As Uttar Pradesh has become the largest sugar producer, mills there will sell more outside the state, says Gaurav Goel, MD of Dhampur Sugar Mill, who was appointed president of the Indian Sugar Mills Association last week. Any cane pricing policy by UP has to factor in the fact that mills there can’t compete with states like Maharashtra and Karnataka, if they are constrained to pay exorbitant prices. In an interview to FE’s Banikinkar Pattanayak, Goel also says, unlike in 2016-17, there is no need to import sugar this year due to adequate production. Edited excerpts:
What is your assessment of India’s sugar production and consumption in the current marketing year? Is there any need to import again?
Sugar production in 2017-18 (October 2017-September 2018) will be around 251 lakh tonne (up 24% from 2016-17).With sugar consumption expected around the same level, this year’s demand-supply position will be very balanced. Therefore, there is absolutely no reason to import sugar.
For the first time, UP is expected to produce a record 10 million tonne. What sort of opportunities and challenges does the massive production pose to mills?
As the demand-supply position for the country is very balanced, UP mills can comfortably sell all their sugar domestically. UP is surrounded by sugar-deficit states, which is an added advantage. Also, with higher production of bagasse and molasses, mills in UP will produce more power and more ethanol/alcohol, which will increase their revenue from byproducts. The 5% higher ethanol procurement price (fixed by the government for 2017-18 from a year earlier) will further help UP mills that have offered 75 crore litres of ethanol for 2017-18, compared with 36 crore litres actually supplied last year. The UP mills would, however, face a challenge regarding storage capacity of sugar, molasses, alcohol and ethanol. Higher requirement of working capital and management of higher quantity of sugarcane will be other challenges.
What is your forecast of sugar production in 2018-19? Analysts say with better cane varieties in UP, sugar output is expected to go up if monsoon remains favourable. How will mills tackle surplus sugar without letting their margins slip?
It’s very early to put any figure, since as of now only 10-15% of the sugarcane for harvesting in 2018-19 has been planted. Though the market expects higher sugar production next year, suggesting any particular figure at this point is purely speculative and theoretical. One should wait for the planting to get completed, see the monsoon in June and July 2018 and get a better idea of the acreage, yields and recovery before estimating production for 2018-19. A forecast can best be firmed up around July 2018. There are two ways to tackle surplus sugar. One, convert some surplus into ethanol and two, export some to our neighbouring countries, especially Bangladesh and Sri Lanka who together import 25-30 lakh tonnes every year. Several countries extend preferential import tariff within regional cooperation and bi-lateral agreements, and that is what is needed from our neighbouring countries for Indian sugar (especially under SAFTA etc).
Does the spurt in recovery in UP make the practice of announcing the state advised price (SAP) redundant?
The centre has advised the UP government to stop fixing the SAP, saying that with higher sugar recovery in the state, the gap between the fair and remunerative price (or FRP, fixed by the centre) and the SAP has reduced substantially. With the average sugar recovery in UP getting closer to 10.8-11%, and in some cases even higher, the SAP is fast becoming irrelevant (as the FRP provides for premium for higher recovery, bridging the gap with the SAP).We should not have two different cane pricing systems in an area. It will confuse the farmers and give rise to grievances. There should be only the FRP or the best solution would be to have a revenue sharing formula, which is a universal system. With UP now producing 40% of the country’s sugar, it has to sell its sugar outside the state and compete with other states. Therefore, UP mills will need to be price-competitive, for which sugarcane price in the state needs to be on a par with others, especially when Maharashtra and Karnataka have a revenue-sharing formula. We are hopeful that the UP government accept such a rational formula, otherwise unsold sugar inventory and losses would translate into cane price arrears.
Most of the sugar mills have returned to profitability since 2015-16. Still, why are some cane arrears in states like Uttar Pradesh yet to be cleared?
Thanks to good sugar prices during 2016-17, sugar mills paid 98% of cane prices payable to farmers. However, there are few financially-distressed sugar companies in UP, which have not got adequate working capital, due to which they have delayed cane payments. Against Rs 25,387 crore cane price payable by the UP mills in 2016-17, arrears as of now stand at just about Rs 680 crore. With a drop in production in 2016-17, the year-ending stocks were barely enough for two months’ consumption.
With expected production hardly exceeding likely consumption in 2017-18, do you think we will have enough stocks by the end of the current year without imports?
The year-end stocks need to be enough to take care of initial 45-50 days of consumption requirement, by when new sugar becomes available. Expected opening stocks of 40-42 lakh tonne will be enough for almost 50-60 days and hence, there is no need of any imports.
What sort of challenges does the GST pose for sugar mills and ethanol manufacturers?
The GST on sugar is at 5%, almost similar to the tax incidence before the GST. However, the 18% GST on ethanol is high,considering it as a green bio-fuel. GST on ethanol should be either zero or 5%. Some states are illegally taxing ethanol and controlling its movement. Since ethanol cannot be consumed by human beings, its taxation or control by states should stop immediately.