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EBP: Fuelling virtuous cycle in sugar industry
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Wednesday, 04 March, 2015, 08 : 00 AM [IST]
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Sumit Gupta
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fiogf49gjkf0d Beginning January 2003, Government of India mandated the use of five per cent ethanol blend in gasoline through its ambitious Ethanol Blending Programme (EBP).
The target was revised subsequently to 20% (indicative) by 2017, according to the National Biofuel Policy, 2009. The actual blending however never touched the target numbers. In a first-of-its-kind record, oil marketing companies (OMCs) have bought a record 72 crore litre of ethanol in 2013 / 2014 so far, from the country's cash-strapped sugar mills for blending, in an attempt to curb fossil fuel imports, which will perhaps help the OMCs to hit the government-mandated goal of five per cent blending for the first time since the policy’s inception.
This is a welcome development in a sector that has been struggling with low sugar prices due to a surplus in production for four straight years - globally as well as in India. Blending can in fact be raised in the current scheme of things to a higher percentage as enough ethanol supplies are available on account of a rise in sugar production. Sustainable benefits for the sugarcane farmers across the nation, by way of providing an alternative market in the event of bumper sugarcane crop years shall be a direct spinoff of this programme.
Multiplier impact
The multiplier impact of this success shall be immense. This is going to fuel a virtuous cycle of better viability of sugar mills, reduced indebtedness of millers and better capacity to pay back farmer dues, incentive for millers to have theirs mills operational, generation of employment, empowerment of the farmer, incentive for cane production, enhancement of the GDP contribution from the cane sector and an overall boost to the rural economy in the cane producing states.
EBP along with a judicious cane-sugar pricing formula fixation by the state governments are the two prime levers by which the current state of the Indian sugar industry can be salvaged. These twin measures are also the precursors to any substantial impact creation for rejuvenation of the sugar industry in the light of rollout of recent policy initiatives including sugar market deregulation, rollout of export incentives and subvention schemes aimed at addressing farmer cane dues.
Foreign currency outflow
The full implementation of ethanol mixing can save foreign currency outflow of over US$1 billion annually for the current 2013-2014 sugar season. This is a step towards cutting $20 billion annually off the oil import bill of India in the current scenario of high current account deficit.
There have been several impediments in the past to the successful implementation of EBP. Non-finalisation of ethanol pricing formula and procedural delays by various states, fixed nature of pricing of ethanol supplied to OMCs versus market-linked prices offered by other competing industries, demand supply mismatch of availability of alcohol substitutes (making potable alcohol industry dependant on sugarcane for manufacturing alcohol and therefore offer higher price for ethanol) and resistance of the OMCs in by way of having to maintain a price gap between crude oil and ethanol (due to fluctuations in crude oil prices) were some of the inhibiting factors that have slowed the progress of implementation of EBP.
Nevertheless, now that we seem to be progressing towards the defined path, there is surely reason enough to cheer. In order to increase the blending ratio, the government has also announced a range of key additional measures. These include deregulating prices of ethanol used for blending, non-uniform blending across states and allowing ethanol imports in cases of scarce domestic supply. While deregulation of ethanol prices is a welcome step it is not the panacea. The actual success of EBP depends on many other factors like trends in alcohol production in domestic and global markets, feasibility of imports & demand from competing industries.
Commercial, social & sustainability objectives
Learning from the global experience over the past four decades especially from countries like Brazil, the writing on the wall is clear that an efficient EBP programme can go a long way in ensuring that the triple bottom line of commercial, social & sustainability objectives of the nation are met. Unless this programme is rolled out successfully, the other policy initiatives for the sugar sector will have little impact on a sustainable basis. We are positioned at the right time in history currently with the challenge of a huge current account deficit and an ailing sugar sector. The onus is on us as a nation to capitalise on to this opportunity in adversity.
(The author is group president and country head, food and agribusiness research management, Yes Bank. He can be contacted at sumit.gupta@yesbank.in)
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