Bittersweet Shortage
 Molasses
production has fallen short this year and with rising prices of
the feed stock certain jitters are being felt that the prices of
lower-end IMFL may go in for a hike. Media reports that there
may be a 20% price rise in the low-end IMFL segment as a
fall-out, however, are unfounded, says the President of the
All-India Distiller’s Association (AIDA), Mr Devin Narang.
First, let’s look at the production scenario
at present. The AIDA itself reports that countrywide molasses
production this year (ending 30.11.2008) is expected to be
around 10 million M.T., lower than last year byabout over
12-15%.
Due to lower production and ever increasing
demand for ethanol production, prices have already risen to
about Rs.3500/- per MT and are likely to touch about Rs.5000/-
per PMT close to the end of this season i.e. Sept.–Oct. These
are basic prices exclusive of duties, taxes and freight etc.
Molassesbased alcohol accounts for 95 per cent of the liquor
consumed in the country.
 According
to AIDA, there is a shortfall as compared to last year and the
demand is continuously increasing. The prices of molasses have
already risen to a large extent and are likely to further
increase. The next season 2008- 09 is expected to be a season of
still lower production and prices will be a high level
throughout the season.
The overall impact on IMFL manufacturers will
be felt, as molasses is the only feedstock available to a very
large majority of IMFL manufacturers. The cost of production
will definitely rise and total supply in the market may
marginally come down, particularly that of cheaper and regular
variety of brands due to non-availability or low availability of
molasses.
‘No need for panic’
However, the AIDA president maintains that there is no need
for a panic situation. “At the moment the prices are slightly
high. Molasses production in the UP heartland is about 370 lakh
quintals-which is a dip. But if you really look at it, molasses
has been traditionally always in short supply. Molasses
availability has been 50-60% in relation to the installed
capacity of distilleries in the country. When the prices of
molasses go high - then the alcohol-based chemical industry
imports alcohol. So it balances out-ultimately even given the
current supply scenario the trickle down effect into IMFL prices
will be negligible”.
Narang says the current situation is just a
natural sugar cycle. After every three or four years there’s a
drop in production. Given that the demand for alcohol has also
risen now-its natural there will be a tentatively unbalanced
demand-supply scenario. From a quintal of molasses, roughly 20
litres of alcohol is produced. Given the present rise in
molasses prices - the end effect translates to hardly 35 rupees
a case on IMFL. Says Narang: “There‘s no cause for panic at all.
When molasses prices go high, then grain alcohol becomes
cheaper. People start importing alcohol as well. The market
balances itself out”.
Simply put-in India, sugar production follows
a three-five year cycle. Higher production leads to more
availability of sugar and a fall in its prices. This leads to
lower profits for companies and delayed payment to farmers. With
higher sugarcane arrears, farmers are forced to switch to other
crops and subsequently there’s a fall in the sugar cultivation
area. This then leads to lower production and lower sugar
availability. The result-higher sugar prices, higher
profitability, lower arrears and the cycle continues.
Fears of fall-out
However, given the present situation, stand alone distilleries
will be at a disadvantage due to their total dependence on
molasses purchased from the market. Their competitiveness
therefore will be hit.
As the sale price of molasses is totally
decontrolled the market fluctuations of demand and supply will
come into play and affect the liquor manufacturer’s capabilities
of paying the high prices. The ultimate loser will be the lower
and middle range consumer who will have to bear the burnt,
either cutting through his pocket or cutting down his liquor
quota.
The industry has enough installed capacity
which can consume and distil entire quantity of molasses
produced in the country. However, enough molasses meeting the
industry’s requirement is never available to the alcohol
industry due to seasonal vagaries of molasses production, being
an agro product. The sugar cane, and molasses production should
be encouraged by the govt. to enable the industry meet the
demand in the market, which is expected to rise steeply if 10%
or even 5% blending of ethanol is made mandatory and is
implemented all over the country.
Another source, although a small one, is that
of khandsari molasses. The production and distribution of
khandsari molasses should also be controlled by state Govt. and
provided to distilleries for production of alcohol. At present
there is no control on khandsari molasses.
|
Issues
before AIDA |
|
AIDA President, Devin Narang, outlines some of the other
key issues facing the industry.
One of the main issues AIDA has on the taxation system. We
believe the time has come when India has to let go of its
dynamic ofhaving 27 countries (states) in one country.
There should be a uniform taxation system. We will benefit
greatly by following the EU system when it comes to the
vast disparity among states when levying excise and other
taxes. Some states which have the raw material will
definitely do better and you’ll have no cross-border
smuggling. Today what happens is for example with
Bagpiper-if you’re a drinker and you’re at the border of
Delhi and Faridabad, you will buy in Faridabad and consume
in Delhi. So consumption is taking place in a particular
state but the sale is not taking place. So somebody’s
losing out in the bargain.
Our second issue is about environment. We’ve been asked to
do zero discharge. A lot of distilleries can’t match up
while others are working hard to match up. But the
Environment Ministry needs to review its standards which
are much too strict. In Brazil for example, the discharge
standards are much different and more viable. Research has
shown that the zero discharge standards are unreasonable.
In India, distilleries are being asked to burn their
waste-product, which contains a lot of nutrients. This is
not the case in other parts of the world where
nutrient-based by-products are seen as viable to be
returned to the earth.
Another issue is now that the quantitative restrictions
have been removed, there should be a level playing field
in terms of labelling requirements. |
 A
sweet advantage
According to Ethanol India, India is the largest
producer of sugar in the world. In terms of sugarcane
production, India and Brazil are almost equally placed. In
Brazil, out of the total cane available for crushing, 45% goes
for sugar production and 55% for the production of ethanol
directly from sugarcane juice.
This gives the sugar industry in Brazil an
additional flexibility to adjust its sugar production keeping in
view the sugar price in the international market as nearly 40%
of the sugar output is exported. But the Government decision to
allow export of molasses and spirit and increased usage of
molasses derivative for producing ethanol to be used in petrol
has also caused the price rise. The consumption of molasses has
been growing more than 15 to 20 per cent in the traditional
sectors. |
