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75th Annual General Meeting, 22nd December,
2009
at New Delhi
PRESIDENTIAL
ADDRESS
BY
SHRI
SAMIR S. SOMAIYA
AT
THE 75TH
ANNUAL GENERAL MEETING OF THE
INDIAN
SUGAR MILLS ASSOCIATION
HELD
ON 22ND
DECEMBER, 2009
AT
NEW DELHI
Hon’ble
Shri Sharad Pawarji,
Distinguished
Guests,
Ladies
and Gentlemen
1
It gives me great pleasure to welcome you to the
Seventy-fifth Annual General Meeting of the Association, during our
Platinum Jubilee Year.
2.
We are delighted that you are once again by our side to lead
us through very challenging times in the sugar industry.
You have always stood by us, and looked after the interests
of the farmers, consumers, and the mills.
3.
At times, it appears that there is a pull between the
interests of the farmers, the millers and the consumers.
Sir, the interests of all the three
stake holders are closely interwoven, and it is in the long-
term benefit of all the three, that there is the best interest of
each one.
4.
The current times are such, that the gap between demand of
sugar and domestic production is causing concern to the industry as
well as the consumers and the Government. The steep fall in production has primarily been caused by low
sugar prices and consequently low cane prices that prevailed in the
country two years ago. The
lower availability of cane has led to a steep decline in the
capacity utilization of the industry’s crushing capacity, as also
the capacity utilization of cogeneration plants and distilleries.
5.
Healthy sugar prices must prevail in order for the industry
to pay remunerative cane prices to the farmers.
Only then would farmers plant cane sufficient enough for
Indian industry to produce sufficient sugar to meet Indian demand.
Without remunerative prices, India risks being a perennial
importer of sugar, and would the risk of being exposed to still
higher international sugar prices.
In the short term, domestic prices should be such so as to
make the import and processing of raw sugar economically viable to
meet the demand-supply gap.
6.
Currently, domestic sugar and cane prices are healthy, and
farmers are planting cane. However, cane being at least a 12 month crop, this will be
available for sugar milling only in the season 2010-11.
At that time, we expect that the demand supply balance will
be restored.
Highly
Regulated Industry
7.
While preparing for this speech, I also read the past four
speeches, as delivered by my immediate predecessors. Shri Ranjit
Puri, Shri P. Rama Babu, Shri C.S. Nopany and Mrs Rajshree Pathy
made a fervent appeal for deregulation.
I am sure, that if I read earlier speeches, I would find the
same appeal, repeatedly made. Sir,
I would like to reiterate the request, that the industry be
decontrolled.
8.
The industry would like the Government to implement a policy
that enables the market and economic signals to work.
Unfortunately, our policies, however well intentioned, create
rather than address market failure.
The industry is heavily regulated, and many of these
regulations have outlived their usefulness. These regulations must
have been framed in the context of shortages, and at a time of
limited trade. However as the industry matured, these regulations
stayed in place, and though India ‘liberalized’ its economy, the
sugar industry still remained controlled.
There is a great need for deregulation, especially as
enumerated below:
Decontrol
the monthly release mechanism
9.
In India, the industry is still subject to the monthly
release mechanism for sugar sales that is determined and declared by
Government of India. Every
month, the Government of India decides how much sugar each and every
mill may sell for the following fortnight or month.
In these days of economic liberalization,
the sugar millers must be free to determine the timing and
quantity of their sugar sales, as is done by most other economic
entities.
10.
Sir, you are aware, that in the sugar season 2008-09,the
Indian sugar production was around 15 million tons, and the
production in the forthcoming season 2009-10, will be marginally
higher. Indian demand
at 23 million tons is much higher than the domestic supply, and is
growing at over 3% per year.
11.
To bridge the gap, the current policy allows for duty free
import of white and raw sugar. The import of white sugar attracts no
import duties, levy obligation and is free from the monthly release
mechanism. Imported raw
sugar once refined, is also free of the levy obligation and can/must
be sold within 60 days of refining.
Further, bulk consumers of sugar, who make up the majority of
Indian consumption, have a 15 day stock holding limit on
domestically produced cane sugar.
Sugar purchased from overseas, attracts no such limit.
