the sugarcane purchased by petitioner and this is based on the basis of cost supplied by petitioner till the rate of transportation rebate is worked out on the basis of material as mentioned in Clause 3-A of the Control Order periodically preferably yearly.

We therefore, direct that it is fairly reasonable that the petitioner should be made entitled to deduct the amount Rs. 10.58 per quintal per km. towards the minimum price payable by the petitioner for the sugarcane delivered at the purchase centre till the rebate of transport is worked out on the basis of the guidelines issued by the Central Government in accordance with the provisions of Clause 3-A of 1966 Control Order.

In the result, writ petition is allowed. The circular dated 4th January, 2007 withdrawing the rebate at the rate of Rs. 5.75 per quintal is quashed. The rate of rebate fixed earlier at the rate of Rs. 5.75 per quintal per kilometer is not applicable to the current crushing season. The petitioner is entitled to be paid or the petitioner is entitled to deduct the same at the rate of Rs. 10.58 per quintal per kilometer for transportation of sugarcane till the rate of transportation rebate is worked out on the basis of materials mentioned under Clause 3-A of the 1966
29
Control Order, and in view of law laid down in this judgment periodically, preferably every year on the commencement of crushing season”. .In the above petition order of central government dated 22nd March, 2004 was not challenged and only an unamended provision was challenged by BAJAJ GROUP .State govt challenged the aforesaid judgment by preferring an SLP(civil) 8500/2008 before Hon’ble Supreme Court & the Supreme Court vide interim order dated June 30th 2008 directed the Bajaj Group to pay the cane price @ 110/ without deducting the Transport charges Their after three writ petitions were preferred by the West U.P Sugar Mills association, Modi & SBEC sugar mills bearig WP No 26171/08,25014/08,25016/08 wherein the c order of Central Govt dated 22nd March, 2004 was challenged The divison bench presided over by the same Hon’ble Sr judge Hon’ble Mr. Justice Anjani Kumar did not pass any interim or final order and the writ petitions are still pending in the High Court. In the mean time these petitioners preferred Transfer Petition (Civil) 614/2008 before the Supreme Court wherein notices has been issued to the concerned parties. Restriction imposed by Supreme Court on deduction of transport charges has again been reiterated by the Supreme Court on 14.11.2008.
To the point of view of the cane grower’s the provision of transport rebate is discriminatory and unconstitutional & is hit by Art 14. It is discriminatory amongst the cane growers supplying the cane from purchase center to Mill and sugarcane field to Gill Gate ,as provision of transport rebate is applicable for transportations of sugarcane from purchase centre to factory alone. Such facility/rebate is not available in other agricultural produce, say for example, producer of packed milk whether it is Amul or Mother Dairy or Parag can not say that since they are carrying the raw milk from long distance they will pay the less prices to the seller as there is huge expenses in transporting the raw milk or in marketing the packed milk from Gujrat to Uttar Pradesh or from Haryana to Delhi by AC vehicle. Similar is the position with other agriculture produce then why a sugarcane grower whose cane is being purchased by the Sugar Mill owner from purchase center is to suffer, transportation of raw material has nothing to do with the cost of production of sugarcane Now the time has come that Government should reconsider the above provision of rebate that it should continue or not ?

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