Sugar industry should be decontrolled at earliest

India’s competitive edge in the sugar industry lies in its geographical location which offers convenient transport. However, the country has to overcome three major challenges - production costs, technology, and government policies on development of alternative energy. Mukesh Kumar, executive director, Vishwanath Sugar & Steel Industries Ltd, in an email interaction with Nandita Vijay delves into the details. Excerpts:

How do you see the growth of the Indian sugar industry in the coming decade?
Indian sugar industry has achieved a significant growth in the past few years and has emerged as one of the net exporters of sugar. The prospects for the next decade are excellent and India can achieve further significant increase in the sugar production if the government may adopt Brazilian model. The country’s competitive edge lies in its geographical location which offers convenient transport. Yet to achieve prosperity, India has to overcome three major challenges which are production costs, technology, and government policies on development of alternative energy.

What are India’s key strengths in the segment?
India is the second-largest producer and largest consumer of sugar in the world. India has abundant agricultural land and availability of human resources. High volumes and the growing population coupled with growing per capita income will help the country achieve the projected growth rate. The area under sugarcane has increased from 4.2 million (mn) hectares (ha) in the Sugar Season (SS) 2009-10 to 5.1 mn ha in SS 2010-11. The need now is not only to increase the area under sugarcane cultivation but also to substantially raise the yield per hectare.

Do you think the sugar industry should be decontrolled?
The sugar industry is one of the most controlled industry in the country and as a part of economic reforms it should be decontrolled at the earliest. The government has already appointed a committee under the chairmanship of Dr C Rangarajan to study the road to deregulation of the industry. The committee is expected to submit its recommendations shortly before the beginning of the next sugar season. India has already handled surplus quantities of sugar after meeting growing consumption. The government has to make sure the growing population will be supplied with enough sugar at reasonable prices and still leaving exportable surplus.

The production of sugar as of now is between 24.7 million tonnes and 26 million tonnes, do you think the country has the scope to augment this?
The sugar production of India, the world's second-largest producer and largest consumer, is estimated to grow year-on-year basis. The annual domestic demand of sweetener is expected at 22 MT which leaves a surplus of 2 to 3 MT on an average. The government has decided to remove quantitative restrictions on exports. With a boost in capacity generation and de-control in the sugar industry, we believe that the country is poised for phenomenal growth.

Coming to the issue of pricing, the sector is bogged down by the permanent hike in state advised prices (SAP) which is an annual rise and viewed as a major setback for the industry because it affects the top line growth of the industry. Comment.

I will not be able to comment on this.

Going by the fact, that sugar in India is priced lowest in the world, what is the outlook of import and export of sugar?
The Government of India has issued release order of 2.5 MT of sugar for exports in the SS 2011-12 ending September 2012. This results in an increase in profitability of the sugar factories, as these releases have been over and above the free sale sugar quantities. Now that India has exportable surplus, there is no need to import sugar.

What's the stance on sugar prices in the international arena, and on the domestic front, do you see a kind of stability on the realisation front? Are they tending to move slightly higher?
The domestic sugar prices are at par with the global prices. The rise in domestic sugar prices will be short-lived as production is estimated higher for this year. Overseas prices are not likely to move higher this season.

What is the kind of reforms you expect or intent to propose to the government as part of a member of the sugar association to improve the prospects of the industry?
We expect complete liberalisation of the sugar sector and improved realisations with the removal of levy quota and monthly releases.

Has there been any benefit of rupee depreciation for the sugar industry?
Yes, the rupee depreciation has helped all exporters and sugar industry is also a part of this phenomena.

What is your outlook for the future of sugar industry in India?
Sugar industry has bright future in the country and awaiting an encouraging policy from the government. The industry can produce more not only to meet growing consumption, but also leave substantial exportable surplus.

Tell us about the presence of Vishwanath Sugar in the international arena.
Presently there is no presence of Vishwanath Sugar in the international arena. As of now, we are only focussed on the domestic market.

In addition to increase in capacity in the plant, would the company consider global foray to set up plants to maximise its presence?
No plans as of now. The public issue is in the process and will be announced as we get a SEBI clearance. As per the DRHP (draft red herring prospectus) filed, we initially commenced distillery operations in the year 2001 with a capacity of 35 KLPD. The sugar production and co-generation facility started operations in the year 2006 with a capacity of 2500 TCD and 14 MW (mega watts) respectively. With the continued support of the farming community in the area, we were able to expand our sugar unit capacity from 2500 TCD to 5500 TCD in the year 2009. This further led to the enhancement in our power generation capacity from 14 MW to 36.4 MW.

We now propose to expand our integrated production facility situated in Belgaum district by increasing the sugarcane crushing capacity from 5500 TCD to 11000 TCD. We further propose to install a new boiler of 150 TPH capacity of 110 kg/cm2 pressure and a suitable turbine to our co-generation unit to enable us have a total installed power generation capacity of 66.40 MW. From the proceeds of the issue, we also propose to deploy a part of the funds as capital expenditure to expand the capacity of our distillery from the present 35 KLPD to 100 KLPD leading to an increase in our IMFL production capacity from 2500 boxes per day to 5000 boxes per day.

source: fnbnews