Tamil Nadu is dependent on monsoons, which have become increasingly unreliable. For several years IE has been pointing to the imperative for the state moving away from water-intensive crops, notably sugarcane and rice. Recent developments reinforce the need for urgent action on this.
The sugar industry in Tamil Nadu has a long history with Parry & Co emerging a successful and significant producer of sugar. The protected market and growing demand helped the industry expand. The success and prosperity of the early entrants attracted more companies. The sector also thrived on political patronage. In the license-permit-quota raj before 1991, getting a sugar license was a privilege. Remember, M G Ramachandran, gifting his close admirers like G Varadaraj and PG Periasamy with sugar licenses?
From the 1960s the industry expanded at a frenetic pace in the cooperative, government and private sectors. With not much concern over its sustainability, the government fixed arbitrary increases in prices for sugarcane. This is politically potent: some political leaders even suggest a cane price of Rs 5000 per tonne, more than double the fair remunerative price recommended by the Centre. Even at the present price sugar mills owe huge dues to cane growers.
Recently I asked M M Murugappan, Chairman, Murugappa Group: “your management is not sentimental over vacating business not flourishing. You had hived off the confectionery and sanitaryware businesses of Parrys and even sold-off the iconic TIAM House. With your large sugar business not flourishing, is it such a candidate?” The present situation of the sugar industry in the state would explain the rationale for this question. It was taken in good spirit! EID Parry’s sugar mills in Karnataka and Andhra Pradesh have been profitable and the large conglomerate has the strength to bear with the losses in Tamil Nadu. But how long?
STEEP DECLINE IN sugar production
In recent years the industry has been on a continuous decline. Availability of quality cane in time has been registering a steep fall and with its higher prices, cane crushed dropped from 158 lakh tonnes in 2013-14 to 80 lakh tonnes last year. Correspondingly, sugar production declined from 14.2 lakh tonnes to 7.2 lakh tonnes in this period. Sugar mills have been bleeding and have been defaulting on their payment obligations to the cane growers and banks.
The government has been blind to the writing on the wall and continues with state advised prices for sugarcane, much higher than the fair and remunerative price fixed by the Centre. Private sugar mills found it difficult to pay these higher prices. The result: mounting arrears that exceeded Rs 1300 crore. The outlook for the coming season is also not promising. Already nine mills have closed down since 2015 and of these, hardly a handful are estimated to operate profitably.
An important factor is a low recovery reported by most Tamil Nadu mills at around 8 per cent, much lower than the potential of 10 per cent plus for several mills in Maharashtra and UP. There are sizeable variations in recovery among mills in the state on reasons not credible.
The distress is manifested by the crash of one of the long-established sugar companies of the state, Thiru Arooran Sugar Mills (TASM). With four mills, TASM crushed over 20,000 tonnes of cane per day and has introduced several innovative features: it was the first to set up a cogeneration facility to produce power; it has a sugar refinery and also added mechanical harvesting facilities at considerable cost. Of course, it is not easy to mechanically harvest with a majority of landholdings small.
TASM’s CMD, Ram V Thyagarajan, is a brilliant product from IIT-M and an MS in Management from the Sloan School of Management, MIT. He was President of the Indian Sugar Mills Association for three terms.
The lead lender, State Bank, has filed recovery proceedings against TASM under the Insolvency and Bankruptcy Code (IBC) and the issue is to go before the National Company Law Tribunal (NCLT). The Economic Offences Wing (EOW), Cuddalore, has also proceeded against the chief executive for cheating over 1500 sugarcane farmers.
The plight is not much different for other sugar mills in the state. There is an urgent need for the government to set up a high power committee to look closely at the problems afflicting the sugar mills and initiate measures to save the industry from total extinction.
Sugar companies have helped organize farming on scientific and remunerative lines. Many small and medium farmers have been helped to improve their farming practices through the generous support of technical and management practices and assured outlet for the produce at remunerative prices. Credit facilities have also been provided adequately and in time. Cane growers and the government should endeavor to save this structure from collapsing by moderating and being realistic on their demands. Cane farmers affected by this steep decline needs should also be assisted with solutions for shifting to less water consuming cash crops in the same organized manner.
The brilliant business leader, S Viswanathan (of Seshasayee group), said as early as in the 1980s, that bagasse and not sugar, is the main product in a sugar mill. He was not an armchair theorist. He helped set up the Tamil Nadu Newsprint and Papers Ltd (TNPL) to produce high-quality newsprint and paper based on bagasse. TNPL has been a consistent earner of profit and growth for over three decades. His own Ponni Sugars, set up adjacent to Seshasayee Paper Boards in Erode, has been among the few profit-making mills in the state with the higher recovery of sugar and decent realizations on bagasse sales.
Several mills in the state have set up cogeneration facilities that augment revenues. Several others have installed distilleries. But in the politicized and remunerative field of potable alcohol, has been the preserve of powerful politicians. Except for politically savvy S V Balasubramanian of Bannari Amman Sugars, other Tamil Nadu mills are not active in the potable alcohol business.
With a scale of operations the critical factor, there is tremendous scope for the private and cooperative mills coming together to set up large capacities for paper and boards and also for several chemicals that could be made from the large quantity of molasses produced at sugar mills. Brazil, the other large global producer of sugar, established decades ago, large scale production of ethanol and influenced policy to use this renewable chemical to fuel automobiles. But such a course needs another visionary business leader like S Viswanathan and a supportive politician like MGR.