Our consumers are being encouraged to make their purchases
from abroad. Most countries support their agro-based industry.
Is it fair that we provide a disincentive to our local
consumers for buying locally?
12.
Essentially, sugar produced outside India is being sold in
India in a ‘de-controlled’ or deregulated environment, and
without any levy obligation. To
be fair, sugar produced in India must also be freed from the monthly
release mechanism, levy obligation, and stock holding limits placed
on the consumers for Indian sugar.
13.
Sir, imports are necessary, since the cane being planted
today, will only be available for crushing in the 2010-11 season.
The Indian industry has supported the import of sugar, once
the demand-supply gap became known and imported cumulatively over 4
million tonnes of raw sugar for reprocessing to meet the deficit.
However, the Indian industry protests against the
discriminatory treatment meted out by the Government to local
production.
Free
the industry from bearing the Government’s levy sugar program
14.
This year, the Indian sugar industry will provide 20% of its
sugar to the Public Distribution System (PDS) for supply to those
below the poverty line (BPL). This is the only industry that bears
the cost of government program to provide subsidized commodities to
the public. The sugar industry also needs to be exempt for bearing
the cost of this government program.
15.
The current amendment in the Essential Commodities
Act and Sugarcane Control Order, was to change the manner of
levy price fixation from the principle articulated in the
Mahalakshmi Judgment of the Supreme Court.
In that Judgment, the Honourable Court has held, that in
computing the levy price, the Government must take into account the
State Advised Price (SAP), where applicable, or the Actual Price
paid (where there is no SAP). In
the past 5 years, the Government has not revised levy prices,
thereby providing a levy price well below the industry’s cost of
production. If the actual cane price paid or the SAP were used to compute
the levy price, the price of levy sugar would be substantially
higher than it is today. During
the current year, the industry is paying
an average cane price of
over Rs.2000/- per tonne of cane. Supply of 20% levy sugar involves
a loss over Rs. 10 per kg. of sugar supplied through PDS for BPL
population. Sir, you will appreciate that it is our legitimate
demand that if the Government
wants to provide sugar at subsidized prices to the BPL, then it
would be best for the Government to procure the same from the open
market, and supply the same to the targeted population.
Pending the same, the Government must revise prices in
accordance with actual cane prices paid as articulated in the
Mahalakshmi Judgment
Let
economics address
the ‘sugar cycle’
16.
Too often, our Government’s policy response attempts to
address immediate prices but aggravates the longer term response,
and instead of dampening the cycle, it does the reverse. Cane is a
12 month crop, and its economic response will take at least that
much time. Well-intentioned
Government policy, sometimes leads to a counterproductive economic
response.
17.
The roots of the present supply crisis can also be seen as
being aggravated by our regulations. As an example, the 2006 ban on sugar export, was imposed to
curb ‘rising sugar prices’.
However, the ban was imposed just before the onset of a
surplus crop. (The sugar surplus was expected to happen, precisely
because good sugar prices had led to correspondingly good cane
prices in the past season, and consequent high planting).
The surplus sugar had nowhere to go.
By the time the ban was lifted, the market had crashed, and
there was a huge amount of cane arrears, since mills could not pay
their farmers and banks refused to finance sugar stocks in a falling
market. Also, the low
sugar prices led to lower cane realizations, and farmers switched to
other crops.
18.
The Government then stepped in, to improve the liquidity by
helping mills with an excise loan, and creating a buffer stock and
export subsidy. These
measures were necessary, failing which the arrears would have
mounted. The resulting liquidity enabled the mills to pay their
farmers. In the example
above, well-intentioned Government policy aggravated the ‘sugar
cycle’. Much of the sugar cycle is caused by our focus on sugar
prices.
Sugar
demand is relatively inelastic, but cane plantation is very elastic
19.
Sugar demand in India is fairly inelastic, whereas, sugarcane
planting is very elastic. Past
data shows that sugar consumption has consistently increased at over
3%, but cane availability has fluctuated violently.
20.
An AC Nielson study conducted recently showed that 60% of the
sugar in India is consumed by the ‘bulk’ users such as the
manufacturers of
aerated drinks, sweets and confectionary
etc. Until
recently, 10% has been the levy percentage for the BPL families.
