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Chairman's
Speech
Friends,
 A hearty welcome to you all at the 9th Annual General Meeting of your Company.
Much though would I desire to share exciting and exultant information with you regarding the functioning of the company and about the state of economy in general, varied factors have conspired to keep the Economic Cassandra in business. Cynicism has scaled unprecedented heights. The war on Iraq, political uncertainty, higher input costs and tumbling selling price have kept investment plans in a limbo. Growing consumer pessimism worldwide has had its inevitable impact on manufacturing and employment. Capacity utilization is at a record low. To add to the woes the deadly virus of SARS has left South East Asia tethering on the brink of yet another crisis. The end of war has not brought the expected respite and the business climate index has fallen significantly. USA is seen as the only standout amidst another global recession in the world where other developed nations have registered painfully slothful march ahead.
CORPORATE INDIA:
Business confidence in India is rising moderately particularly in the manufacturing sector. But without growth in jobs and increase in salaries consumers are refusing to get into spending spree. Though the rate of corporate failure is slowed down there is growing trepidation and all are deeply skeptical about the future. Technological riches have stagnated and the deep pockets of Indian Corporates are no longer deep. The strengthening of the Rupee vis-ŕ-vis dollar though is some thing to cheer about has its flip side. The exports would loose their competitive edge and are likely to suffer. The increase in the oil prices on account of fears of war has fuelled inflationary trends. With the end of war on Iraq, the oil prices have now subsided and the hope that inflation should now be reined in does not seem farfetched. Inflation is a disguised tax the incidence of which is highest on the middle class and is a bane on any developing nation. It is curious phenomenon that while on the one hand there is yawning gap between supply and demand with supply of virtually every commodity far exceeding demand, inflation has raised its dirty head. It further accentuates the already somber sentiments and has spiraling effect on recession. Interest rates in India though are lesser than that prevailed a few years ago have a long way to go before the same are on par with the rates prevailing in developed nations. The fiscal market has grown by leaps and bounds but in terms of maturity is yet very juvenile. It is intriguing that money is available to those who do not require it while it is denied to those who are in dire straits.
INDIAN SUGAR INDUSTRY:
Against the backdrop such adverse global conditions the Indian sugar industry is functioning and resorting to SOS measures to stay afloat. The plight of Indian sugar industry in general and the sugar industry in Uttar Pradesh in particular is pathetic. Whatever meager resources endowment the sugar industry has had, have suddenly depleted to inexplicable levels. Not only have the resources depleted the resourcefulness which is so important to keep the spirit alive is virtually eroded. Multitude of Governmental policies followed has crippled the industry totally.
To begin with the State Government of Uttar Pradesh announced a State Advised Price (SAP) of Rs. 95 per quintal of sugarcane for the crushing season of 2002-03. For the first time in the history of Indian Sugar Industry, the Industry decided to stay united and decided not to buckle under pressure and pay SAP and instead pay the more rationale Statutory Minimum Price (SMP) of Rs. 64.50 per quintal linked to a recovery of 8.50%. SMP, which is announced by the Central Government has stood the tests of time and is supported by the various judgments of various courts, is a constitutionally valid price. It ensures equitable returns to the sugarcane-growing farmers. However to the chagrin of sugar industry an arbitrary increase in SMP of Rs. 5 per quintal was announced by the Prime Minister of India. The move was obviously to assuage the powerful farmers lobby and aimed at tactically retaining their political allegiance, all at the cost of sugar industry. In spite of the increase in SMP announced by the Government the farmers lobby is apparently non-too pleased and is persuading the Central Government to ensure prevalence of SAP. The move to pay SAP would result in the return of ad-hocism. If a question were asked to the policy makers as to where they are trying to take the sugar industry and what is the future of sugar industry, they would certainly not be able to articulate any concrete views. The Central Government is trying to use its might to prevail up on the sugar industry to agree to pay SAP. However the industry's view is that when the industry does not have the ability to pay SMP, the question of paying SAP defies logic. Directional ambiguity, tactical orthodoxy, bankruptcy of business sense and political opportunism on the part of Government has raised serious questions over the survival of Sugar Industry.
While on the one hand the sugarcane price and other input costs have gone up steeply, sugar prices are on downward spiral. The sugar prices and prices of other products have touched depths of despair with no hope of resurgence in the near future. The stock levels of sugar are at an all time high with most of the sugar mills having exhausted their storage capacity. Volumes have ceased to be attractive for the sugar industry and have triggered a steady fall in prices. Corollary of increased volumes are lack of storage capacity, lower selling prices, crippling interest burden and inability to pay to farmers in time. The fact that there are huge arrears of sugarcane price and the farmers are growing sugarcane notwithstanding the arrears is an indication of the largesse the existing sugarcane price holds to the farmers. The price received by farmers in India for sugarcane is the highest worldwide. The sugar industry is India is reeling under the double whammy of increasing sugarcane price and decreasing sugar prices. Cyclic forces, hitherto in operation, are no longer holding sway over the industry as unrealistically high price of sugarcane has lured farmers into continuous sugarcane growing.
The statistics of sugarcane crushing and sugarcane production are astounding and have nothing to cheer about. The total sugar production during the ongoing season is expected to clock a figure of 20 million tons. With consumption being around 16 to 16.5 million tons an extra baggage of 3.5 to 4 million tons would be added to already burgeoning stock levels. A crisis of enormous scale is brewing. Falling sugar prices, lack of storage space, crippling interest cost, huge cane arrears, ill-will of farmers and the resultant law and order problems would leave the industry badly battered and mauled.
