 "Bitter future looms large for sugar industry")
Nothing describes the pits the sugar industry finds itself in than the diminishing appetite of leading groups to grow capacity by acquisition of factories or building new mills.
Both Bajaj Hindusthan, Asia's largest producer, and the once-blue chip Balrampur Chini rapidly grew cane crushing capacity in the past by expansion and new investments. At some point they hoped, governments at the Centre and in cane-growing states would come up with a basket of policies rewarding the 50 million farmers and about 500 operating factories. The National Democratic Alliance (NDA) government offered some policy support in June by raising the import duty on sugar, restoring the export incentive and offering interest-free loans to the beleaguered industry to clear cane dues.
In the past, the United Progressive Alliance (UPA) government took major steps such as ridding the industry of levy obligation and regulated monthly sugar release for free market sale.
The Rangarajan committee has in its report given a clear map for removing the ills and creating conditions for growth. But like its predecessor, the NDA government has preferred to remain silent on its most important recommendation - to establish a linkage between sugar and cane prices and not let states arbitrarily decide the latter.
Mercifully, Karnataka and Maharashtra saw merit in the Rangarajan formula. Uttar Pradesh (UP) and Bihar are giving some subvention on cane to the factories.
But why is not Delhi telling the states which continue to put a premium over the Centre-determined Fair and Remunerative Price (FRP) to pay it from their exchequer? This will mean the states themselves pay anything extra on minimum support prices for wheat and rice as 'bonus payment'. Quite a few sugar-producing countries, including Thailand, the world's second largest exporter of the sugar after Brazil, has been able to redeem this agro-based industry by way of sugar- and cane-price linkage.
What, however, calls for our pondering is that at the current ex-factory prices of sugar, the recommended 75:25 price sharing formula between farmers and factories would leave both constituents high and dry. This raises the issue of government intervention by way of compensating farmers to the extent price sharing in difficult years doesn't cover cane growing costs, plus a fair margin for growers.
In this context, the Thai way of administering price sharing calls for Delhi's consideration.
Indian Sugar Mills Association (Isma) Vice-President Tarun Sawhney said the official requirement of UP factories settling a major portion of cane bills amounting to Rs 240 a quintal when banks remain reluctant to provide working capital are leaving them no option but to sell sugar in a falling market. An intense liquidity crunch resulting from mills not able to recover cane cost from sugar sale is forcing them to sell forward to international traders at 'cheaper rates'.
"Exports haven't yet started. It's an unviable situation," said Isma president A Vellayan. "No wonder as the government took its time to seek clarity on stocks and production outlook in the current season, the export incentive has remained suspended since October. Overselling by mills in the domestic market and no export shipments happening in the absence of incentive have caused the UP ex-factory price to fall to Rs 2,750 a quintal. In the case of Maharashtra, where sugar recovery from crushed cane is a high 11.5 per cent, the price is Rs 2,480 a quintal," said industry official Om Dhanuka.
A sugar price collapse is not allowing factories in Maharashtra to pay in full FRP as first instalment.
The government appears not to be convinced on creating a sugar buffer, taking on itself the interest and warehousing cost involved. Official recommendation of the industry holding stocks equivalent to three months' consumption was justified when due to regulated monthly release, the gap between sugar production and its market release was anything up to two months. With withdrawal of control on release, sugar on production can straight find its way to the market. In these circumstances, a season's opening stocks should now be equivalent to a two-month domestic requirement. In case the government is seeking extra security and comfort, it can create a buffer sparing the industry of inventory management cost.
Both Bajaj Hindusthan, Asia's largest producer, and the once-blue chip Balrampur Chini rapidly grew cane crushing capacity in the past by expansion and new investments. At some point they hoped, governments at the Centre and in cane-growing states would come up with a basket of policies rewarding the 50 million farmers and about 500 operating factories. The National Democratic Alliance (NDA) government offered some policy support in June by raising the import duty on sugar, restoring the export incentive and offering interest-free loans to the beleaguered industry to clear cane dues.
In the past, the United Progressive Alliance (UPA) government took major steps such as ridding the industry of levy obligation and regulated monthly sugar release for free market sale.
The Rangarajan committee has in its report given a clear map for removing the ills and creating conditions for growth. But like its predecessor, the NDA government has preferred to remain silent on its most important recommendation - to establish a linkage between sugar and cane prices and not let states arbitrarily decide the latter.
Mercifully, Karnataka and Maharashtra saw merit in the Rangarajan formula. Uttar Pradesh (UP) and Bihar are giving some subvention on cane to the factories.
But why is not Delhi telling the states which continue to put a premium over the Centre-determined Fair and Remunerative Price (FRP) to pay it from their exchequer? This will mean the states themselves pay anything extra on minimum support prices for wheat and rice as 'bonus payment'. Quite a few sugar-producing countries, including Thailand, the world's second largest exporter of the sugar after Brazil, has been able to redeem this agro-based industry by way of sugar- and cane-price linkage.
What, however, calls for our pondering is that at the current ex-factory prices of sugar, the recommended 75:25 price sharing formula between farmers and factories would leave both constituents high and dry. This raises the issue of government intervention by way of compensating farmers to the extent price sharing in difficult years doesn't cover cane growing costs, plus a fair margin for growers.
In this context, the Thai way of administering price sharing calls for Delhi's consideration.
Indian Sugar Mills Association (Isma) Vice-President Tarun Sawhney said the official requirement of UP factories settling a major portion of cane bills amounting to Rs 240 a quintal when banks remain reluctant to provide working capital are leaving them no option but to sell sugar in a falling market. An intense liquidity crunch resulting from mills not able to recover cane cost from sugar sale is forcing them to sell forward to international traders at 'cheaper rates'.
"Exports haven't yet started. It's an unviable situation," said Isma president A Vellayan. "No wonder as the government took its time to seek clarity on stocks and production outlook in the current season, the export incentive has remained suspended since October. Overselling by mills in the domestic market and no export shipments happening in the absence of incentive have caused the UP ex-factory price to fall to Rs 2,750 a quintal. In the case of Maharashtra, where sugar recovery from crushed cane is a high 11.5 per cent, the price is Rs 2,480 a quintal," said industry official Om Dhanuka.
A sugar price collapse is not allowing factories in Maharashtra to pay in full FRP as first instalment.
The government appears not to be convinced on creating a sugar buffer, taking on itself the interest and warehousing cost involved. Official recommendation of the industry holding stocks equivalent to three months' consumption was justified when due to regulated monthly release, the gap between sugar production and its market release was anything up to two months. With withdrawal of control on release, sugar on production can straight find its way to the market. In these circumstances, a season's opening stocks should now be equivalent to a two-month domestic requirement. In case the government is seeking extra security and comfort, it can create a buffer sparing the industry of inventory management cost.