Expect sugar prices to remain steady over medium-term: ISMA

Excerpts from Your Stocks on CNBC-TV18 Watch the full show » RELATED NEWS UP mills, farmers agree to sugarcane price of Rs 195/q Nifty BSE | NSE 10/02/12 Are Mutual Funds betting on Nifty?

Even as an all-party meeting that was expected to take place on Wednesday to discuss pricing of sugar was cancelled, an association of Uttar Pradesh (UP) sugar mills reached an agreement with farmers in the state. As per the pact, UP farmers would get Rs 190-195 per quintal on sugarcane, about Rs 25 above the state-administered price (SAP) of Rs 165 per quintal.

In an interview with CNBC-TV18, SL Jain of Indian Sugar Mills Association (ISMA), spoke about impact of this development on the sugar industry.

Q: What is your reaction to this final price that has come about? What kind of a relief do you see in this for sugar mills?

A: It is a very reasonable approach both by the industry and also by the farmers. There was a big difference between what the industry was agreeable to pay and what the farmers were demanding. The decision of final price is going to do well. As a matter of fact, this price will also encourage sugarcane crop for future, so I think it is a good development.

Q: Can you throw some more light on what it may mean in terms of profitability and realizations for Uttar Pradesh (UP) sugar mills?

A: Individual profitability depends on so many things. There are only standalone sugar mills. There are factories, which has got cogeneration facilities. There are factories, which have also ethanol capacity. So as a matter of fact when the production comes down of cane then probably the derivative that is the ethanol or the power, also gets somewhat impacted in the short season.

So that is one situation, where the investment that has been done into the derivatives perhaps may not give the result, which one expected in a season when enough sugarcane is there. That is one thing - part negativity is there but as far as sugar is concerned, the settlement has been quite okay. Perhaps with this, some more cane may be got planted and perhaps more stable sugar economy will emerge.

Q: I don't know if you have further clarifications but there was also an all party meet, which was lined up. As we are picking up from our sources, it has been inconclusive. There were other parties that wanted to include mills profit sharing with farmers after a certain amount of profit also. Have you heard anything in terms of the outcome from that meet?

A: There is already a provision in law that anything extra that the industry makes, beyond the minimum thing of whatever has been announced, there is 50:50 sharing. That is already there - nobody can run away from that.

Q: The clause has always been there but it never has been worked upon. So what are we looking at that 5(B) clause now? Is it in process, is it being talked about or would it be followed from coming time?

A: In certain region where people start with the statutory price announced by the government, this theory works out. As opposed to that in Northern India, farmers ask for a much higher price and ultimately that is likely to be Rs 165 and if people have already agreed to pay more than Rs 200 then in that case it will have to be calculated whether at that price the 50% sharing of the farmer is complete or not. Even if something extra has been paid, that cannot be recovered also.
This is how the whole system operates. Northern India operates in one manner and Southern India operates in another manner. They pay the minimum price and then give the sharing. But in North, automatically the demand is much higher for the farmers and there they can concede to the farmers' demand. Therefore sometimes it is not more than 50% sharing to the farmer.

Q: The crop output estimate at this point of time. We are working with the production of 15.3-16.5 as well. What is ISMA coming out with at this point in time?

A: ISMA has not really concretised the views. The range you're talking about is a very small range. So, maybe around these levels the production.

Q: Any view on prices that you are looking, which we might see at year-end coming in?

A: The prices are steady, prices will continue to remain steady. As a matter of fact even from next year perhaps enough sugar will not be there as consumption requires. Therefore the prices will remain steady as far as I can see. Even in the future, in my view, food crops have been promoted and this is the compulsion of the government also. So in that case we have limited land as well. Therefore for future, what I see is that always the prices are going to remain quite bullish.