Saraogis invoke the Consecana spirit for a decontrol boom

The Saraogis of Balrampur Chini, who run some of the most efficient sugar factories in the country, are likely to draw up major expansion plans on deregulation of the industry, a prospect that seems closer to reality now.

“Let the policy come out. We are here for a very long time and we want to grow at a break-neck speed. We are just pausing to understand which would be the best business to invest (after the deregulation is announced),’ Vivek Saraogi, managing director of Balrampur Chini Mills Ltd, said.

“We might take a view that sugar may not be the only business to invest. Once I start getting my full supply of sugar cane, which is not happening under current regulations, we can unleash a beautiful byproduct business, which we can scale up to double the current size. But for that to happen, I need some visibility of my current investments.”

Balrampur Chini might even look at investing overseas but only after studying how the industry would look like post de-control.
Saraogi said they are not yet planning any moves like acquiring overseas plantations in countries like Brazil. “For me to invest more money, I must be able to service my company. For that I need to improve my capacity utilisation, which is now at 60-65%. As of now our revenues are so volatile, we can hardly formulate a long-term business plan. For stability and visibility of my revenues, we need deregulation,” Saraogi said after the annual general meeting of the company.

With the government in recent times started giving enough hints that attempts to deregulate the sugar industry — the most controlled agri-produce in the country — have been revived and actions can be expected soon, Indian Sugar Mills Association (Isma), the apex sugar body in the country, have already put forward its recommendations.

“Our industry association ISMA (Indian Sugar Manufacturers’ Association) has again forwarded an agenda on deregulation, which is very simple: Levy sugar shouldn’t be taken from the industry,” Saraogi said.

Explaining the sugar industry’s demand, Saraogi said while consumers would be provided levy (subsidised) sugar, but the government shouldn’t put the weight of subsidy on the industry.

“We have also asked for withdrawal of the release mechanism, and linking cane price with sugar price. All these phenomenon are not new but prevalent globally, like in Brazil, a country, which after practising all these, have not only remained the largest producer but has consistently grown production,” he said.

Saraogi, and also ISMA, are, however, not pushing much for deregulation with respect to pricing and supply of cane, which has a direct bearing on remuneration received by the farmers, a politically sensitive issue.

“We are more hopeful, to begin with, on the sugar side involving the issues of levy sugar and release mechanism,” Saraogi told shareholders during the meeting.

Saraogi said Indian sugar sector would do well if the model of deregulation followed by Brazil is adopted.

“Brazil is the largest supplier in the world and any production fluctuation there impact global prices. They must be going something right otherwise that country wouldn’t have reached where it is today. But exactly what they have done right? They have implemented a unique sugarcane remuneration model called the Consecana formula, sharing of revenues, and no regulations,” Saraogi told DNA.

Brazil’s sugarcane remuneration model shares risks between producers of sugar and ethanol, and growers of cane. Grower’s revenue is proportional to the industrial revenue and sugarcane remuneration would is influenced by sucrose levels. “The result is that Brazil’s sugarcane production, yields and exports have increased continuously over the last,” Saraogi said.