There is a wind of change in the sugar industry and, for the first time in years, sugar production estimates have has been revised downwards. The Indian Sugar Mills Association (ISMA) is monitoring the situation closely. Sugar prices have to remain viable for the mills to pay remunerative cane price on time to farmers, so that they continue to remain interested in sugarcane in 2013-14. Therefore, there should not be any big hurry to import sugar. ISMA director general Abinash Verma in an interview with Girja Shankar Kaura talks about the prospects of the sugar industry in the coming years.
Q: The Indian Sugar Mills Association has reduced its sugar production estimation by two million tonnes to 24 million tonnes for the 2012-13 crop season. Can you explain the reasons behind this projection?
A: Though the cultivated area under sugarcane in the country has increased by 5 per cent over 2011-12, cane availability in Maharashtra and Karnataka will be lower due to deficient monsoon. The cane acreage is marginally lower for these states and some raw cane products have also been converted into fodder. However, cane area in Uttar Pradesh is at its highest ever and, therefore, production from Uttar Pradesh will partly compensate for the fall in the sugar production from Maharashtra and Karnataka. Considering these factors, we estimate sugar production of 2.4 million tonnes for the next year. For the second time, ISMA and National Federation of Cooperative Sugar Factories Ltd (NFCSF) have jointly carried out its satellite mapping exercise. Our estimations for 2011-12 were right on target. With the support of this technology and large number of field visits, combined with some tactful analysis of historical data, we feel that our estimations will be hold good.
Q: There is some confusion about sugar stocks in the country. How will you estimate the opening balance for 2012-13?
A: Let us first look at the opening balance for the 2011-12 season. We now know that on an average, sugar mills sold nonlevy sugar from 2010-11 season's production till mid-December 2011, some had sugar till beginning of December, while others had stocks till end of December. Considering nonlevy consumption of 4 million tonnes up to mid-December, including festival demand of October, 2011, and levy sugar stocks of about 1.5 million tonnes of the past years, which were supplied up to May, 2012, the OB on October 1, 2011, was 5.5 million tonnes. With domestic consumption of 2.2 million tonnes (considering government releases) and exports of 3.5 million tonnes during 2011-12, and 2.62 million tonnes of production, the opening balance of sugar stocks for the 2012-13 season will be 6 million tonnes as on October 2012.
Q: With lower sugar production next year and increase in sugar prices since July 2012, do you feel there is any need to import sugar?
A: Import of any commodity should be and is generally resorted to when there is any shortage of the same within the country. Sugar should be no exception. As explained earlier, we will have a comfortable opening balance as on October 1, 2012, of 6 million tonnes, enough to meet the domestic requirement for over three months.
Sugar production next year will be more than the domestic requirement. Therefore, it is absolute certain that there would be enough sugar to meet the country's needs. In fact, there may be a surplus too which could be exported. Imported sugar will only add to the surplus sugar stocks and with an unviable international market, opportunities to export are limited. Hence, the extra sugar so imported will only burden the domestic market and push prices down leading to cane price arrears. It could be harmful for the mills and the farmers.
Sugar prices have to remain viable for the mills to pay remunerative cane price on time to farmers, so that they continue to remain interested in sugarcane in the 2013-14 season. Therefore, there should not be any big hurry to import sugar.
Q: Considering your expectations about sugar production in the 2012-13 and season the global scenario, how do you see sugar prices next year?
A: Experts in the field, estimate a global surplus of 6 to7 million tonnes in 2012-13. With good sugar production in Brazil, Thailand, India, Australia and the European Union, most of them would be looking to export sugar. On the other hand, China and Russia expect a better crop, which will reduce their import demand. Most traders and analysts are therefore, generally bearish on the international prices.
However, with a good sugar production, adequately covering the domestic requirement, and throwing up a small, manageable surplus, the current sugar prices of around Rs 3,500-3,600 per quintal ex-mill should continue to prevail for most part of the next sugar season.
Q: The government had announced a mandatory 5 per cent ethanol blending with petrol programme in 2007. With objections from one particular sector, it is not coming out with its pricing policy yet, how do you see this bio-fuel programme shaping up?
A: The government's delay to finalize its ethanol pricing policy is harming the blending programme. This is despite the government's decision to implement the 5 per cent mandatory ethanol blending programme and procurement at a fixed price, has time and again, been reiterated by the Group of Ministers and the cabinet.
The government has even fixed a target of 20 per cent ethanol blending by 2017 under the national biofuels policy of 2009. We have been accordingly supplying ethanol at the provisional price of Rs 27 per litre ex-factory for the past two years, even when other molasses based products are fetching a higher price of Rs 34-35 per litre. Ethanol producers have been losing by supplying ethanol and are pretty discouraged over the delay and lack of clarity in the pricing matter.
The petroleum ministry is yet to issue its gazette notification for the mandatory 5 per cent ethanol blending. I feel that the ethanol blending programme can succeed in India only if the final ethanol pricing policy is announced before start of new sugar season from October, 2012.