`Exports will give a solid footing' -- Mr. Vivek Saraogi, MD, Balrampur Chini Mills

Anup Menon

THE fortunes of the sugar industry have been improving over the last few months.

However, this is not reflected in the performance of all major players. One of the few players to do well has been Balrampur Chini Mills. In an interview to Business Line, Mr. Vivek Saraogi, Managing Director, Balrampur Chini Mills, shared his views on the industry and its prospects in the near future.

Excerpts from the interview:

The Centre has mooted the possibility of letting an independent authority fix the sugarcane price. Do you think this would be beneficial to the industry? Given that cane prices have had a major impact on the cost of production, is this move likely to be favourable to the company?

The concept of an independent authority for fixing cane price is beneficial to the industry as this would eliminate political intervention and ensure that economic factors are considered while fixing cane prices. This move would keep cost of production under check and ensure consistent supply of cane to the `good' mills. Hence, this move would benefit the entire industry and our mills as well.

Do you see prospects for export of sugar in the current season? If so what is likely to be the export commitment of Balrampur Chini in 2000-01?

The prospects for export of sugar are very bright as the world sugar prices have risen from $170 to $270 a tonne. However, even at this price, exports would be a losing proposition. But the world prices are expected to rise in future, and India is expected to export in a big way. Balrampur Chini Mills will export in 2000-01.

What is the international sugar position? There have been reports that some of the major producers, such as Brazil, are facing shortfalls this season. Is this likely to have a positive impact on the performance of our sugar industry? Over the past six months, sugar prices have been moving up. What are the reasons that can be attributed to this trend?

As mentioned earlier, the world prices are expected to move up further owing to a drop in production in major sugar-producing countries such as Brazil, Australia and Thailand. China's production is also expected to fall. A combination of these factors will lead to a further hardening of world market prices, and have a positive impact on the domestic sugar industry. It will also encourage the industry to try and export the entire surplus sugar in the system.

Over the past six months domestic sugar prices have been moving up. What are the reasons for this trend? How do you expect international and domestic sugar prices to move in the next six months?

World market prices are expected to remain high for the next two years as the sugar situation of countries such as Brazil, Australia and Thailand is not expected to get corrected in the next 2-3 years. From 2003, the WTO obligations would be in place whereby subsidies given by developed countries would have to be phased out. This factor by itself will ensure that in times to come the world market prices would definitely be higher than the current market price. It will also lend long-term stability to the Indian industry given that India is one of the lowest cost producers.

What are the critical success factors for sugar manufacturers? Has the industry benefited from the cut in levy sugar to 30 per cent last year? What has been the impact of this cut on Balrampur Chini? Do you see a further cut in levy sugar in the near future?

The Government has embarked upon the liberalisation of the sugar industry in a phased manner. This is evident from the fact that the levy obligation has been brought down from 40 per cent to 30 per cent. There are expectations of a further cut, to 20 per cent. The Government is committed to implementing the Mahajan Committee report which suggests a phased de-regulation of the sugar sector. The Government has also liberalised sugar trade policies. This will benefit the industry and, in turn, Balrampur Chini Mills also.

The financial performance of Balrampur Chini was good for the first quarter of 2000-01? What was the key factor driving profitability?

The driving factor for the excellent results in the first quarter of 2000-01 was the best cane crushing at all its sugar mills during the sugar season 1999-2000. The company's units -- Balrampur, Baban and Tulsipur -- crushed 174 lakh quintals, 111 lakh quintals and 72 lakh quintals respectively with much improved recovery compared to the previous season. Higher crushing and improved recovery resulted in lower cost of production. The company was also able to keep a check on major expenditure such as interest. Balrampur Chini's sales realisation is better owing to its better quality product.

What is your outlook on the sugar industry for the next 12 months?

My personal outlook for the next 12 months and thereafter is that of solidity. Exports, which have already begun and would intensify, will allow sugar mills to liquidate their surplus stocks. This, coupled with policy changes initiated by Government, would put the industry on a very solid footing for the future.