Govt double-speak turns sugar sector bitter: Sakthi Sugars

In an interview to CNBC-TV18 M Manickam, MD, Sakthi Sugars explains that the different views adopted by the states and the Centre in controlling cane and sugar prices has resulted in mounting arrears which is increasing the pressure on producers across the country.

Below is an edited transcript of the interview. Also watch the accompanying video Q: What do you think of international sugar prices? A Morgan Stanley report has indicates that a fair amount of bearishness as sugar beet acreage across the northern hemisphere has been good and any potential fall in the Brazilian output is likely to be made up by Thailand and other places. How would you look at the global sugar prices for the next quarter or two?
A: If you look at the futures market I think August is trading about USD 32-34 over the next contract which is October. There is this spot shortage because I believe there are rains in Brazil and there is little bit of a delay.
I am not sure how much Europe can export because Europe's cost of production is high unless they subsidise and if their exports come with subsidies, we need to really see what kind of fair exports they can do.
So for the next three months it looks like we will have a window of opportunity. But in the longer term we still would have surplus. There reports about an early season in India, but nobody’s not sure about the rains yet. So, a lot remains to be seen. Q: From indications for the next season and the concerns regarding El Nino disrupting weather in India, do you think that the food minister's production taregt of 26 million tonne in the next sugar season will be met?
A: More than the El Nino, the sugar sector is worried about the sugar price or the cane price arrears. Uttar Pradesh already has Rs 9,000 crore in arrears.
The sugar sector in Maharashtra and in South India is also under pressure. So, that's going to be a major factor. So, unless sugar prices are corrected, there will be a shortage next year because the mills will not be in a position to pick up as much cane as they did this year. Q: It is assumed that mills in Uttar Pradesh have large arrears because there the state-advised price of cane was genuinely very high and didn't fall even when cane output was good. Do the other states also suffer similar problems? Why is the problem of mounting arrears so widespread?
A: The problem is not mounting arrears. The main cause for stress is because the cane prices of Rs 2,200-2300 depends on the state. Even at Rs 2,200, the breakeven price for sugar should be about Rs 32 or Rs 33, but we are selling at about Rs 28-29 today. So, we are operating with a  deficit of Rs 2-3. Q: Why are cane prices not adjusted to this reality? Why is it that cane prices don't adjust to the fact that the costs are high? What is keeping the costs so high?
A: The current political scenario. The Centre and the states adopt different views. Every states announce cane prices and the Centre incessantly controls sugar prices to keep inflation under control. Q: Do you see that scenario changing? Earlier, there were reports that the Rangarajan committee had recommended reforms to the government. Do you see any kind of reform being implemented in the near-term or do you think that would be unlikely atleast in this year?
A: I have seen six committee reports in the last 10 years. This is one more committee report to come. Let's see whether it is taken seriously.