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Informist, Friday, Nov. 8, 2024

 

By Afra Abubacker, Taniva Singha Roy, Abhijit Doshi

 

MUMBAI/NEW DELHI – Facing multiple challenges, some of them intertwined, the sugar industry has asked the government to extend a helping hand in the form of policy modifications. It is unlikely that the government will agree to all its demands and even if some of these are met, whether this will ease the industry's pain is moot. 

 

Ironically, some of the sugar industry's challenges are due to high supply of the sweetener, as production has been far ahead of domestic demand. After adjusting for transfer to ethanol, India produced 31.9 million tonnes of sugar in 2023-24 (Oct-Sept), while domestic consumption was 29 million tonnes. In 2024-25, as per the first advance estimate released by the Indian Sugar and Bio-energy Manufacturers Association on Wednesday, the industry is projected to produce 29.3 million tonnes of the sweetener, lower on year but again above local demand.

 

In the years gone by, exports had provided an opportunity for the industry to keep a grip on supply in the local market. However, the government has banned sugar exports, as it wants to keep market prices down. As a result, the industry's stocks have risen to 8.48 million tonnes at the end of 2023-24, and ISMA estimates these to rise to 8.78 million tonnes at the end of 2024-25. This is despite the diversion of 2.1 million tonnes towards ethanol in 2023-24 and an expected 4.0 million tonnes in 2024-25.

 

As per government data, surplus stocks from 2023-24 are 7.8 million tonnes, about 700,000 tonnes lower than ISMA's estimate.

 

LOW PRICES

While the industry tries to tackle the challenge of oversupply and mounting stocks, a drop in prices has aggravated the problem. The total cost of producing 100 kg of sugar is around INR 4,051, but ex-mill prices do not rise above INR 3,650-3,700 per 100 kg, Sanjay Khatal, managing director of Maharashtra State Co-Operative Sugar Factories Federation Ltd, told Informist.

 

The industry claims the lower prices aren't remunerative, and may result in some companies facing losses, particularly in the absence of an export market. "We will only know how well mills performed when they announce the results. But it doesn't look so rosy. Maybe some of them have done well because of (feedstock) diversification. But a lot of individual mills have not actually done as well as expected," ISMA Director General Deepak Ballani said.

 

Sugar mills are desperate for the government to increase the minimum selling price of the sweetener and also revise rates of ethanol made from sugarcane, as they have to pay more for sugarcane in 2024-25 (Oct-Sep), Ballani said. The minimum selling price, he said, must be hiked to INR 39.14 a kg from the current INR 31 a kg. 

 

This is because mills have to pay farmers prices decided by the Centre. In February, before the General Election, the Centre announced a hike of 7.4% in the fair and remunerative price of sugarcane to 340 rupees per 100 kg for the 2024-25 sugar season, with a basic recovery rate of 10.25%. The recovery rate is the proportion of sugar extracted from sugarcane. Since 2019, the government has increased cane prices five times, while the minimum selling price for sugar has not been revised since then.

 

According to Ballani, sugar mills may fall behind on cane payments to farmers as ex-mill sugar prices are subdued at a time when sugar stocks in the country have piled up. He expects prices to fall further as new sugar makes its way to the market with sugarcane crushing operations beginning in November.

 

Industry leaders point out that mills, particularly those in Maharashtra, are unable to pay workers and vendors. Moreover, banks sanction loans to sugar manufacturers on the basis of the minimum selling price, and do not consider market prices. This is another reason the industry is seeking a hike in the minimum selling price.

 

The industry could have received some succour from the export market, had it not been for the government banning sugar exports in 2022 to ensure domestic availability of the sweetener. According to various media reports, the government does not seem to be in a hurry to revert to its earlier policy.

 

OPPORTUNITY OR CHALLENGE?

Ethanol could provide an opportunity for the industry to diversify its supply destinations. However, what was once considered an opportunity has now triggered concerns. The industry has been pressing for a hike in the price it receives for supplying ethanol to oil marketing companies, which then blend it with petrol. ISMA has sought that the price of ethanol from sugarcane juice be hiked by INR 7.53 to INR 73.14 per litre, from B-heavy molasses by INR 6.97 to INR 67.70 per litre, and from C-heavy molasses by INR 4.92 to INR 61.20 per litre. However, even as mills are waiting for the government to announce revised ethanol rates for 2024-25 (Nov-Oct), oil marketing companies have already allotted mills the ethanol quantities to be supplied in 2024-25, on a contractual obligation basis.