The balance is consumed by households who are not below the
poverty line. The per
capita consumption of sugar in such households is 2 kg per month.
An increase in sugar price of Rs. 10 per kg has an effect of
no more than Rs 20 per month, less
than the minimum daily wage. But,
this Rs 10 per kg makes a big difference to the cane price.
Farmer incomes will change from subsistence farming to that
in which he has a disposable income.
A back of the
envelope calculation
reveals, that a
change in cane price from Rs 1000 per ton to Rs. 2000 per ton, will
increase a farmer’s annual net income from Rs 12,000 per year per
acre to Rs. 42,000 per
year per acre. This
makes a big difference to a rural family, especially in an industry
that operates in 100,000 villages in India.
Price
of Cane to be linked with price of sugar
21.
The pricing of sugar cane is often influenced / determined by
political compulsions that have no bearing on sugar prices. In other
large sugar producing countries, prices of sugar are linked by
market forces to the price of cane.
In India, this link is often political and the Indian Sugar
Industry strongly wants such political intervention to be done away
with.
22.
World over, the price of cane, is aligned to the price of
sugar. This allows for
the farmer to share in the upside of the sugar cycle.
In India, we must also create a formula that links these
prices. If the prices
of cane fall, and if the Government wants a price floor, then the
Government may step in to bridge the gap between the formula price
and the floor.
23.
Sir, I wish to reiterate that healthy sugar prices must
prevail in order for the industry to pay remunerative cane prices to
the farmers. Only then
would farmers plant
sufficient cane ensuring
its adequate availability
not only to meet the requirement of sugar but also to
maximize cogeneration of power and production of ethanol for
blending with petrol. Without remunerative prices, India risks being a perennial
importer of sugar. We
have only just seen the effect of Indian imports on international
sugar prices last year.
Ethanol
Blending
24.
To prevent cane prices from falling much, the Government
needs an active ethanol blending program.
Sugarcane needs to be de-risked from sugar alone, in the
event of the sugar price fall. Sir, we are delighted that the UPA
Government under the leadership of Hon’ble Dr. Manmohan Singhji
has resolved to implement its mandate of the 5% ethanol blend in
petrol. The industry would like to extend its fullest support in
making the programme a success. Sir, the industry has added enough
capacity both for alcohol production as well as for production of
dehydrated alcohol known as ethanol, placed at 4.0 and 1.7 billion
litres respectively, sufficient to meet requirement of 10% ethanol
blending with petrol. In the current year, based on an estimated sugar production
of 16 million tonnes, distillery capacity utilization will be low,
but the industry will still be able to provide more than enough
alcohol to meet the requirement to fulfill the 5% blend.
25.
Transportation of ethanol and molasses across state borders
is more difficult than bringing it from overseas, so while countries
in Europe continue to integrate, India continues to function as many
countries within itself. Rules,
taxes and regulations concerning ethanol movement must be relaxed so
that the country can benefit from its own renewable resource.
To address these issues, we have a few suggestions:
Make
denatured ethyl alcohol a declared good
26.
In various states, the respective Governments impose
controls, taxes and allotments on the use and movement of ethanol.
Sir, The Constitutional Bench of the Supreme Court of India
has in the case of Synthetic and Chemicals Ltd. – vs.- State of
U.P. and Bihar Distilleries –vs.- Union of India held that
de-natured spirit (ethyl alcohol) is exclusively under the domain of
the Central Government (Government of India) and State Governments
cannot levy any taxes thereon and impose any regulation on its
movement, allocation etc. etc. Denatured spirit, is 95% ethanol by
volume. When
dehydrated, is called anhydrous alcohol, commonly known as ethanol.
To implement the above decision of the Supreme Court of
India, it is suggested that ethyl alcohol, once denatured, may be
brought among the “declared goods” (goods of special importance)
under Section 14 of the Central Sales Tax Act as goods of special
importance in inter state trade or commerce, thereby placing a
limitation on the power of State Governments to impose levies as
mentioned above.
Movement
restrictions on molasses must also be freed
27.