Political appeasement without economic sense is breeding economic anarchy. Interest of sugar industry and long term interest of farmers are sacrificed at the altar of shortsighted political gains.
The Central Government has offered some cosmetic benefits with a view to encourage export of sugar. Ocean freight subsidy and transport subsidy are offered to make the exports remunerative. The strengthening of Essential Commodities Act and tightening of monthly release mechanism may pep up the sugar price a little. However no fruitful purpose can be achieved unless the major cost component of sugar i.e. cost of sugarcane is bridled. Government has also promulgated ordinance for funding of cogeneration project at concessional rate of interest under the aegis of Sugar development Fund (SDF). However there are no clear guidelines about the exact quantum of the cost of the project that would be funded by SDF. With the sugar industry now being treated like as pariahs by Banks and Financial Institutions, there is very little possibility that many cogeneration projects would see the light of the day. Besides various State Electricity Boards are not friendly buyers either. However the passing of recent electricity bill holds certain promise for the future as sugar industry has awesome potential for generation of power by using non-conventional renewable source of energy. The Government certainly needs to mull in the right perspective over the functioning of sugar industry and evolve policies that would ensure a proper trade-off in evaluating the benefits of all concerned. With a view to galvanize action for future the Government should kindle the spirit of hope and optimism in Sugar Industry as past performance alone cannot fuel the journey for future. The most rationale solution albeit appears to the introduction of laissez-faire, a totally deregulated market wherein the price of everything including sugar and sugarcane are determined by the forces of demand and supply.
YEAR 2001-02:
Your company's performance in the year 2001-02 has not been good. Profits after tax were at all time low of Rs. 102 lacs. This is in spite of the highest ever sale recorded in the history of the company and in spite of achieving excellent operational performance. Progressively declining selling price of sugar and other by-products combined with steady increase in sugarcane and other input costs have played mayhem with the bottom-line of the company. Nonetheless with a view to ensure that the company’s track record is not sullied your Directors recommend payment of dividend of a modest 5% on the equity share capital of the company. The rate of payment of dividend on preference shares is as per contractual obligation.
CRUSHING SEASON 2002-03:
During the season your company has surpassed all records of crushing and has crushed lac quintals of sugarcane at a recovery of %. The company has till end of April 2003 sold lac units of power to the State Electricity Board. The record crushing coupled with very poor off-take of sugar and other byproducts has caused problems galore. The problem of storage of sugar has for the first time surfaced and so has the problem of storing bagasse, molasses and press mud. The demand of sugar is virtually non-existent.
At a time when the market sentiments are depressed, every link in the sugar distribution chain waits for the material in the pipeline to be exhausted. Sugar manufacturers in Northern India are facing intense competition from sugar arriving from Maharashtra. The abundance of sugarcane can be gauged from the fact that sugar mills have had to extend their crushing operations to the month of May and some mills may be compelled to extend their operations in the month of June whereas in the earlier years the mills would clamor for more sugarcane but would not get any after the month of April. Crushing in the month of May has played havoc with the recovery. Hot and dry weather conditions not only play truant with the machineries but driage of sugarcane is also very rapid, causing all round problems.
THE TIMES AHEAD:
The times ahead are indeed very testing and it would require tremendous efforts for any sugar company to survive. The onus of nursing and rejuvenating the industry back to health squarely rests with the Government. The spirit of the industry is dampened and the ability to struggle and fight back totally amiss. Following measures may help enable the industry to stand on its feet:
1. The Government should renounce the mantle of managing the sugarcane prices and allow it to be market driven.
2. Subsidize hugely and promote the export of sugar. With the consumption of sugar not registering any significant increase, export of sugar alone can ensure that the stock of sugar reaches manageable levels.
3. Make easy availability of funds to the industry for setting up cogeneration capacities and for setting plants to manufacture ethanol. Though there is no doubting the intention of the Government in this regard, the Financial Institutions and Banks have ostracized the sugar industry and consequently only handful of sugar mills are able to set up these plants. The norms for funding these projects must be liberalized and lenders prevailed up on to lend money on easy terms. Setting up of large cogeneration capacities would help mitigate the power crisis in many states. The use of ethanol should be encouraged in a big way. Presently only 5% blending of ethanol with petrol is made mandatory in only 9 states. Brazilian example should be followed and sugar industry should be encouraged to explore the feasibility of manufacturing ethanol from sugarcane juice as against the present practice of making ethanol from molasses.
4. Credit norms should be relaxed and more funds made available at cheaper rates of interest to help the industry to tide over the immediate finance problems, which includes difficulty in making payment for sugarcane.
5. Small and inefficient units in the Corporation and Cooperative sectors should be closed down. Their continuing operation is a drain on the Government exchequer.
I can assure you all that is required to be done internally is being done to weather the vicissitudes. However the problem staring at us so enormous that unless surgical methods are adopted by the Government the malady would spread and become uncontrollable. With the fond hope that the needful would be done, I am concluding my address to you.
THANKS GIVING:
I would be failing in my duties if I do not acknowledge their respective contribution and express our gratitude to:
1. To all shareholders
2. To farming brethren
3. To Banks & financial Institutions
4. To the Government agencies
5. To the Sugar Mills Associations
6. To the members of the board
7. To our employees
G.R.Morarka
Chairman & Managing Director
Place : Dwarikeshnagar
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