The Hindu Business Line : Lower sugarcane prices, urges industry

Faced with low sugar prices and high production, the Indian Sugar Mills Association (ISMA) said that sugarcane prices for the coming season have to be lower than that of the current year.

Apart from cutting back on sugar prices, the immediate need is to remove the surplus sugar from the system to ensure that sugar prices do not drop further and to protect the mills' ability to pay farmers.

This would mean increasing the buffer stock, widely implementing the programme to supply ethanol-blended fuel and controlling sugar output in the coming season by allowing ethanol production directly from sugarcane juice or from B-heavy molasses.

Mr P. Rama Babu, President of the ISMA, said the sugar industry "for the first time needs to look at dropping sugarcane prices." The target price cannot be higher than Rs 850-900 across the country.

With sugar prices prevailing around Rs 1,250 a quintal sugar mills are not recovering even the sugarcane cost. This does not even take into account the variable cost of the mills' operations for which sugar prices would have to be over Rs 1,600 to breakeven. The mills would not be able to sustain even the statutory minimum price leave alone the higher prices advised by the State Governments, he said.

In the 2006-07 season, the Centre fixed an SMP of Rs 802.50 a tonne of sugarcane linked to nine per cent sugar recovery and an incentive of Rs 9 for every 0.1 percentage point increase in recovery over nine per cent.

With sugar recovery in the vicinity of 10 per cent and more, and State Governments recommending a higher price through the State Advised Price, sugarcane prices are over Rs 1,250 a tonne.

By September 2007 the season's sugar production will touch an estimated 270 lakh tonnes. Assuming the consumption is around 19.5 million tonnes, it still leaves a surplus of about 7.5 million tonnes, he said.

Even with the incentives, sugar exports will not exceed a million tonnes because there is no demand, he added.

The surplus has to be kept out of the system to shore up sugar prices at sustainable levels to support the farmers.

The industry would need "tremendous support" from the Centre and the State Governments over the next 36 months, which would be a crucial period, said Mr Rama Babu.

Estimates indicate that the standing sugarcane crop will result in sugar production sustaining at current levels for the next season. It would take at least two years for any correction to take place.

Buffer stock would have to go up by another 20-30 lakh tonnes in addition to the 20 lakh tonnes announced.

This would have to be held for the next 2-3 years.

The ethanol programme - supply of ethanol-blended petrol - would have to be expedited across the country and blending increased to 10 per cent from the current five per cent.

Ethanol production from sugarcane juice or B-heavy molasses (molasses with higher sugar content) should be allowed.

At five per cent blending, over 600 million litres of ethanol would be needed and this would result in a drop of about 10 lakh tonnes of sugar production, said Mr Rama Babu.

ISMA representatives have met with the members of the Centre's biofuels committee and the Planning Commission, who have agreed that the programme has to be extended. But the Centre has to ensure that all State Governments adopt the programme, he said.