Guarding Their Flanks

Like the rest of the sugar industry, the private sugar factories too have been bogged by the controls and regulations governing the sugar industry. But this hasn't prevented them from growing, at least not the more enterprising among them.

In fact, from just small mills crushing canes, many of the factories are expanding and graduating to become sugar complexes. By increasing capacities, they are achieving economies of scale and becoming more viable units. As sugar complexes, they are involved in refining sugar, making paper, generating electricity, running distilleries and developing backward linkages with sugarcane farmers. In short, the factories are ensuring that if and when reforms do sweep over the industry, they will be in a position to take off.

 

Dhruv Sawhney, CMD, Triveni, believes that if the industry has to become globally competitive, there must be complete delicensing and deregulation. He argues that there is nothing unique to sugarcane cultivation or sugar production in India that calls for such controls. "We must go in for international benchmarking and look at international costs. Since our sugarcane costs are higher, our conversion costs must be lower. And this needs renovation and modernisation," he says.

In fact, Sawhney is completely opposed to the new incentives introduced by the United Front government. These allow new sugar mills to sell their entire production as free sale sugar while existing mills are being penalizing by being forced to sell 40 per cent of their production at lower prices as levy sugar. But this hasn't prevented Triveni from expanding capacity at its Khatauli plant from 3,000 tcd to 10,000 tcd.

While Triveni has chosen the capacity expansion route to growth, the Rs 131 crore Simbhaoli Sugar Mills Limited is pursuing the joint-venture route to growth. Simbhaoli is currently finalising its joint-venture with the Geneva-based sugar giant, Tate and Lyle Plc. The firm is a major player in the international market.

Tate and Lyle has reportedly received clearance from the Foreign Investment Promotion Board to set up a 100 per cent holding company and to bring in foreign direct investment of around $20 million to invest in downstream projects.

The Simbhaoli-Tate and Lyle joint venture will be the first of its kind in the sugar industry in the post-liberalisation era. And though the industry doesn't expect it to set a trend, a beginning has been made.

Simbhaoli hasn't officially announced its tie-up yet but it will reportedly hive off one of its units at Chilwaria in Uttar Pradesh for the joint venture. Tate and Lyle will invest Rs 20 crore to pick up 50 per cent of the equity in the new venture. In return, Simbhaoli will benefit from Tate and Lyle's technological expertise and international trading experience.

Simbhaoli Sugars currently has two units. According to its company secretary, Sanjay Tapriya, the mill's first unit at Simbhaoli has just expanded its capacity from 5,000 tcd to 7000 tcd. It has also set up a Rs 45 crore, 12 MW cogeneration plant, which will have an exportable surplus of five MW. The second unit at Chilwaria has a capacity of 3,125 tcd.

But expanding capacity is not enough. The factories need to simultaneously build linkages with growers to ensure a smooth supply of sugarcane. Also, the farmers must not only be able to supply sufficient quantity of sugarcane but it must also be of a superior quality. Such linkages alone will enable factories to withstand and combat the cut-throat competition that will arise once the industry is delicensed.

So the Saraswati Sugar Mills, the sugar manufacturing division of the Saraswati Industrial Syndicate, is focusing on developing this crucial link. According to Aditya Puri, its joint managing director, the mill has initiated a project to monitor growth conditions of sugarcane crops through remote sensing.

The Cane Management Through Remote Sensing or CAMREST venture, as it is known, is being implemented along with the Space Application Centre of the Indian Space Research Organisation and the Haryana Remote Sensing Application Centre. Launched in 1996, the project aims to create a database. Information is being collected from satellite pictures of the sugarcane cultivated area of Saraswati Sugar Mills. This will later be analysed. The monitoring is currently being done through the IRS-IC satellite. But it will be at least five years before the full potential of the project can be realised.

With the help of the satellite, Saraswati can advise farmers on crop varieties, fertiliser applications, irrigation planning and the like. As for the mill itself, by accurately determine cane availability at a very early stage, it can tailor its business plans accordingly.

Simbhaoli Sugar Mills is also trying to build linkages with farmers. It has a biotechnology facility, developed with assistance from Soli, an Israeli company. It has already made some headway in biologically controlling pests using mechanical methods and pesticides. Says Tapriya, "We are taking care of our operational area by investing in its continuous development."

Since factories like Saraswati and Simbhaoli are ploughing funds into cane cultivation, they understandably don't want any new mills to come up and encroach on their area of operation. Yet, for Puri, competition is the least of his worries. What irks him are the controls and regulations.

"The single most disturbing thing is that two agencies, the state and the Centre, regulate sugarcane. Internationally, only one agency regulates the price. It would be better if the farmers and producers can negotiate the price," he says.

Farmers too don't just want technical assistance. On top of their list is the speedy payment of their dues. Cane arrears are in fact a major problem faced by the farmers, which has a cascading effect on future production. During periods of poor price realisation, mills find it difficult to clear arrears. For instance, last June, the industry had piled up arrears of nearly Rs 1,500 crore.

Now some sugar mills are devising ways to overcome this problem. For instance, Shakti Sugars Limited of Coimbatore is issuing fixed deposit receipts in lieu of sugarcane arrears. It has two sugar mills, one in Tamil Nadu and another in Orissa. They have a combined capacity of 10,250 tcd. In 1995-96, its turnover from its sugar mills was around Rs 240 crore.

Shakti has issued fixed deposits to farmers aggregating Rs 6.60 crore at 15 per cent payable in one year. This gives the company some breathing space. Farmers too are assured of receiving their money on maturity. But the success of the venture is still to be tested.

In another instance, the Dhampur Sugar Mills is strengthening contacts with local farmers. It is paying more than the statutory minimum price stipulated by the government. It is also granting loans upfront to farmers.

There are other areas where the private sugar mills are trying to initiate improvements even though all their efforts haven't met with success yet. For instance, one irritant for sugar manufacturers is that they have to compulsory use jute packaging. This often inconveniences their customers.

Perfetti India is a major customer of Saraswati Mills and it has a grouse about this jute packaging. Small jute fibres get into the sugar creating problems in the manufacture of chewing gum and candies.

Since confectionary and soft drinks manufacturers are their biggest customers, sugar factories can't ignore their requirements. And Saraswati does want to solve the problem but government restrictions prevent it from using any other packaging material. In fact, when the industry took up the issue with the government recently, the jute lobby put a spoke in its wheels.

Factories selling branded sugar face a similar problem. While branded products like Mawana or Trust are packaged in plastic bags, the factories have to compulsorily use jute sacks at their site. To get around this, factories package 100 one-kg bags in a single sack. The government has now allowed sugar brands to be packed in two and five-kg packs. This will help alleviate the problem marginally.

Evidently, then, private sugar factories are trying to overcome every restriction in the book. The recent mega production, hike in cane prices and lower price realisation of sugar have adversely affected a number of players with only a handful of them managing to make profits. But this cyclical nature is inherent to the trade, and if nothing else, tests the staying power of the players. With higher capacities, better recovery rates and stronger linkages with farmers, private sugar factories are going all out to prove just that.