Hike in sugarcane prices to up sugar production cost: ISMA

Written By Unknown on Jumat, 16 Januari 2015 | 21.03

One of the key decisions taken by the cabinet today was regarding fair and remunerative price of sugarcane, which has now been hiked to Rs 230 per quintal.

Reacting on this decision Abinash Verma, Director General, ISMA said this means the cost of production of sugar would go up by about 3 percent becasue the input cost is sure to go up.

Below is the transcript of Abinash Verma's interview with Nayantara Rai on CNBC-TV18.

Q: I want to first get your reaction on the fact that the basic price to the farmers has now been increased to Rs 230, what is going to be the first big impact on the industry?

A: This obviously increases the input cost and about 75 percent of our cost of production is on account of sugarcane. So, the input cost goes up by almost about 4 percent. It obviously means the cost of production of sugar goes up by about 3 percent.

Q: You sell sugar to consumers at below cost price so do consumers have to be worried with all of you getting together and think this decision has been taken, may be some of the burden should be passed on to the consumers?

A: Getting together and determining the sugar prices is not possible.

Q: I don't mean a cartel but do you think a decision would be taken by various companies that it is only fair to pass on a bit to the consumer?

A: Correctly speaking we would love to cover our costs and if our cost of production in Uttar Pradesh it is about Rs 36-37 per kilo of sugar and in Maharashtra it is about Rs 32-33 per kilo and they are recovering just about in Maharashtra Rs 25-26 and in UP Rs 27-28; it is much below the cost of production. So, the mills do not have any control over the sugar prices, had there some control they would obviously have recovered their costs but it will only increase the pain of the sugar mills, it will only burden them further and probably the losses will only go up if the current sugar prices are allowed to remain at these levels.

We have been requesting the government for some help from some financial assistance from some help to export the surplus sugar because it is not that we have willingly produced the surplus sugar. There is a law in the country which requires us to crush all the sugarcane which is offered to us and therefore we have no control on the quantity of the sugarcane, there is surplus sugar which gets produced and at a very high cost because the sugarcane prices are high.

So, if the government helps us, we should be able to afford this kind of price next year but if the current prices remain at these levels in the next year also it is going to be a real struggle for all of us to afford to pay this kind of price.

Q: Can you tell me what exactly it is that you have sought from the government in the form of SOPs and what has been the government's response?

A: First of all we are carrying almost about 20-25 lakh tonne of surplus sugar and that is burdening all of us - it is putting pressure on our cash flows, on our liquidity. We are unable to pay to the farmers, a lot of sugar mills are becoming non-performing assets (NPA) accounts or sick. So, first of all we have requested the government to help us export this surplus sugar in international market.

So if the international prices are down; there is a glut in the global market also. We are unable to compete and for that there is a gap for which we have requested the government to help us with about Rs 4,000 per tonne of sugarcane as incentive to produce raw sugar and then export that.

I believe that is in the very active consideration for the last one month the government is deliberating on that so we expect some decision very soon and therefore that will help us improve the sugar prices and cover our cost.

Secondly, as I mentioned the industry is in a terrible position about five years back the total debt burden with the industry was almost about Rs 11,000 crore that has gone up to almost Rs 36,000 crore in just about five years.

The industry is unable not only to service the interest but also the principal amount. So we have requested the government to kind of restructure or give orders to restructure the repayment period, to restructure the interest burden on the industry. So if these two things are dome quickly by the government we expect to come out of the very difficult situation of financial distress situation in the industry and be able to pay to the farmers on time and also to the banks.

Q: The other fact is that you have been making representations to the government on account to the rescue of the sugar industry but we have not really seen that happen. So I do not know what exactly you are pinning your hopes on so what is the game plan known considering you have to pay more to the farmers?

A: If we are unable to pay to the farmers the positions becomes that we are unable to pay them and last year the cane price arrears which I remember in March–April had cost Rs 13,000 crore which was historically the highest and that is what is going to happen. Nobody has that kind of money or deep pockets in this sugar industry to keep on paying year after year of losses.

So, there is a challenge the government has to realise and my understanding or whatever discussions we have had with the government they are appreciative of the problem of the industry and therefore there is a very active consideration on the sugar export incentives. So that is coming up very fast on the financial assistance also, on the restructuring of the loan we expect the government to be positive on that.


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