New cane pricing formula tough to execute: Balrampur Chini

An expert committee headed by Prime Minister’s economic advisory panel chairman, Dr C Rangarajan, has recommended introduction of new cane pricing formula based on fair and remunerative price (FRP).

However, Vivek Saraogi, managing director, Balrampur Chini told CNBC-TV18 that it would be difficult for companies to implement it. The panel has suggested a profit-sharing method so that even farmers can benefit from higher sugar prices.

According to him, one can expect stiff political resistance in Uttar Pradesh as far as new cane pricing recommendation is concerned.

"Cane and powers of fixing cane price are all delegated. If the Centre decides to change the law they are well within their rights and powers to do it. Having said that, in UP it is very difficult to implement," he explained.

He sees the Rangarajan Committee report getting acceptance in H2FY13. 

Below is the edited transcript of Sarogi’s interview with CNBC-TV18.

Q: The big suggestion is on new cane pricing formula hinging around the fair and remunerative price indicated by the Centre but your mills are in UP, do you think it is politically acceptable for the government of Uttar Pradesh (UP)?

A: Formula talks of linking cane price to sugar price with fair and remunerative price (FRP) as minimum. Personally, is the toughest part of the recommendation, it is going to be slightly difficult. It will be the last thing which will be pending.

Q: Do you think state will give up its powers to regulate the prices so completely and easily, UP being the largest state? Don’t you expect very stiff political opposition to this part?

A: I do, until they come up with legislation. There are two parts to it. Cane and powers of fixing cane price are all delegated. If the Centre decides to change the law they are well within their rights and powers to do it. Having said that, in UP it is very difficult to implement.

Q: But there is hope that at least the first step will be doing away with levy quota, do you expect that and how much of an upside would it mean for companies like yours?

A: That part is the most doable part and also the release mechanism suggestion. To the best of my understanding there is a consensus built around that. Even if you get 10%, if you give about 8.5 lakh bags at Rs 1,000, it is more than Rs 85 -90 crore per year for a company like us.

Q: What about other things like release mechanism and also freeing up export-import? How material could those be in your eyes?

A: That is going to give you freedom to decide how you are going to sell your final product you have an exchange in place now. The ultimate link will be when you are linking to the global exchange.

These are good measures. These are only ways world discover sugar price, not by releases but by exchange prices. Being global interlinked that is the best way to move ahead.

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Q: Do you think from the studying the report there could be any progress on linking ethanol to petrol prices, any movement along those lines?

A: That is right on the anvil. What is ethanol? - It is physically mixed at the petrol depot. It is just mixed like you mix a glass of water and maybe a coke etc. It is physically mixed and sold as petrol only. The best and fair linkage is linkage to petrol price. So that is doable anytime.

Q: Any grapevine talk you are picking up form New Delhi on what may come through and what kind of time line one is looking at for even partial acceptance of the Rangarajan Committee recommendations?

A: Probably, the report what we have read yesterday are press reports. The report itself will be submitted in about couple of weeks. Thereafter, sugar season begins on October 1, so acceptance and timeline could be anywhere between October to December or before budget also.

Q: How are things progressing this quarter in terms of sugar prices locally, do they continue to hold up?

A: Yes, the prices locally continue to hold up. From these levels, the trend would remain buoyant; I am not seeing any negativity in prices ahead also.

Q: Around what kind of price band?

A: Right now UP is selling about Rs 35.50-35.75, so these prices look good.

Q: How is the global market holding up in terms of sugar?

A: That is the only weakness in my mind on the sugar price. If you say what could go wrong? – Global prices. So having said that that is not my view that they will tank, but the global prices are a little weak, they are below 20 cents and closer to 19 cents. The exchange is the only reason imports are not taking place.

Q: How are the cogen and distillery division doing this quarter so far?

A: Typically this quarter means July-August-September and cogen division in monsoon goes into maintenance. Having said that, volumes are higher than last year on both these divisions and they are performing exceedingly well.