 

The sugar industry is also seeking an opportunity to produce more ethanol. "With the present allocation, only 3.7 million tonnes of sugar is being diverted. We bid for around 390 crore (3.90 billion) litres, out of which only about 80 crore (800 million) litres has not been allocated. So, there will be a maximum of 4 million tonnes of sugar diversion in 2024-25. Even then, mills still have so much stock left," Ballani said.

 

"At the moment, ethanol price revision is more important than the sugar MSP hike."

 

COMPETITION

Another point of pain is the competition from khandsari units. While the sugar industry is subject to various regulations, ranging from cane prices to sale of sugar, units making khandsari – which is made from sugarcane but is in the form of raw and unrefined sugar – have no such restrictions. They are also allowed to export their products. Although traditionally small units, they now seem to be offering competition to the organised sugar industry. In July, ISMA had written to Food Secretary Sanjeev Chopra, saying it was concerned about the proliferation of khandsari units with crushing capacity rising to as high as 2,000 tonnes per day in Uttar Pradesh and Maharashtra, as per media reports. ISMA urged the food ministry to regulate these units.

 

Khatal said such units with a capacity to crush 100 tonnes of sugarcane per day should use traditional techniques to produce khandsari, but they produce sugar in the garb of jaggery or khandsari.

 

However, in a letter to the food secretary, Bharatiya Heritage Association of Khandsari and Traditional Sweeteners Industry Director-General Shashikant Pandhare said khandsari is nutritionally superior to sugar. Refuting ISMA's contention, he said the only concession khandsari units enjoy is 5% GST exemption.

 

Pandhare claimed the sugar sector had received thousands of billions of rupees as incentives over the past few years. "Khandsari industry has not received even one rupee of support," he said. On sugar mills seeking a ban on exports by khandsari units, he said that while ISMA was seeking permission to export 2 million tonnes of sugar, it was "proposing restrictions on what is permissible under law", according to reports.

 

A TRANSFORMATION?

Some experts have underlined the need for the industry to focus on value-added sugar. "We have to hit the bull's eye, suiting different sectors' sugar requirements and earn a premium," Narendra Mohan, former director of the National Sugar Institute, told Informist in July.

 

The future of sugar mills is about catering to industrial demands, Mohan said. While pharmacies need pharmaceutical sugar, beverage companies prefer liquid sugar, bakeries icing sugar, and the hotel-restaurant-catering business wants brown, cube, or candy sugar, he said.

 

Meanwhile, Petroleum Secretary Pankaj Jain suggested that mills de-risk themselves by diversifying to more green energy avenues. "Much as we may want to be looking at more and more ethanol in the world... vehicle owners are shifting away from petrol," Jain said at an ISMA conference in September. Ethanol is a biofuel blended with petrol to promote green mobility and to reduce India's crude import bill.

 

Jain stressed that demand for petrol was set to gradually decline, as indicated in the growing demand for compressed natural gas-run vehicles. With the demand for conventional auto fuels moderating, the sugar industry must look at diversifying beyond ethanol to sustainable aviation fuel, compressed biogas, and potash, he said.

 

The memorandum of understanding on sustainable aviation fuel signed between ISMA, The Energy and Resources Institute, and Praj Industries might be just the first step towards that aim. According to the pact, signed in September, ISMA will collaborate on sustainable aviation fuel production and deployment, aligning with the government’s sustainability goals.

 

"The collaboration will promote knowledge sharing, policy advocacy, and capacity building for industry-government partnership," the association said in a release. Aimed at building a bio-economy and low-carbon energy infrastructure, the pact will also explore the potential in other green fuels--ethanol, biogas, green bio-hydrogen, and green methanol, it said. 

 

Whether the industry is ready for this is anybody's guess.  End

 

Edited by Avishek Dutta

 

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