Media reports are abuzz that the central government has asked Maharashtra government to impose a limit on water-guzzling sugarcane crop -- in order to help fight the state's crisis drought situation.
The move should give a fillip to sugar prices, as mills already reeling under a shortage of sugarcane supply, act in accordance with lower volumes.
But M Manickam, Executive Chairman, Sakthi Sugars, has a different take on the subject.
"For the first time, the government is acknowledging there is shortage of sugar. But such control measures are unlikely to have an impact," he told CNBC-TV18 in an interview. "The government should've created a buffer stock last year."
Going forward, Manickam said he expects sugar output to drop to about 2.2 million tonnes in FY17, from about 24.5-25 mt in FY16. "Sugar prices may range between Rs 35-40 per kg during the year," he said.
Below is the verbatim transcript of M Manickam’s interview with Latha Venkatesh and Ekta Batra on CNBC-TV18.
Latha: Until now we were going to ask you cheerful news about prices rising both in India and abroad but now Manisha Gupta gives us negative news, she says the ministry is looking at controlling sugar price and forcing traders to bring their stocks into the market. What is your reaction?
A: That is good news really because I think it is the first time the government is acknowledging there is going to be a shortage of sugar. We will have a shortage of sugar regardless of what they are going to do with controls which is probably what we talked about in the 80s and 90s. So, these kind of mechanisms are not going to work. You need to deal with the situation, we should have probably created a buffer last year of 5 million tonne which we neglected.
So, we will have to face the consequences and we will have to higher prices and the industry will probably look at hardship. When you are talking about controlling stocks, we are using instruments which were actually pre-liberalisation to control prices now; it is not going to really work.
Latha: Would you know whether they have touched base with either ISMA or yourself, manufacturers?
A: No, I don’t think they have really talked about it because the estimate that we have is 245 million tonne as on April 15 and almost all the factories are shut. So, possibly we are not going to cross 250 million tonne this year. We are looking at a bleak future for the next year because almost all the states are reeling under shortage of water.
So the crop is not being irrigated now. You will have consequently lower crop next year. So, we need to start focusing on what we are going to do about the shortage and start looking at positive measures. These control measures are going to work for the short-term.
Ekta: What are the measures that the industry might be proposing?
A: We will have to see. First of all they should have allowed the prices to be higher little earlier and then maybe a buffer but right now we will like the sugar out of the market, so, we need to see what kind of measures the government are going to look forward to.
Latha: You have seen years like this before when after surplus sugarcane, output tends to fall, this time there is a double whammy. How much might you think the sugar output next year could fall to, typically this is a three year cyclical so another 20 percent fall is what we should prepare for in the next sugar year?
A: Conservatively I think at least about a 10-15 percent minimum. There have been years there has been even 25 percent fall. So, you could look at various cycles but it is a 10 year cycle, it happens once in 10 years.
Latha: 220 lakh tonne is possible next year?
A: It is possible, 220 lakh tonne is possible next year.
Latha: If you square this with the global sugar prices which also have been rising, what would your sense be of domestic, I mean there is a limit to how much you can export and control this year. So, calendar 2016 what is the sugar range price you are looking at?
A: We should be looking at a range between Rs 35 and Rs 40 as being realistic depending upon what kind of import-export controls we have. However, I think that will be a realistic range. Only thing is, right now we should be careful that people don’t go overboard and start increasing cane prices and again start another cycle. This is the time when government should implement sugarcane pricing across the country; that is something which they should be looking at.
Ekta: You are expecting maybe sugar prices to rise to Rs 35-40?
A: Yes, there in that range now, about Rs 34-35. So, I don’t think it is going to go 5-10 percent beyond this; that will be the range on which it will be probably there which I think is good for the industry as well.
Latha: Has the industry been able to use this brief period of positive prices to bring down its debt, in your case in particular?
A: We have been able to bring down the cane price arrears. We have been able to pay the farmers in time and that has been actually fairly reasonable expectation that we will be able to do well. So we need to see another year or two of this kind of performance, most of us will get back on our feet.