Informist, Thursday, May 18, 2023
By Afra Abubacker and Sayantan Sarkar
MUMBAI – Forecasts of setting in of the El Nino climate pattern and the likely hit on monsoon rains notwithstanding, India can expect its sugarcane crop to progress well this year, says Indian Sugar Mills Association President Aditya Jhunjhunwala.
The water reservoir levels in the major producing states are currently at a comfortable level as against the average of the last 10 years, therefore production of sugarcane will not be hit too much, says Jhunjhunwala in an interview to Informist.
"As per the IMD (India Meteorological Department), the rainfall is expected to be normal... So, we don't foresee any major issues with sugarcane production," Jhunjhunwala says.
The sugarcane crop is highly water-intensive, with about 250 tn water required to produce 1 tn of the crop, as per data from the Directorate of Sugarcane Development.
Last month, the weather bureau forecast normal rains during the Jun-Sep southwest monsoon season at 96% of the long period average, but also said that the El Nino phenomenon may develop in July. El Nino, an abnormal warming of surface ocean temperatures in the eastern tropical Pacific, is usually linked to lower rainfall in India. The emergence of a positive Indian Ocean Dipole may, however, offset some of the El Nino impact, the IMD said.
The industry association will next month detail its sugar output estimates for the coming year starting October, says Jhunjhunwala. "We will be having a satellite survey in mid-June, and we will have the first advance estimate (for sugar output based on sugarcane acreage) by June-end, and the second advance estimate around September," he says.
Last month, ISMA had trimmed its sugar production estimate for the current season to 32.8 mln tn from the earlier estimate of 34.0 mln tn on account of a fall in output in Maharashtra.
The industry body has been urging the government to increase the minimum selling price for sugar to 38 rupees per kg to cover for production costs. "We need to pay farmers on time and if you keep increasing the cost of raw materials, then the cost of the final product also needs to be raised as well," says Jhunjhunwala.
The minimum selling price for sugar is 31 rupees a kg, and it has not been revised since 2019. Meanwhile, the fair and remunerative price that is paid to sugarcane farmers has been raised twice in recent years. It was increased to 290 rupees per 100 kg from 255 rupees in 2021-22 and then to 305 rupees in 2022-23.
The ex-mill sugar prices are currently around 34–37 rupees per kg in Maharashtra and Uttar Pradesh.
Following are edited excerpts from the interview:
Q. Why is this sugarcane crushing season ending earlier? Last year it lasted till June.
A. Generally, the crushing season is Oct-May. There are some practices that are done in June. In some parts, it gets over by April, and in other parts by May. I don't think there is a big difference in the duration of the season this year. But yes, mills in Maharashtra closed crushing operations earlier this year, because there was a fall of 15-20% in cane yield, as compared to last year.
Q. Was the fall in yield on expected lines, given there was a larger share of ratoon crop this year?
A. No, we did not anticipate the decline. Initially, our estimates were that of better production. Yield from the ratoon crop was normal, but as we harvested the plant in January, we started to see sugarcane plants getting lesser yield this year.
Q. Did the yield decline because of excessive rainfall?
A. No, not because of excessive rains. The cane crop needs a particular amount of rain at a particular period. Rain requirements are different throughout different growth periods, and it is not like we can have an average quantum of rain for the whole growth period. For example, in the sowing season, the crop needs rain in Jun-Jul, then a particular amount of rain in Aug-Sep. But if there are more rains in Oct-Nov, it is harmful to the crop. So, timely rain is very important for the cane crop.
Q. Are there concerns over sugarcane output due to forecasts of El Nino and Skymet's projection of below-normal rainfall this year?
A. As per the IMD, rainfall is expected to be normal... So, we don't foresee any major issues with sugarcane production. Water reservoir levels in Maharashtra and Karnataka are currently at a comfortable level as compared with the average of last 10 years. Therefore, production of sugarcane will not be hit too much. But nevertheless, we can't completely predict rains.
Q. Do you have production estimates for the upcoming season?
A. Sowing is still happening. Once the sowing gets over, then it makes sense for us to do a satellite mapping. We will be having a satellite survey in mid-June, and we will have the first advance estimate (for sugar output based on sugarcane acreage) by June-end, and the second advance estimate around September.
Q. What is the current daily cane crushing capacity? What is the estimate for the coming year?
A. Currently, the crushing capacity is approximately 2.5-3.6 mln tn per day. The crushing capacity has been increasing gradually and not rapidly. Over the last two years, it has increased by 4-5%.
As of now, we don't know the exact crushing capacity for the upcoming season. Now that the current crushing season is over, mills must be thinking about their expansion plans. There will be some growth, as some mills are going for an expansion and there might be a 1-2?pacity increase.
Q. What prompted mills to increase their crushing capacity for the current year and the upcoming one?
A. That would be depending on the region and cane availability. For example in Tamil Nadu, this year the recoveries are very poor. In Uttar Pradesh, mills started operations in October and ended in May. Whereas in Maharashtra, mills started closing in March.
