Id: 2 Name: Media Release Mumbai Venue: Date: 14 Jun 2011 Event Pdf: MEDIA RELEASE MUMBAI – 14th June, 2011 – The Indian Sugar Mills Association (ISMA) and the National Federation of Cooperative Sugar Factories Ltd. (NFCSF) are the two apex organizations of the sugar industry, representing almost 95% of the sugar mills in the country. The sugar industry is the largest agro-processing sector in the country. Sugarcane is bought by the sugar mills directly from farmers without any middlemen. The sugar season or sugar year is from October to September. In the last sugar season 2009-10, approximately Rs 45,000 crores was paid to farmers as cane price. This year, it is expected to rise to about Rs 51,000 crores. However, the sector unfortunately continues to suffer the burden of excessive controls and regulations far in excess of those imposed on any other sector in agriculture or industry. Financial Health of the Sugar Industry The current sugar season has been a surplus sugar production year such that the industry is burdened with unprecedented stocks of sugar. Due to delays in export of sugar by almost 3 months between January and March 2011 and curtailment of domestic demand because of stock-holding limit on traders, the sugar prices have been slowly but continuously falling. The mills are so overburdened with surplus inventories that most of them do not have adequate storage capacities and cash flows, which has led them to resort to distress sale of sugar, which is only bringing down the prices. The seriousness of the problem may be judged by the fact that value of stock balance with sugar mills at present would be Rs.35,000 crores. As per estimates, if the Government does not take any steps to export some of the surplus sugar, the opening balance for 2011-12 may be over 65 lakh tons. The closing stock for the month of May, 2011 is estimated to be 140 lakh tons. Considering, likely surplus sugar production year next year also, there is immediate need to reduce sugar stocks held with sugar mills. With falling domestic prices and improving international sugar prices, the mills stand to gain about Rs.500 per quintal of sugar exports if the same is allowed immediately. With a surplus sugar year next season and expected sugar surplus in the international market from Oct 2011, it is prudent to export maximum possible quantities immediately. With surplus availability of sugar in India and when the country is trying to export sugar even under OGL, it neither makes much economic sense to have a duty free regime for imports of sugar nor any commercial sense to import now. This is hurting market sentiments and sending wrong signals to the market about clarity of Government policies and intentions. The cost of production of sugar is around Rs.2,900 per quintal in UP and Rs.2,700 per quintal in Maharashtra. However, due to surplus sugar in the country, and lack of any positive signals of exports, the ex-mill sugar prices have prevailed at below the cost of production. The current prices are more than Rs.300 per quintal less than the cost of production all over the country. Such a situation will only erode the cash balances of the sugar mills and adversely impact their paying capacity to the farmers. With high sugar production next year and lack of similar opportunities to export sugar from India, the sugar mills will no longer be able to pay to farmers. Building cane price arrears will also harm the farmers who may move out of sugarcane in 2012-13 i.e. just about 18 months later. With increase in domestic demand, the country will have to import at high prices. Not only will the sugar industry and cane farmers suffer, but the consumers will have to bear very high sugar prices, a situation the country had to face, though for a short time in 2010. The sugar industry has the following demands to make: 1. Finalize the procurement price of ethanol 2. Issue tenders for quantities of ethanol in July 2011 3. Allow 10 lakh tons of export of sugar under OGL 4. Allow exports of 5 lakh tons under ALS, with obligation to import raw sugar when required 5. Remove stock holding limit of 500 tons on traders of sugar to improve supply pipelines 6. Levy import duty on sugar Ethanol Blending Programme Traditionally, molasses, a by-product of the sugar industry, has been used in India to produce rectified spirit and alcohol of about 95% purity for producing liquor for human consumption and various chemicals. However, with technological developments in the recent past, molasses has been effectively used to produce bio-ethanol for blending with petrol as a fuel. Brazil and USA are the two largest producers and consumers of fuel-ethanol in the world. These countries have flexi-fuel cars which can run solely on ethanol. Japan, China, Thailand, European Union etc. have embarked on ambitious plans of ethanol blending with petrol (EBP) programmes. Some of them who are deficient in ethanol, import the same from other countries. USA even provides huge incentives and subsidies for production and use of bio-ethanol and is slowly moving on to higher levels of blend percentages. EBP programme reduces India’s dependence on fossil fuel imports and allows the nation to move slowly but surely towards energy sufficiency. Being the best oxygenate, it helps petrol burn better, thereby reducing environmental pollution that fossil fuel are infamous for. More importantly, researches carried out by the public sector oil companies in India, have confirmed that 5% ethanol blended petrol gives better mileage. A brief history of decisions taken by the Government in favour of the mandatory 5EBP programme may be seen at Ann. A below. Since the EBP programme was conceived to directly benefit the sugarcane farmers, the Ministry of Petroleum and Oil Marketing Companies (OMCs) put a specific condition in September 2010, for procurement of ethanol for blending with petrol. As per this condition, ethanol should be produced from domestic molasses only. It therefore required that molasses or alcohol cannot be imported by the ethanol producers and the ethanol will have to be produced only from molasses and not sugarcane juice or food grains. All sugarcane crushed in the country by sugar and khandsari manufacturers produces molasses. With 346 million tons of sugarcane in 2010-11 of which 80-85% would have been used by the sugar industry and khandsari manufacturers, 290 crore litres of alcohol would be available in the country. With a demand of 100 crore liters by the potable liquor industry and contracted amount of 60 crore litres for the EBP programme, around 130 crore liters is the balance available to meet the demand of other sectors. Demand of chemical industry is known to vary between 25 to 60 crore liters (depending on crude oil prices). It is because of excess production of molasses, a part of which could not be sold, that a good quantity of molasses over 600,000 tons had to be exported out of the country during the current year. If this molasses could have been converted into ethanol, it could have displaced 1.5% of the country’s petrol requirement. With an estimated 6-8% increase in cane production in 2011-12 