The newspaper article is enclosed herewith.
The response of ISMA is given below-
Mr. G. Chandrasekhar
Subject: Your article in Hindu Business Line today titled “The sugar situation could turn explosive”
Your above article in Hindu Business Line today is based on wrong data and understanding.
2. The basis of suggesting that the consumption is estimated between 245-250 lac tons has not been elaborated by you in your article. Actual sugar sales by sugar mills from 1st October 2016 to 31st January 2017 this year, is lower by 7.5 lac tons as compared to last year same period. In the last season, the total sugar sales were 248 lac tons and, therefore, simply deducting the lower sales in the first 4 months and assuming that in the balance 8 months, the sugar sales could be similar as that of last year, the total sugar off-take from the sugar mills will be 240.5 lac tons. However, if you consider 2% growth in the balance 8 months period, it can be a couple of lac tons more and certainly not anywhere in the range that you have suggested in your article. Sugar sales in the month of February has been dull and the poor sales are continuing even in the month of March 2017.
3. In addition to that, I am sure you must be reading reports and articles in the newspapers that sugar consumption by the bulk consumers including beverage manufacturers, chocolate makers etc. is lower and that some of them like Pepsi, Nestle etc. are already suggesting that they are reducing sugar in their products. The reports are also that sales of most of the bulk consumers is already lower. I am sure you will also agree that when the sugar prices improve, the price elasticity does come into play, which can be seen in the current season.
4. Sugar sales, including the mood of the buyers can be best known to the sugar producers and sugar consumers. Members of ISMA from across the country have confirmed that the sugar sales have been dull from the beginning of October’16 till now and the off-take continues to be poor. Therefore, considering all the above figures and reports of sugar mills, ISMA feels that the sugar sales by the sugar mills will be on the lower side at 238-240 lac tons.
5. This is without considering the fact that there might be a further fall in demand because of withdrawal of subsidy by Central Government on PDS sugar to the States. You will agree that if this happens, the poor families who generally get sugar from ration shops at Rs. 13.50 per kilo will have to buy it from the open market and pay more than three times for a kilo of sugar, which may force them to reduce their consumption. Also, State Governments who carry some buffer with them for smooth supplies in the ration shops will not need to do so and, therefore, those stocks will either be in the market or with the sugar mills. If the proposal in the budget is approved for removal of the PDS subsidy, one can expect a further fall in the sugar sales by the sugar mills.
6. You have also suggested that prices are going up but you have not mentioned that these prices are still below our costs of production. It is only fair and justified that sugar prices should be adequate to cover our costs giving us enough cash flows to pay cane price to the farmers. I hope you have taken that into account as well as the fact that sugar industry and the cane farmers have suffered very badly in the last few years due to surplus sugar availability and depressed sugar prices. The debt burden of the sugar industry has jumped 4 times in the last 8-10 years.
7. Also, I would suggest that you have a re-look at the sugar prices of the last couple of weeks, from where you will realize that the ex-mill sugar prices are either flat or stable or have only fallen.
8. Due to depressed sugar prices, for example, in the last year, the cane price arrears had reached a record level of Rs. 14000 crore and in 2014-15 SS, Rs. 22,000 crore in March – April in these years. It is only with the improved sugar prices which are allowing the mills to just about cover costs (even though interest and depreciation are not getting covered), due to which the cane price arrears of farmers is substantially lower at about Rs. 6,000 crore. This will further reduce by end of March – April. Therefore, you need to remember that sugar prices need to remain at reasonable levels for sugar mills to pay cane price to the farmers and allow them to cover the costs and also repay bank loans.
9. I, however, agree with you that the price in the commodity market moves not only as per demand-supply fundamentals, but also on anticipated change in the future. I hope you would be aware that because of good rainfall in 2016, water availability in the largest sugar producing State in Maharashtra, is much better and that the reports from the field as well as by the Government confirm that the sowing of sugarcane is much better and sugar production from October 2017 from the State of Maharashtra, is going to be substantially higher to that in the current season. It is too early to put figure for that but Maharashtra mills are expecting to do much much better than the current season.
10. I hope you also realize that sugarcane sowing is much better in the second largest sugar producing State i.e. Uttar Pradesh and with better seed variety, acreage of which is only increasing in the State, yields and sugar recovery are much higher. Sugar production from the State of U.P. for 2017-18 SS is further expected to be higher than the current record levels expected to reach in 2016-17 SS.
11. The world sugar prices in the last couple of days are already showing a downward movement. The “hype” created by some vested interests that India is going to import 2 to 2.5 million tons is now fading away. Brazilian sugar production is expected to be normal to good which will come into market from April 2017. This should further cool the global prices. In other words, the “anticipated change” in the future is showing a trend towards better sugar availability both domestically and globally.
12. Global prices should be at such levels that when that sugar is imported into India, there is a margin as compared to domestic sugar prices. However, the domestic sugar prices were not attractive for sugar imports even at zero import duty. Allowing imports under such situation would either have resulted in pushing up domestic sugar prices or the imports would not have happened. Therefore, as a learned journalist, I am sure that you will agree that the timing for such imports was not good. One, therefore, should not blame the Government that such an import decision has not been taken till now.
13. It is extremely surprising to also read that you are doubting the opening stock of 77.5 lac tons as on 1st October 2016. You have gone to say that “anecdotal evidence” suggests that the specified opening stock is probably overstated to the extent of 20 to 30%. We would be grateful if you could give us the “anecdotal evidence” to make us more knowledgeable on the subject.
14. I wish to nevertheless inform you that as per the Government regulations, each mill is required to submit its monthly sugar production, sugar sales and sugar stocks, duly verified from central excise authorities, to Government of India in a report called Proforma-II. The monthly report for the month of September, 2016 submitted by almost all the sugar mills across the country, when compiled and mathematically added gave 77.5 lac tons as closing balance as on 30th September 2016. This obviously becomes the opening balance for the current season as on 1st October 2016. If you have any reason to disbelieve or not agree to the figures submitted by the sugar mills to the Government, I would suggest that you should report the matter, with evidence, to the Sugar Directorate, so that they can take proper action against such mills, who you believe may be giving wrong reports. The Government does not disagree with the figures given by the sugar mills and we, as representatives of the sugar producers, fully agree with these figures.
15. If you still want any further clarification, any figures or any facts that you do not have and somebody is wrongly giving you these details, I would sincerely request you to get in touch with us and we will certainly provide you all facts, figures and information, so that your reports are based on correct facts and figures.
Director (Media and Communication)
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