Interest-free loan not what sugar industry needs: ISMA

Abinash Verma of ISMA says this is not what the industry wanted. The basic problem that the industry is facing is on account of surplus sugar which will be almost 10-10.5 million tonne beginning next season – which is 4-4.5 million tonne more than what the government norms require to carry, putting pressure on sugar prices. 

He says someone needs to help take away the surplus stock from the industry in a bid to help sugar prices.

This loan, according to him, will only add to the debt burden. Verma calls it an unproductive loan which will go to farmers and will not solve the basic problem of surplus stock and sugar prices.

Below is the verbatim transcript of Abinash Verma's interview with Latha Venkatesh and Ekta Batra on CNBC-TV18.

Latha: Can you confirm that the Cabinet is pondering on this matter and a decision is expected today? If yes, what is the impact?

A: I am nobody to really confirm what the Cabinet is going to do today and whether this is an item being considered, but yes, there are talk in the corridors of the government as well as the market that there is a consideration probably in the government in the cabinet on the interest free loan. But what exactly is going to constitute, whether it is going to be for five years, whether the interest burden will be up to 10 percent or 12 percent like in the previous occasion, one is not very sure, one is going to have to see what the government decided.

But just to give you a reaction on whether it is going to be good for the industry or is this what we wanted, I do not think this is what we wanted and I do not think this is going to solve the basic problem of the industry today.

The basic problem that we are facing today is on account of the surplus sugar which will be almost to the tune of 10-10.5 million tonnes at the beginning of the next season which is about 4-4.5 million tonnes more than what the government norms require us to carry and that is actually putting pressure on the sugar prices and the pressing prices every day. So, this is what is needed to be solved by the government is somebody had to take away this surplus stock from the industry which would have helped improve the sugar prices. Now, this loan will only add to our debt burden which we have to repay after a year or two or whatever. And I will call it if I may now be allowed to say so, it is an unproductive loan which will go to the farmers and it will not solve the basic problem of surplus stocks or the problem of the sugar prices which is falling almost every day.

Ekta: You spoke about sugar prices seeing a down take, can you tell us what the latest sugar prices are and the movements that you have marked, maybe over the past month, past week?

A: The current ex-mill sugar prices in the two largest producers in Maharashtra would be Rs 2,050-2,100 per quintal of sugar and in Uttar Pradesh, it will be about Rs 2,350 per quintal of sugar. And as compared to our cost of production, we are almost about Rs 8-9 lower than the cost of production. And in the last one month alone, the sugar prices have come down by Rs 1-1.5 per kilo.

Latha: Two question, what according to you is the solution to remove this incremental 4.5 million tonnes as you say or five million tonnes? And secondly, it was very clear even at the start of the last season that the debt burden is very high. Why does the sugar industry continuously get into this over production scenario? Can they not just crush less?

A: First of all, to answer your second part, there is a law in the country that whatever sugarcane is produced and offered to the sugar industry, they have to accept and compulsorily crush it. We cannot close our sugar factories till we have crushed all the sugarcane which is available in our area. So, therefore if surplus sugarcane is produced by the farmers which is happening because the sugarcane prices have seen a very steep increase in the last four years and that has outstripped the other returns from other crops. So, that is creating a problem. There is surplus sugarcane which we have to crush and therefore sugar gets produced. This is the law of the country.

And on the other issue is how to tackle the surplus sugar. There can be three solutions, three ways to tackle it. Number, one export the surplus sugar, which we are unable to do because our cost of production is very high and the global prices have dipped to the lowest in the last six to seven years. It is hovering around 12 cents per pound of sugar. That is one. So, that is why we are not able to use that opportunity.

Second is the surplus sugar can get converted into ethanol, but that can happen only from the next season or later. Whatever sugar was to be produced, has been produced in this year and there is surplus sugar available in the country. So, we come to the third alternative, which we have requested to the government. It has to intervene to take away some of the surplus from the market. Either they build up a strategic reserve like China does every year or they create a buffer stock in the traditional sense. We have been requesting the government that you please create a strategic reserve, buy this out. Instead of giving this Rs 6,000 crore of loan to the industry and increasing our debt burden, why do you not give it to a government agency like Food Corporation of India (FCI) or State Trading Corporation of India (STC) or Metal and Minerals Trading Corporation of India (MMTC) or whoever. Let them buy this sugar, keep it with them, they can use our go-downs free of cost, that is not a problem. So, if you take away a couple of million tonnes of surplus sugar from the market, that will help.