Sugar Decontrol: Pricing may take 2-3 yrs to execute, says Balrampur Chini

An expert panel led by PMEAC chairman C Rangarajan on Friday suggested a mechanism for decontrolling sugar whereby sugar will have the freedom of selling their products in the open market. It has also recommended scrapping of state declared cane prices. The committee has also recommended fair and remunerative price (FRP) for cane purchase.

Vivek Saraogi, MD of Balrampur Chini told CNBC-TV18 that he finds the recommendations for sugar decontrol exciting. According to him, the recommendations associated with the finished product which is sugar might be implemented soon, while those associated with cane pricing and raw materials will take a little more time. He also believes the pricing formula will take around two to three years before it is actually practised. Here is the edited transcript of the interview on CNBC-TV18. Q: Exciting set of recommendations? A: Yes, I think so. Q: Realistic or many of these will not see the light of day? A: If we breakup the recommendation in two parts; finished products and raw material, I am pretty certain and hopeful that the policy associated with the finished product part of it, that is sugar and associated with levy and releases, export-import etc. will come through. I think Dr. Rangarajan has referred to the scrapping of state declared cane prices and it should happen, but may take little more time. Q: What do you think will be the response from the Uttar Pradesh (UP) government about the pricing formula, the raw material part of it? Have you had any early signals of what their stance would be? A: Dr. Rangarajan's committee went to Lucknow and met the CM and the other bureaucrats of UP. They are also in favour of complete levy abolition but, did not support the cane pricing formula. The cane pricing part and the dereservation part could be a little while away. However, the levy and releases part could be soon. Q: Is it a matter of time on the pricing issues or the raw material issues as you say or is it a matter of arriving at some kind of a compromise? A: I think it's a matter of time only. I cannot give any timing because I am not doing the policy. It maybe implemented in two-three years. _PAGEBREAK_ Q: But even if the finished product changes were to come through, the levy, export-import, release mechanism, how much of a tangible and material benefit would it have for a company like yours? A: First let us understand the levy which we give. It is 10 percent and if we make 90 lakh bags we give 9 lakh bags at Rs 12. Sp it's 110 crore for a company like us. As far as releases are concerned, you cannot find a benefit today but, you are allowed to work in an open environment, you can book your futures, you can plan your futures, you can plan cane price and you can plan cane development. You plan so many things and tomorrow morning somebody might say you keep so many bags and sell so many bags this week. There can be cases where we have exported but, we are asked to resend the contract because of ban in exports. Hence, everybody wants policy clarity and visibility. Q: How is the season shaping up generally because there are some reports which are suggesting that production might come down to just about 23 million tonne, you might have a deficit in the season? A: I am not in that camp. We have also released the report from Indian Sugar Mills' Association (ISMA) where we stated that it is about 24 million tonne. There have been late rains in Maharashtra, Karnataka and in Karnataka crushing has already begun. So keeping everything in mind, 24 million tonne looks a reality. There is no deficit, there is no big surplus overhang. I think things should proceed well. Q: But you see sugar prices well supported given the kind of tightness in the market, locally? A: Sugar prices right now for mills like our is about Rs 35-25. As soon as crushing begins, these prices will come off and they usually go through that sine curve kind of a move. They start going down when crushing begins and when crushing finishes they reach their bottom and then start picking up. So I see that trend playing out and therefore, price would dip a little as crushing begins. Q: But what kind of range do you see for the next three-six months? A: If I am to give you a range for the full year, it may touch Rs 32-33 and then goes back to Rs 36-37. One can see that kind of a range. It won’t go up very high, it won’t come off. You will get a decent average and sugar will sell, you do not have excess stocks.