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High sugarcane prices crush industry
A steep decline in cane availability threatens to run sugar mills in Tamil Nadu into another year of losses. Those most affected are mills in the western part of Tamil Nadu where cane production has declined substantially.

Managing Director N Ramanathan of Ponni Sugars (Erode) Ltd. pointed to the industry as whole not recovering from the substantial losses it had incurred last year. He cited reasons for the substantial losses of last year as the unreasonably high sugarcane prices fixed by state government and low sugar prices that ruled below the cost of production. He pointed to prices falling by over Rs 5000 to Rs 7000 per tonne from the prices that prevailed during Sep-Nov 2012.

 

Production much in excess of consumption

India has been producing much in excess of consumption, for the fourth year in a row. This has resulted in bulging stocks: the opening balance as on 1 October 2013 was a record 88 lakh tonnes - about 30 lakh more than the normative opening balance for a season, said Ramanathan.

Globally also, for the fourth consecutive season, there was a surplus of sugar production. World output in 2013-14 is estimated to reach 181 million tonnes against the estimated global consumption of 176 million tonnes. With global stocks comfortable, there is growing global export availability and shrinkage in import demand leading to fall in prices. Thus the prospect for exports at viable prices is dim.

Ramanathan pointed to the continuously increasing sugarcane prices lea-ding to high cost of sugar production. This has rendered the sugar industry uncompetitive in international markets. Indian sugar industry pays almost twice the price  paid for sugarcane by Brazil, the largest sugar producer in the world, to produce a kilo of sugar. With its low cane prices, Brazil, the largest exporter, is able to offer sugar to global markets at much lower prices.

Sugarcane price not related to sugar price...

The Rangaranjan committee had given clear recommendation to determine sugarcane price as a percentage of the price of sugar and by-products realisation. It suggested a ceiling of 75 per cent. The Central government accepted the recommendations of the Rangarajan Committee in October 2012, which abolished the levy sugar obligation for 2012-13 and fully freed sale from government control.

Tamil Nadu has 26 private mills and 18 cooperative and public sugar mills with production capacity of 30 lakh tonnes of sugar per year. Industry directly employs 30,000 and another 2 lakh indirectly. With the Sugarcane Breeding Institute, Coimbatore providing the lead, the state has evolved a leader in the development of cane with high yields.

But the highly politicised industry suffers from continuous demand for increased prices for sugarcane that makes sugar production uneconomic. The state continues to advise minimum prices unrelated to market prices. There was a crash in sugar prices from Rs 3600 to Rs 2900 per quintal during the past year. But sugarcane prices were allowed to increase! With bulging sugar stocks and increasing cane arrears, sugar companies in the state suffered huge losses and lead rating agencies CRISIL and CARE have downgraded most sugar companies.

When states can so freely interfere even in areas such as foreign affairs, the Centre has little say in a subject like agriculture falling within the jurisdiction of the states.

With the adverse agro climatic conditions cane availability in the current year is expected to fall drastically to around 20 lakh tonnes (it was 30 lakh tonnes last year). To safeguard against encroachments of allocated cane areas by new entrants, mills have opted for additional licences knowing well that it won’t be viable in the short run.

The popular variety C086032 that accounts for 90 per cent of seeds used is losing its virility. There had been no new high yield variety introduced in the last 12 years. There is also the issue of mechanisation thwarted by very high cost of agricultural machinery. I remember the Murugappa group joining hands with John Deere to popularise mechanised harvesting of cane to meet the problem of shortage of labour and high cost of cane cutting. This has not made much progress.

Where bagasse, not sugar would be the main product!

Ponni Sugars was conceived and set up by the pioneer S Viswanathan (SV), Chairman Seshasayee group. I remember the fervour with which he launched the project. He held that in his mill bagasse would be the main product and sugar the by-product. His research team also developed multi-fuel boilers that can use as fuel not only conventional coal or furnace oil but a vast range of agricultural waste as well. He set up Ponni Sugars primarily to provide bagasse to the adjoining Seshasayee Paper.

Such economics provide a measure of stability in the fortunes of the sugar industry. Brazil for example produces ethanol from molasses and derived better realisation than on sugar. Brazil pioneered the large-scale use of ethanol for powering automobiles. In India also the policy to use ethanol as a blend with petrol has been mandated. There are expectations on greater attention to the production of ethanol but the competition is from potable alcohol. There is huge demand for potable rectified spirits on which sugar mills realise much higher profits.

Yet another development relates to the better economics of using bagasse for cogeneration of power and steam. Incentives offered make it more attractive to use bagasse as fuel in boilers.

Of course, the pioneering work of Viswanathan has extended to the use of other agricultural waste products as fuel. In Punjab wheat stalk is increasingly used in cogeneration.

Though Pallipalayam is on the Bank of Cauvery River, farmers there are not permitted to use the river water for raising crops. SV conceived of another brilliant idea - to treat the effluent water from the paper mills and use it for irrigation. Over the years, 1500 acres adjoining the sugar mills have been turned into lush cane fields.

Ramanathan suggests quick attention to redressal of the problems affecting the industry and save it from plunging  into pervasive sickness.

 

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