The High Court of Andhra Pradesh at Amaravati has quashed the Government of Andhra Pradesh’s order fixing the Oil Extraction Ratio (OER) at 20.01% for the 2025–26 oil year, ruling that the state failed to provide a rational, data-driven basis for the chosen percentage. The court’s decision comes after a challenge by the Oil Palm Developers and Processors Association, which argued that the fixation was arbitrary and lacked connection to the actual processing performance within the state. Justice Dr. Venkata Jyothirmai Pratapa directed the state’s competent authority to conduct a fresh assessment and establish a new pricing formula within eight weeks, noting that while the government possesses the statutory power to set prices, such authority must be exercised in accordance with objective criteria.

The dispute centered on the methodology used by the state to determine the minimum price payable to oil palm farmers. Under the Andhra Pradesh Oil Palm (Regulation of Production and Processing) Act, 1993, the state is responsible for setting the minimum price of Fresh Fruit Bunches (FFBs) produced by growers, who are legally required to supply their produce to designated factory zones. Because these farmers operate as captive suppliers, the government’s pricing mechanism is a critical economic policy that directly influences both agricultural sustainability and industrial viability.

For the 2025–26 oil year, the government issued G.O.Rt.No.72, which adopted an OER of 20.01%—a figure mirrored from a policy decision by the neighboring state of Telangana. The petitioners contended that this ratio was untethered to the actual extraction performance of mills within Andhra Pradesh and failed to account for technical and operational differences between the two regions. They argued that the government, which had previously acknowledged the advisory nature of the Commission for Agricultural Costs and Prices (CACP) formula, could not substitute rigorous state-specific data with an arbitrary benchmark imported from another jurisdiction.

In their submissions, the petitioners highlighted that the weighted average OER for processors within Andhra Pradesh remained significantly lower than the 20.01% mandated by the state. They further pointed to the lack of transparent calculation methods in the official records, asserting that the state had failed to demonstrate how a 20.01% recovery rate could be achieved using local produce. By imposing this higher ratio, the government effectively shifted a substantial financial burden onto the processing industry without a corresponding factual justification in the official record.

The state government, represented by the Advocate General, defended its position by citing the necessity of protecting the interests of the roughly 2.28 lakh oil palm farmers across the state. The respondents argued that the OER is influenced by complex variables, including plantation management, harvesting techniques, and the technical efficiency of processing machinery. They pointed to deficiencies identified in an audit of the state-owned Pedavegi facility, suggesting that lower OERs reported by certain units were indicative of technological stagnation rather than the intrinsic oil-bearing potential of the fruit. However, the court found these arguments insufficient to validate the specific figure chosen by the government.

A central point of contention was the lack of evidence connecting the 20.01% figure to actual, verified recovery rates from Andhra Pradesh-origin fruits. While the government relied on technical assessments and studies involving samples of fruit processed in Telangana, the court noted a critical disconnect in the documentation provided to the committee. The judgment observed that while certain tests had yielded an OER of 19.36% for Andhra-origin fruit processed in Telangana, the government’s final notification relied on the higher 20.01% benchmark without explaining the derivation.

"The record does not disclose the calculation or other methodology by which 20.01% was derived," Justice Pratapa remarked in the ruling. The court clarified that the government was not prohibited from considering data from neighboring states, but it was under a legal obligation to demonstrate a rational nexus between that data and the specific requirements of the Andhra Pradesh agricultural landscape. The failure to present a documented, methodological pathway from the available data to the 20.01% figure rendered the government order vulnerable to constitutional challenge under Article 14 , which mandates that state action must be free from arbitrariness and whim.

The court further emphasized the importance of transparency in administrative price-fixing, recalling the fundamental principle that " equality and arbitrariness are sworn enemies ; one belongs to the rule of law in a republic while the other, to the whim and caprice of an absolute monarch." By requiring a fresh fixation, the court has effectively sent the issue back to the expert committees and authorities tasked with balancing the interests of the farming community against the economic viability of the processors.

The judgment clarifies that while the government has broad discretion to evolve its own pricing methodology, that discretion is bounded by the necessity of using relevant, material evidence. The court rejected the argument that it should substitute its own assessment for that of the government, maintaining that its role is limited to ensuring the process is reasonable and evidence-based. The order also mandates that all payments made to farmers under the current, now-quashed regime will remain subject to future adjustments based on the new, recalculated pricing formula.

As the authorities prepare for the fresh fixation exercise, the decision marks a significant development for the oil palm sector in the region, affirming that the state’s regulatory powers are not absolute and must be anchored in clear, verified datasets. The administrative process moving forward will need to satisfy the procedural and logical standards highlighted by the High Court, ensuring that both farmers and private processors operate under a pricing structure that is both fair and analytically sound. The state is now expected to invite further consultations and reassess its technical benchmarks to align its future orders with the court’s directives.