Many states also impose allotments on the sale and movement
of molasses, even if used for the production of denatured spirit and
ethanol. We request
that molasses also be placed in the list of declared goods.
Redefine
fuel to include denatured spirit and allow mills to distribute
directly to supplement the 5% blending program
28.
In Brazil, denatured spirit (denatured hydrous ethyl alcohol)
can be directly used in flex fuel cars, without blending.
We request you to expand the definition of fuel to include
denatured spirit. Many sugar companies also distribute diesel through their own
pumps. If in addition
to the ethanol blending mandate, you allow the sugar companies to
also distribute ethanol blended gasoline and denatured spirit, then
the Indian ethanol program will become truly one that produces and
distributes fuel locally.
Electricity
Cogeneration – Renewable power and mitigating climate change
29.
The Indian sugar industry has the potential to produce 8000
MW of power from bagasse. This is renewable, and a carbon sink. The Electricity Act of India has opened up the possibilities
of selling electricity across the country by providing access to its
existing transmission infrastructure. This is helping in price
discovery, and freeing the industry from the monopsony of having to
supply power to only the State Utility Companies.
Even after the amendment in the New Electricity Act in 2005,
some States in the recent past have been trying to prevent the
operation of open access. The industry would also like to see the
new Electricity Act be implemented with the support of the State
Governments rather than their opposition.
30.
Further, recently, the CERC has desired that the sugar
industry must share its carbon benefits with the utility. Such
sharing will also make the additionality test, insisted upon by the
UNFCCC, harder to overcome, and render many sugar cogeneration
projects ineligible for credits.
Sir, the utilities are not project participants, and
therefore, should not be entitled to claim revenues from carbon
credits.
Summary
31.
Sugar cane is grown in India in 100, 000 villages i.e. one in
6. Better sugar prices
will result in better cane price, directly benefiting and making a
difference to the lives of sugarcane farmers.
The pressure of the Government to keep sugar prices low would
directly hurt the interests of the farmers and the industry,
especially since, more than 60% of sugar according to the recent
KPMG study is consumed by the organized sector (aerated drinks,
sweets, etc). Higher cane prices make a greater positive difference
in the lives of the millions of sugarcane growers and rural economy,
than the negative impact they would
make on the household budgets.
32.
India is the largest sugar consumer in the world and 2nd
largest producer of sugar. Sugarcane is a versatile crop, rich in
sucrose, and fibre. The
crop is green, carbon neutral, and is a source of food as well as
energy. The sugar mills in India are uniquely positioned, since cane
growing and processing in India has been practiced for many years.
There is an extensive knowledge of growing cane and
processing it into the sugar, ethanol, power and other derivatives.
It has an extremely well developed, competent and efficient sugar
industry along with a related machinery-manufacturing sector.
33.
With deregulation, the industry will be able to mitigate the
‘sugar cycle’, and be able to make a still better contribution
to the lives of millions of farmers, provide renewable power and
fuel, mitigate climate change, and provide a continuing source of
sweetness to all our lives.
ISMA
34.
On this occasion, I would like to say a few words about our
Association. It has now
completed 75 years of dedicated service to the sugar industry. It
provides an important platform for free and frank discussions and
exchange of views. In recent years, its work has encompassed
discussion and policy recommendations for by-product based
industries, such as ethanol, co-generation of power, and closely
associated with co-generation, carbon credits.
35.
About 2 years ago, the Association created a R&D cell in
its Cane Development Wing to help sugar mills to improve sugarcane
yields and recovery. Recently, this has been recognized by the
Government of India for the monitoring of various cane development
projects funded by SDF.
36.
The Association also has close interaction with Industry
Associations in different countries including the International
Sugar Organization, World Sugar Research Organization and Global
Alliance for Sugar Trade Reform and Liberalization. Our interaction
and engagement with UNICA, our Brazilian counterpart has increased
substantially, and we have much to gain with a greater association
with them. Our
activities are receiving global attention and appreciation. The
Association also continues to bring out various publications on
regular basis containing useful information on sugar and related
sectors.
ACKNOWLEDGEMENTS
37.
I have now come to the most pleasant part of my address.
