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'The Indian Sugar Industry Is Highly Fragmented'

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Sugar is becoming a bitter business for its manufacturers and the sugar industry is seeking reforms in policy. But before that the industry needs to get its house in order. Currently they are a fragmented lot speaking in different voices. As the first chairman of the Sugar Committee of the Confederation of Indian Industry (CII), Ajay S. Shriram hopes to convince the government to introduce changes in the licence raj era, subsidiaries, rules and regulation and policy decisions. Speaking to Businessworld's M. Rajendran, he highlights the hurdles in the sugar industry that need to be resolved while focusing on the importance of effecting policy changes soon to end the cyclical ups and down in sugar prices.
Excerpts:

The sugar industry is a divided lot, what gives you the confidence that the government will agree to the charter of demands? Why isn't there a single platform to debate issues such as change in controls and multiple governing authorities?
The CII National Committee on Sugar was formed to pursue policy actions with the government. The sugar industry needs some impetus to survive since it requires support from all stakeholders especially the government. The industry supports 50 million farmers and their families, provides direct employment to millions of people, helps the entire nation by providing sugar at reasonable prices and moreover aids the government in terms of revenues, rural and economic prosperity. The issues raised by this committee have also been discussed and deliberated with the Indian Sugar Mills Association (ISMA) and other members of the CII.

Can you give an estimate of the financial status of the sugar industry in India: the total number of companies that exist, among them how many are loss making, profit making, in brink of being shut down and already shut down. Let us consider a ten year period.
The Indian Sugar Industry is highly fragmented. There are a total of 651 mills (as estimated in 2009-10) out of which 62 are public, 269 are privately owned and 320 are co-operatives. In my opinion, all sugar mills are running into losses as of now because prices are ruling much below the cost of production.

You therefore suggest that the consumers will not mind a hike of Rs 5 in the price of sugar as it would help the industry achieve better financial results? But people will mind any hike especially when the inflation is on a high.
The consumption pattern of sugar shows that two third of the usage is for bulk and industrial consumption and one third for household consumption; thereby making the commodity less critical to calculation of the Wholesale Price Index of individual buyers. The share of sugar is only 2.4 per cent and 1.5 per cent of the total consumer expenditure for rural and urban India respectively. Also, the below poverty line (BPL) population is covered through the public distribution system (PDS) system. From the point of view of household consumption, even for a low income household, a 10 per cent increase in sugar price would result in less than one per cent increase in the monthly food expense.

What are key policy issues on which you are seeking changes from government?
The key policy issues which need to be addressed the decontrol of the Sugar Industry include a number of points; the first being the removal of levy obligation as the industry is required to bear 10 per cent levy sugar obligation for providing sugar to the government for PDS .This will reduce the financial burden of the sugar industry by around Rs 3000 crore. The second issue is concerned with the linkage of sugarcane prices to sugar prices. A proper and transparent pricing mechanism for sugarcane will help the industry as well as the farmers in strategically planning demand-supply in the market, and thus reduce volatility in availability of sugar as well as prices.

The removal of release mechanism and stock limit is also a crucial point. The monthly release scheme should also be dispensed with and the government should itself maintain a strategic stock of sugar. Another major issue deals with packaging. The industry should be allowed to use any food grade material for this purpose to cut down costs and organise its sale and stock handling in a more effective manner. The government prohibits packing in any food grade bags except Jute bags. The industry however wants to bring the best technology to India provided we are allowed to pack sugar in any food grade bags.

Stable exports policy under the open general licence (OGL) will help maintain reasonable sugar prices which in turn can be passed to the farmers. At present there are multiple departments and ministries which control the industry. For establishing a level playing field and for removal of regulatory distortions, such conflicts need to be resolved.

Is the decontrol of sugar the tonic needed to revive the Indian sugar industry?
There are a number of industries such as cement, steel, telecom, etc. that have flourished post decontrol. These industries today have dynamic competition and even consolidation which benefit all the stakeholders. Decontrol of Indian sugar industry will lead to operation of market forces and bring in efficiency across the value chain. It will also lead to self sufficiency and reduction in cyclicality with further diversification of the value added products i.e producing green power and also addressing the energy need of the country through ethanol. Decontrol is also imperative for the prosperity of all stakeholders - farmers, consumers, the government and millers.

Where can the Indian policy makers look to find a successful sample?
Brazil is a great example how decontrol can lead to prosperity in the industry. It started in 1990 with the elimination of public production and export controls as well as a public centre for sugarcane R&D. Today Brazil is the largest manufacturer and exporter of sugar as well as the largest manufacturer of ethanol for blending with petrol, which has helped in reducing their dependence on fossil fuels

In India, mechanisation in agriculture has not been a uniform phenomenon. Is the industry concerned about it or is the decision left to the farmers?
The sugar industry is continuously upgrading itself technologicall. The industry is working towards implementing farm mechanisation but is still in a nascent stage. For example, In South India, mills have around 100 cane harvesters. This development is primarily driven by the shortage of farm labour and the system of maturity based harvesting organised by the mills in South India. North India has not yet started this process as the farmers harvest their own fields. But companies such as DSCL sugar and many others have taken up mechanisation in the form of trench planting to help the farmers. The industry requires support from the government to disseminate such technology to the farmers on a mass scale.

What has been the contribution of the industry in developing crops that can give higher yield with lower input costs?
Yields in sugarcane have remained constant. Individual companies are working with farmers towards the process of yield improvement as it in the interest of the miller to work with the farmer to increase productivity.  The government and the industry need to work together in researching and developing new varieties of sugarcane which can give yield more and sucrose content.


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