Mills in Maharashtra could not complete the minimum number of days they should run due to the lower availability of sugarcane. According to industry requirements, mills should run a minimum of 150–180 days. So, unless mills achieve the requirement, there is no room for expansion. But having said that, some mills are expanding because of different reasons like ethanol production. So, mills are doing it according to what suits them economically.
Q. Are we positive about cane availability for the upcoming season, as this time there were some shortages?
A. We can't say there was a shortage. Yes, when compared to last year, there was a fall in sugarcane production. But not a shortage. We had enough and more sugarcane production to meet domestic sugar consumption. We also had surplus sugar to export 6 mln tn.
Q. Indian exporters could not take advantage of the 11-year high international sugar prices in April, as mills had exhausted their export quota. So what is the view of sugar mills on this issue?
A. As far as ISMA is concerned, we are in alignment with the government and with the policies that we think are right for our country. So first, we need to take care of our consumers and secondly, we need to take care of our ethanol blending programme. And the surplus left after meeting these two priorities needs to be exported.
Q. ISMA has urged the government to increase the minimum selling price for sugar to 38 rupees per kg from 31 rupees. Do you see anything happening anytime soon?
A. We are pursuing the government. That's what we can do. There has to be a linkage between the fair and remunerative price (for sugarcane) and the minimum selling price (for sugar). The fair and remunerative price have been increased twice, but there has been no increase in the minimum selling price. Now, we need to pay farmers on time and if the government keeps increasing the cost of raw materials, then the price of the final product also needs to be raised.
Q. Are sugar mills incurring losses because of the same?
A. There might be some mills that are making losses, and maybe some only at a break-even point. And if we see from last year, the profitability of sugar mills had reduced. The prices of raw materials have gone up, while sugar prices are more or less in the same bracket around 34-36 rupees per kg. That's what the bracket is, as far as Maharashtra and Uttar Pradesh are concerned.
Q. If the government agrees to raise the minimum selling price, what will be its impact on domestic sugar prices?
A. If the minimum selling price is increased, there will be an upswing in sugar prices. If the government declares a minimum selling price of 38 rupees a kg, then the ex-mill prices are likely to be around 38–39 rupees in Maharashtra and 39.00-39.50 rupees in Uttar Pradesh.
Q. What is your view on international sugar prices in the near term?
A. Globally, it is a different story because India is not going to export this year and the market understands there is a deficit in the international market, which is why prices have gone up. Now, people are looking at Brazil. There has been some delay in Brazil's sugarcane harvesting because of late and untimely rains and sugar prices will depend on how much cane the country uses for ethanol production and sugar production.
As far as the domestic market is concerned, we are quite comfortable because the country has enough stock for our consumption.
Q. Do you see Indian mills meeting their targets for ethanol blending in fuels this year?
A. Yes, absolutely. We will be able to fulfil the requirement. As you have seen in the first quarter, oil companies were not able to lift the full capacity of the contracted quantity, which has now been rolled over to the next two quarters. Approximately, 1.94 bln ltr (ethanol) has been supplied as of April (since December).
For this year (Dec-Nov ethanol year), oil marketing companies have asked approximately 5.80 bln ltr to be supplied. Of this, 3.77 bln ltr ethanol has been contracted by sugar mills. The balance will come out of grain-based distilleries.
What happens in the off-season is that we have a feedstock that is limited. So, instead of keeping your asset idle in the off-season, certain sugar mills are going for dual feed distilleries. In the season, you can produce ethanol from sugarcane juice and molasses. And during off-season, grain can be used as a feedstock to produce ethanol.
Q. India has advanced the 20% ethanol blending programme deadline to 2025 from 2030 earlier. Do you see the target of 20?ing met in 2025?
A. We are pursuing the target. We are also requesting the government to address the issues that we are facing. The industry needs to build up huge capacities to meet the target. Currently, we are at 12?pacity, and that means approximately, we need 40% more capacity build-up to achieve the 20% target. Some projects are in the pipeline on sugar as well as in grain, but there are things that need to be done and that is what we are requesting the government to help us with.
Q. What are the issues mills are facing regarding the ethanol blending programme?
A. We are asking the government for a long-term policy on ethanol pricing. If someone wants to put up a 5-bln-rupee ethanol blending plant, then they also need to have a vision of ethanol prices in the future. We have requested the government to provide us with some formula so that people can understand what ethanol prices will be in the future, and take independent calls.
And secondly, since new ethanol blending capacities will mostly be coming from cane juice, there needs an increase in ethanol prices, which is being currently provided to millers. We also have requested the government to extend the scheme for interest debenture for new projects, which has expired on Apr 30.
Q. According to you, how much should ethanol prices be raised?
A. Again, it will depend on cane prices. If the government keeps on increasing the fair and remunerative prices for sugarcane, then there has to be a linkage between cane and ethanol prices as well. For those setting up new capacities, the government also should look into the return on investment of the project. End
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