I wish to acknowledge with a deep sense of gratitude the
invaluable advice and assistance from the Hon’ble Minister Shri
Sharad Pawarji. He always made himself available at short notice to
address our issues. Further, he has interacted with us in a spirit
of dialogue. We are
fortunate to have him formulating policies for the industry and are
sure, that under his direction, the Indian sugar industry will
achieve its true place in the sun.
38.
We are very grateful to the Finance Minister,
Hon'ble Shri Pranab Mukherjee who has been kind enough to
extend his support on policy issues.
39.
I am also thankful to Hon’ble Shri Murli Deoraji, Union
Minister for Petroleum and Natural Gas who has played a very
proactive role in re-establishing the ethanol blending program in
India.
40.
I am also thankful to Hon’ble Shri Farooq Abdullah, Union
Minister for New and Renewable Energy who has also played a very
proactive role in re-establishing the ethanol program in India.
41.
I am thankful to Hon’ble Shri Anand Sharma, Union Minister
for Commerce and Industry for his guidance and support.
42.
I am thankful to Prof. K.V. Thomas, Union Minister of State
for Agriculture, Consumer Affairs, Food and Public Distribution for
his guidance and support.
43.
I am thankful to Mrs. Alka Sirohi, Secretary, Ministry of
Consumer Affairs, Food & Public Distribution for her help and
guidance.
44.
I am thankful to Shri R.S. Pandey, Secretary and Shri S.
Sundareshan, Addl. Secretary and Shri Apurva Chandra, Joint
Secretary, Ministry of Petroleum and Natural Gas for their help and
guidance.
45.
I am thankful to Dr. Rahul Khullar, Secretary, Ministry of
Commerce and Industry and Shri R.S. Gujral, Director General Foreign
Trade for their help and assistance.
46.
I am also thankful to Shri Harishankar Brahma, Secretary,
Ministry of Power for his help and guidance.
47.
I am also thankful to Dr. Pramod Deo, Chairman, CERC, Shri R.
Krishnamoorthy and Shri V.S. Verma,
both Members CERC, for their help and guidance.
48.
I am thankful to Prof. S. Mahendra Dev, Chairman, Commission
for Agricultural Costs & Prices for his help and guidance.
49.
I am thankful to Shri A.K. Mangotra, Additional Secretary and
& Financial Adviser, Ministry of Consumer Affairs, Food and
Public Distribution for his help and guidance.
50.
I am thankful to Shri N. Sanyal, Joint Secretary (Sugar),
Ministry of Consumer Affairs, Food and Public Distribution for his
help and guidance.
51.
My thanks are due in no small measure to Shri Abinash Verma,
Director (SDF), for his significant contribution.
52.
I am thankful to Shri R.P. Bhagria, Chief Director (Sugar),
Shri Adhir Jha, Director (Finance) and other officials of the Sugar
Directorate, Department of Food for their help and assistance.
53.
I am thankful to Shri Jayantilal B. Patel, President,
National Federation of Cooperative Sugar Factories Ltd., Shri
Indubhai C. Patel, Executive Vice Chairman, Indian Sugar Exim
Corporation Ltd. and Shri Vinay Kumar, Managing Director, National
Federation of Cooperative Sugar Factories Ltd., for their help and
assistance extended to us from time to time.
54.
I wish to record my appreciation for our Past Presidents,
specially Chairpersons of various Sub-Committees and the Regional
Associations for their guidance and support. I would like to make a
special mention of my colleagues on the Committee, specially, the
Vice President, Shri Vivek Saraogi who has always been available for
advice and consultation.
55.
I wish to record my appreciation for the hard and dedicated
work put in by the officers and staff of ISEC.
56.
I wish to thank Shri S. L. Jain, who retired after about 50
years of significant service to the Indian sugar industry.
57.
I wish to thank Shri M.N. Rao, Acting Secretary General, who has
contributed significantly, in recommending policy initiatives and
responses to the Government.
58.
I wish to thank the executives and staff of ISMA, who have
extended their full
support and cooperation during this difficult year.
59.
I thank the distinguished guests who have so kindly responded
to my invitation and the Media for giving the industry positive
recognition and support during the entire year.
60.
May I now request you Sir, to kindly inaugurate our
proceedings.
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