Need hike in sugar selling price to pay cane dues, says ISMA official
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Need hike in sugar selling price to pay cane dues, says ISMA official

Informist, Monday, Nov. 4, 2024

Please click here to read all liners published on this story
--ISMA official: Hike in sugar minimum sale price must to pay cane dues
--CONTEXT: Comments by ISMA Director General Deepak Ballani in an interview
--ISMA official: Ex-mill sugar prices subdued, may fall further
--ISMA official: Sugar minimum selling price must be hiked to INR 39.14 a kg
--CONTEXT: Current minimum selling price of sugar is INR 31 a kg
--ISMA official: See maximum 4 mln tn sugar diversion for ethanol in 2024-25
--ISMA official:Ethanol supply default rate high in grain-based distilleries
--ISMA official:Ethanol pricing to determine supply from sugarcane by-pdts
--ISMA official: Sugar cos invested INR 400 bln on ethanol infrastructure
--ISMA official: Mills waiting for govt to announce revised ethanol rates
--ISMA official: Govt must allow 2 mln tn sugar exports before Dec-end
--ISMA official: Sugar output in 2025-26 likely to be better

By Afra Abubacker

NEW DELHI – Sugar mills are desperate for the government to increase the minimum selling price of the sweetener and revise rates of ethanol made from sugarcane, as they have to pay more for sugarcane in 2024-25 (Oct-Sep), Deepak Ballani, director-general of the Indian Sugar and Bio-energy Manufacturers Association, said. The minimum selling price, he says, must be hiked to INR 39.14 a kg from the current INR 31 a kg.

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.

"If MSP (minimum selling price of sugar) is not corrected, there could be a danger (of high cane arrears) and that is something we don't want," Ballani told Informist. Mills in Maharashtra have warned the government that they will delay crushing operations as they are worried about cane arrears, according to a letter by the West Indian Sugar Mills Association to Consumer Affairs Minister Pralhad Joshi on Sept. 25.

Citing the rise in fair and remunerative prices of sugarcane, the sugar industry has been demanding an increase in the minimum selling price of sugar. For cane purchases, 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 (Oct-Sep) 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.

"It's (sugar minimum selling price) been in discussion for five months and the ministry has only been assuring the industry," Ballani said.

Mills are also waiting for the government to announce revised ethanol rates for 2024-25 (Nov-Oct). However, oil marketing companies have already allotted mills the ethanol quantities to be supplied in 2024-25. The ethanol supply year starts from Nov. 1.

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.

Citing high closing stocks, ISMA has asked the government to open sugar exports by December-end. While ISMA says the 2024-25 sugar season opened with a stock of 8.4 million tonnes of sugar, over and above the normative 5.5 million tonnes, the government has pegged the carry-forward stock at only 7.8 million tonnes.

Since 2022, India has banned sugar exports to ensure domestic availability of the sweetener. India is the second-largest producer of sugar after Brazil.

Below are edited excerpts of the interview with Ballani:

Q. The government has been considering a proposal to increase the minimum selling price of sugar for a few months. How has the industry taken the delay in its announcement?

A. There is desperation among mills about when the sugar MSP (minimum selling price) will be announced. It's been in discussion for five months and the ministry has only been assuring the industry. I am surprised that the government is not addressing this issue because inflation in sugar is not significant. In the last 10 years, sugar prices have hardly increased by around 0.8%. But if you take any other commodity, it has increased 2.5-3.0% every year.

Somewhere, the government is sensitive that prices should not go up. But ultimately, the government has to allow prices to go up slightly because mills' input costs, including FRP (fair and remunerative price), conversion cost, and interest rates on term loans, are increasing every year. Also, this is not going to affect our retail market. Only 30% of sugar is bought by households. Almost 70% is bought by institutional buyers such as Coca-Cola, Nestle, Pepsi, and FMCG companies. They can absorb the price rise.

Q. Are rising fair and remunerative prices of sugarcane a challenge for the industry?

A. We are not against FRP. We continuously work with farmers to enhance the yields and recovery rate of sugarcane. However, increasing FRP means that my input cost is rising. I will have to recover that from somewhere. If I incur losses, how will I pay farmers? If MSP is not corrected, there could be a danger (of high cane arrears) and that is something we don't want.