sugar season, the total quantity of alcohol available would still be higher. The expert panel under Dr. Saumitra Choudhuri, for pricing of ethanol has recommended in March 2011 price of ethanol linked to price of petrol. Accordingly, the ethanol procurement price will always be lower than the ex-depot petrol price and at present the OMCs are able to save about Rs.12 over the price of petrol. EBP is therefore financially beneficial to the OMCs. The Committee has also recommended to pass part of the savings to petrol consumers. To ensure more supplies of ethanol for the programme, it is important for the Government to quickly finalize the ethanol price, recommendation for which is now pending with them for over 2 months. The national bio-fuel policy, approved by the Government, has plans for a 20% ethanol blending programme by 2017. This can be achieved only if we continue with the approved plan of the Cabinet, reiterated again and again by the Government. Questions and doubts are being raised by vested interests who procure alcohol at a throwaway price for other uses. India has an indigenous installed capacity to produce over 400 crore litres of rectified spirit/alcohol and over 150 crore litres of fuel ethanol, which is sufficient to meet requirement for 7-8% ethanol blending with petrol. The EBP programme is essential for the energy security of the nation, which will reduce pollution from fossil fuel and improve our use of renewable energy in the form of fuel ethanol. Ann ‘A’ The mandatory 5% ethanol blending programme in India For the first time in recent history, the Government decided to blend 5% ethanol with petrol from 2002, though on an optional basis. However, because of the optional nature of the programme, the same did not take off. During 2006-07 sugar season, the country witnessed its highest ever sugarcane and sugar production, which resulted in a major crash in sugar prices leading to huge cane price arrears of farmers. The Government announced various financial benefits to the sugarcane and sugar sector. One of the steps taken then by the Government included approval of a mandatory 5% EBP programme from Oct 2006. It was felt by the Government that EBP programme would benefit the sugarcane farmers by assuring a stable and reasonable return for the molasses, a significant part of which would be passed on to the farmers. The Central Government even amended the Sugarcane (Control) Order, 1966, such that returns on molasses are considered in fixing the price of sugarcane fixed by the Government. Therefore, better and stable returns on molasses directly translate into better payments to farmers. There were some initial doubts raised by Ministry of Petroleum and Ministry of Chemicals on the pricing and availability of ethanol. Initial teething problems were also faced from some States which levied taxes and duties on ethanol, even though the Supreme Court had held that alcohol not for human consumption i.e. fuel ethanol, was not within the purview of the States. After lot of deliberations at various levels in the Government, which included inter-Ministerial meetings, Empowered Group of Ministers and Cabinet, each of which met a few times during the years from 2007 to 2010, the Government reiterated its earlier decision of the 5% mandatory EBP programme. During these deliberations, doubts on availability of alcohol, raised by the Ministry of Chemicals, to meet the demands of all three competing demands viz. potable alcohol, fuel ethanol and chemical industry, were discussed. It was specifically decided that whenever the Ministry of Chemicals felt that there would be shortage of alcohol from domestic sources, the Government would reduce customs duty to zero for import of molasses and alcohol by the chemical sector. About ISMA Indian Sugar Mills Association (ISMA), the oldest industrial association in the country was established in 1932. It is recognized by the Central and State Governments as the Central Apex Organization to voice the cause of the sugar industry. Sugar mills in the private sector as well as the public sector are eligible to become members of ISMA. Its total strength of membership as on date stands at 213 and accounts for about 55% of country’s total sugar production. ISMA’s history is thus synonymous to the growth of the sugar industry in India which also began in early 1930s. It is an Apex organization and maintains close contact with all regions in India through a network of regional associations and with international organizations and associations through international bodies. ISMA is the interface between the industry and Government on matters relating to sugar policy, statistics on production, sales, exports/ imports, prices etc. ISMA maintains database for the sugar industry which is shared with all the member factories, media and also various Government organizations. India entered the sugar export market for the first time in the year 1957 which was entirely the initiative of ISMA. ISMA’s R&D Cell on sugarcane has successfully identified promising sugarcane varieties in improving sugarcane productivity which received recognition from various research institutions and Government organization etc. The results have been significant in the recent two years. ISMA interacts closely with International Industry Associations including International Sugar Organization, World Sugar Research Organization, World Association of Beet and Cane Growers and Global Alliance for Sugar Trade Reforms and Liberalization. India is largest consumer of sugar and 2nd largest producer in the world. About NFCSF National Federation of Cooperative Sugar Factories Limited Established in 1960 as an apex organization of all cooperative sugar factories in India, the National Federation of Cooperative Sugar Factories Ltd. (NFCSF) has been a motive force in all round development of cooperative sugar factories in India. Services of NFCSF include taking up the problems of member factories with the Government of India and other Central Authorities for their logical solution, assisting them in obtaining term loans from Sugar Development Fund for sugar development and factory modernization and other financial consortium for expansion-cum-modernisation /optimization and setting up new sugar mills. NFCSF also helps by preparing economically viable and co-product oriented feasibility reports for projects, maintaining and updating statistical information regarding sugarcane and allied products, bringing out publications for propagation of information regarding national and international sugar policies and scenario. The technical and promotional cell of NFCSF comprising men of national and international experience in various disciplines of sugar industry have established many new sugar factories, helped existing cooperative sugar factories in successful implementation of their expansion programme in India and have also undertaken sugar projects abroad. The Federation is on the forefront in promotion of bagasse based co-generation and ethanol projects. NFCSF has also set up a Research, Development and Training Centre for progressive development of the industry.