Q&A: Vivek Saraogi, President, Isma

'Decontrol will allow flow of global funds in the industry'

The sugar industry may soon witness a transition to decontrol. The Indian Sugar Mills Association (Isma) President and Balrampur Chini Managing Director Vivek Saraogi speaks to Ajay Modi on the way ahead for the industry. Excerpts:

What is Isma’s view on decontrol and while you seek it, what elements should constitute decontrol?
Decontrol clearly should mean that the levy programme is funded and run by the government. Second, there should be no release mechanism. These are archaic regulations.

Should the government continue to fix sugarcane area for mills?
We will recommend long-term sugarcane area reservation. By long term, I mean for a period of 10 years.

What happens to sugarcane pricing?
We have asked for sharing the 62 per cent realisation from the main product (that is a global benchmark), which is sugar, and the two byproducts — bagasse and molasses.

We are saying that the farmer should be protected by a formula where he shares the upside of sugar but is ready to look at the downside too. It is a globally tried practice. UNICA, the Brazilian association, has been following this for decades and they retain the leadership as the globe’s largest producer.

Can the farmer be convinced to be a part of the downside too?
We are processors. As a processor we can pay what we realise. Our cost is known. Farmers too understands this. However, we are not against FRP which is the minimum price.

Do you think that the government will take a step to change sugarcane pricing mechanism after the protests by farmers last year following an amendment to sugarcane pricing?
The Parliament has powers. We are willing to have a neutral party to oversee the price formula implementation. The idea is to get correct and remain there. If somebody is defaulting, take him to task.

Are there two views on deregulation between the industry (the private and cooperative sector)?
There are no two views now.

You have been demanding decontrol for long. What makes you feel it will happen now?
We have seen the government on a reform path. We feel sugar is far less essential than petrol. The minister (Sharad Pawar) has also made a statement that sugar is one of the only controlled industry. We will be happy if it happens for the next season beginning October.

What will the industry gain from decontrol?
We are left to the fury of state governments on raw material and fury of the central government on finished product. Let any one of the two handle both of these. A decontrol will help us plan business better. We will invest more money. Global capital will flow into domestic sugar industry as it is happening in Brazil. Apart from being the second biggest producer, India is also the largest consumer. Look at the kind of foreign investment decontrolled sectors like steel and cement are attracting. Large money flows into any deregulated sector.

Once you decontrol, the levy system goes away. Will you prefer if the government purchases sugar for PDS through a tender system or from market?
It is none of our business.

What is the industry’s projection of next season’s output?
The acreage is 20 per cent higher on an average. Historically it has been seen that a 20 per cent higher acreage has yielded an incremental production of at least 7 million tonnes. So, our next year estimate has been fixed upward of 25 million tonnes.

Has the levy price been increased?
Yes, the average increase for all mills is around Rs 400 a quintal for 2009-10 season.

Does this improve industry’s situation or it is still lacking?
It is definitely lacking. But from a situation of no-revision, some increase is obviously positive. However, this is no pleasant surprise. This was to happen since the sugarcane price (FRP) has gone up.

Is ethanol blending viable? Can the industry meet commitment of supply? How do you see the opposition of chemical industry?
The oil marketing companies can have a margin of up to Rs 8 on every litre of ethanol they blend. It is a clean fuel. We are ready to supply for a three-year period at the price of Rs 27.

We are ready to have strict penal clauses including bank guarantee for performance. Companies that have defaulted in past will fulfill their contractual obligation. If chemical industry is insecure about raw material availability, we have no objection to their duty-free import of alcohol.