Q. Apart from sugar sales, don't sugar mills earn from sales of by-products such as ethanol, bagasse, and press mud?

A. ISMA and NFCSF (National Federation of Cooperative Sugar Factories) gave calculated the sugar production cost to be INR 41.66 per kg, after taking into account the revenue from by-products. ISMA and the federation have taken the weighted average cost of sugar production from mills across India. We arrived at INR 41.66 per kg after considering the production cost of highly efficient and in-efficient mills. The numbers are realistic and factual. (Both the associations had jointly submitted the sugar production cost for 2024-25 to the food secretary in June.)

Q. What was the food ministry's response to the letter that the two associations had jointly written on sugar production costs?

A. The government got some independent study done on sugar production costs. I believe the findings should be almost similar (to INR 41.66 per kg). I don't see any reason that it will have any major differences, because what ISMA and the federation have done is very realistic and factual.

Q. The minimum selling price of sugar was introduced during a sugar glut in the country. Is there a dire need to increase the minimum selling price?

A. If you don't have a minimum selling price for sugar, how will one control prices? If one leaves it to the market and sugar stocks are very high, sugar rates will fall much below the cost of production.

The ex-mill prices of sugar are subdued, primarily because there is too much stock. Demand is also subdued. The all-India average is around INR 36.0-36.5 per kg. And, if you take Maharashtra and Karnataka, the ex-mill prices are as low as INR 34-35 per kg. During Diwali last year, prices were around INR 38 per kg.

Since we now sell sugar at such low prices, mills are incurring huge losses. Once the season starts, mills are expected to incur more losses as production costs for 2024-25 have increased with the rise in FRP of sugarcane. How will I pay farmers on time? While we don't want our farmers to suffer, this is a very precarious situation.

Q. But with the ethanol blending programme, don't you think excess sugar can be diverted to make ethanol?

A. 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. If we have huge stocks, the market will dip. (As per ISMA, the opening stock for October is 8.4 million tonnes and gross sugar production is seen at 33.3 million tonnes). India consumes only 28.5-29.0 million tonnes of sugar.

Q. Oil marketing companies have given higher allocation to grain-based distilleries for ethanol supply in 2024-25 (Nov-Oct). What happened?

A. We will have to see how much ethanol grain-based distilleries can really supply. The default rate of grain-based distilleries is higher than the sugar sector. Only time will tell how much ethanol grain-based distilleries will provide. But sugar has been the most reliable supplier.

Having said that, ethanol pricing is very important. As the government has not announced the correction of ethanol prices, this may have contributed to less bidding because we are not sure of the prices. Last year, the government did not revise prices of ethanol (from sugarcane). This time, we are expecting them to revise prices immediately. At the moment, ethanol price revision is more important than the sugar MSP hike.

Q. What is delaying the revision in ethanol rates?

A. I don't know why the government is not very confident. Ultimately, the ethanol blending programme is for the country. It's a critical programme from the angle of environment and foreign exchange savings.

When you say our farmers are 'urjadatas', you have added a completely new dimension to farmers' income. The government has committed to this programme, and the industry has invested INR 40,000 crore (400 billion) in manufacturing and increasing distillery capacity. So, when the industry has committed so much investment, your (government) support should continue.

Q. Last year, the government restricted ethanol production amid concerns about lower sugar output. What do we do in years when sugar production falls and there is concern about the availability of the commodity?

A. Last year, there was anticipation (of lower sugar production), but it never happened. I think it (restrictions on ethanol production) was more of a knee-jerk reaction and not based on some solid logic. Sugar production in 2025-26 is going to be much better. ISMA is working on seed varieties that are more pest-resistant, climate-resilient, high-yielding, and less water-consuming. I'm sure in times to come, we will have better varieties. It has to be a mix of better varieties, micro irrigation systems, mechanisation, and decreasing the cost of production.

Q. How did sugar mills survive in 2023-24 (Oct-Sep)? What came to their rescue with no sugar exports and restrictions on ethanol production last sugar season?

A. 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) diversifications. But a lot of individual mills have not actually done as well as expected.

We will have to start giving new FRP (fair and remunerative prices) for sugarcane from this year. The cane payment is going to be much higher. The right time to allow exports is November or December-end. The government should immediately decide to allow at least 20 lakh (2 million) tonnes. It is doable and will provide some relief to the industry. End

Edited by Avishek Dutta

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