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Sunday, December 15, 2019

Sweet freedom

Raising rates for ethanol payable to sugar mills is a good step. Now, dismantle monthly sale quotas, selling price restrictions.

By: Editorial | Published: September 9, 2019 2:55:13 am
The logical next step the Modi government should take is to dismantle the monthly sale quotas and minimum selling price restrictions imposed currently on mills.

One sector where the Narendra Modi government seems to be getting things right is sugar. After the decision in July not to hike the fair and remunerative price of sugarcane for the 2019-20 season (October-September) – a bold move, given the upcoming Assembly elections in Maharashtra – it has now increased the rates for ethanol payable to mills by public sector oil market companies (OMCs). This comes even as mills have been given much greater flexibility to make ethanol used for blending with petrol. Till the 2017-18 season, they could produce ethanol only from “C” molasses, the residual mother liquor after the maximum possible recovery of sugar from the cane juice for crystallisation. But from 2018-19, the Modi government has permitted ethanol to be manufactured from the earlier “B heavy” stage and even directly from sugarcane juice. Further, mills were offered higher prices for ethanol derived from cane juice and “B heavy” than the conventional “C” molasses route. For the coming season, not only have the differentials been widened, but mills have been allowed to convert even sugar and sugar syrup into ethanol by adding them to the molasses/juice for further fermentation.

Simply put, the sugar industry today has the freedom to do what it wants with its primary raw material. It is for the mills to decide whether to crystallise the total fermentable sugars in the cane juice right till the final “C” molasses stage, or divert these much earlier for producing alcohol. At current ex-factory sugar prices and the rates fixed for ethanol from different routes, they would actually gross more from fermentation of the entire cane juice, as opposed to any crystallisation. Of course, not many mills can do this immediately, as it requires investing in additional distillation capacities. But against the backdrop of a production glut in sugar – the new season will open with stocks equivalent to more than six months’ domestic consumption – and the country’s rising oil import bill, incentivising mills to use more cane juice for ethanol makes sense. The Modi government deserves credit for helping boost ethanol procurement by OMCs from 38 crore litres in 2013-14 to over 200 crore litres this season. Considering the estimated 330 crore litres-requirement for 10 per cent ethanol blending – and the target of 20 per cent to be achieved by 2030 – there is certainly something that both sugar mills and cane growers can look forward to.

The logical next step the Modi government should take is to dismantle the monthly sale quotas and minimum selling price restrictions imposed currently on mills. Simultaneously, it must push states to implement a transparent cane pricing formula, linking this to a certain minimum percentage of mills’ average realisations from the sale of sugar, ethanol and co-generation power. That, combined with freedom for farmers to sell to the mill of their choice sans any cane area reservation, will unleash the true potential of this energy crop-based agro-industry.

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