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Unresolved issue of sugarcane pricing
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Recent relief measures are only ‘sugar coating’ the bitter problem, which remains unaddressed
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‘The biggest issue for the industry is realisation amid increased costs. Across the country, no player is getting sugar realisation which is either more than or even equal to the cost of production.’
— PHOTO: AP
FOCUS ON BIO-FUELS: Hydraulic cranes lift sugarcane from trucks for processing at the ethanol plant of an integrated sugar complex in Simbhaoli, Uttar Pradesh.
The partial relief package announced recently by the Centre for the ailing sugar sector is expected to provide some succour to the beleaguered industry, which, despite a record production, has been facing severe problems.
The package mainly consists of making five per cent ethanol blending in petrol mandatory across the country at a uniform procurement price of ethanol.
Other proposals include restructuring of loans, interest subsidies and a continuance of export assistance. However, the industry feels that although the measures are positive, they are only ‘sugar coating’ the bitter issue of sugarcane pricing — for long the bane of the sugar industry — which remains unaddressed.
Global production
The situation has been further compounded this year by the fact that a record global production has seen international sugar prices drop in some cases by up to 50 per cent and domestic prices by 30 per cent, although cane prices have remained the same or, in some cases, even firmed up.
Speaking to The Hindu, Prakash Naiknavare, Managing Director, Maharashtra State Co-operative Sugar Factories’ Federation, said, “The announcement will definitely help and increase the cash flow to the sector and improve liquidity. The decision to allow a higher level of ethanol blending will also present a good opportunity.”
The basis of the problem, according to Mr. Naiknavare, is the drop in the realisation for sugar production. The price of cane accounts for around 70 per cent of the cost of sugar but cane pricing is not part of the Cabinet Committee’s agenda and would be addressed separately.
“Importantly, it must be noted that the biggest issue for the industry is realisation amid increased costs. Across the country, no player is getting sugar realisation which is either more than or even equal to the cost of production. While in Maharashtra, the loss for every kg of sugar is Rs. 3-4, in Tamil Nadu, it would be Rs. 2-3.”
Sridhar Chandrasekhar, Head, Crisil Research, said, “The biggest issue facing the sugar industry is cane pricing and on an average, the cost of production is Rs. 15.50-16 a kg while realisation is Rs. 12.50-12 a kg.
To address this, companies have ventured into co-generation and ethanol manufacturing but on the costs side, little has changed in terms of cane pricing.”
The opening stock in October 2008 would be 11 million tonnes and production is expected to be 28 million tonnes in 2007-08. Major players in Uttar Pradesh have incurred heavy capital expenditure on expansion under the sugar promotion schemes and today face a severe liquidity crunch with the highest cane arrears to farmers.
Ram Thyagarajan, Managing Director, Thiru Arooran Sugars, said, “It is a difficult situation and the magnitude of the surplus is enormous. The way out for manufacturers is to postpone discretionary expenses, reduce inventories, save on interest costs and push for exports.” Fortunately, five million tonnes of sugar have gone to the buffer stock for storage, insurance and the like, while on the other hand, the export subsidy has been extended by another year.
Previous surplus cycles have turned around either because of reduction in cane availability due to switching of crops or because of adverse climatic conditions. “I do not think production will go out of hand.
The output in the coming season may not be as high as expected. In Tamil Nadu itself, a 10 per cent reduction in the cane area could happen next year,” Mr. Thyagarajan said.
Raw sugar exports
Exports of raw sugar also present an opportunity and Mr. Naiknavare said, “The industry is enthusiastically looking at exports of raw sugar as a great opportunity; particularly for the Indian Ocean area — Indonesia, Malaysia, Bangladesh and the UAE. India has never seriously tried exporting raw sugar and this is an opportunity because sugar refiners need raw sugar throughout the year and initially, the industry is exporting around 2.5 million tonnes of raw sugar. Hitherto, this was being supplied by Brazil and Thailand but India can offer better prices.”
According to Mr. Chandrasekhar, while export potential of white sugar is limited, raw, unrefined sugar has an export potential of 5-6 million tonnes. “Although Brazil is the largest producer and exporter, India enjoys freight advantage when exporting to countries in the Indian Ocean region,” he said.
RAMNATH SUBBU
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