Making sugar useful

We have long had the ability to substitute sugar with artificial sweetners....or try herbal sugar-killers and the vegetable that lowers blood sugar as natural alternatives/supplements to insulin. But now with the changing strategies of sugar companies will sugar disappear from our diet altogether?

Businessworld
M Allirajan

Two years ago, being a sugar company in india was a sweet proposition. Global prices for sugar were going through the roof, demand was strong and the monsoons were plentiful and on time, assuring record crops of sugarcane.

It seemed improbable that this fairy tale for sugar producers would last, and it did not. In the last two years, prices have collapsed due to a global glut. From being one of the world leaders in sugar production, along with Brazil, the Indian industry has deeply imperiled itself due to faulty government policies and an inherent inflexibility to diversify.

Still, while sugar companies in the north of India, specifically Uttar Pradesh, are struggling to survive, a whole new transformation is taking place in the south of India as companies are exhibiting a Darwinian ability to adapt, morph and survive by exploring different product mixes and alternate sources of revenue. So much so that many of these are looking less like traditional sugar companies and more like alternate energy companies of the future.

Sugar Isn’t The Only Sweetener
Sugar has proved itself to be a volatile commodity with regular boom and bust cycles. Moreover, while sugar is growing at a measly 3-4 per cent, the demand for ethanol has virtually doubled in the past year and the market for power is surging. What’s more, margins from renewables (ethanol and power from bagasse) are more than 30 per cent as against 15 per cent for sugar in a normal year. This has proved to be a godsend for companies in the south looking to branch out into other operations to keep afloat. Says M. Manickam, managing director of Coimbatore-based Sakthi Sugars, “The way forward is a balanced portfolio of sugar, alcohol and power, which will enable factories to be profitable and pay farmers a remunerative price.”

Belgaum-based Shree Renuka Sugars (SRSL) has already ditched its sugar focus, has quickly established itself as the largest supplier of fuel ethanol (20 per cent market share) in the country and is on track to transform itself into more of a full-fledged bio-fuel company. After buying ethanol equipment maker KBK in July, the company is increasing ethanol capacity by 15 times to 900 kilo litres per day by 2009, and aims to bring its sugar revenue to 50 per cent. “We are moving towards bio-fuels and bio-energy as demand is booming,” says Narendra M. Murkumbi, managing director of SRSL.

As India’s power requirement continues to surge, a few sugar companies have discovered that co-generation is a perfect way to balance their products and add to their revenue base.

For Instance, until November 2003, Sakthi Sugars was purely a sugar company with its entire revenue coming from sale of the commodity. Now, however, it is installing co-generation facilities in all its factories in the south. It has invested Rs 260 crore for ramping up co-generation capacity from 35 MW to 120 MW. SRSL, too, is increasing co-generation capacity six times to 129 MW. Chennai-based EID Parry, one of the largest sugar producers in the country, is also converting its factories into integrated sugar complexes to de-risk from the cyclical sugar business. The company is setting up a 20-MW co-generation plant at its Pettavaithalai unit in Tamil Nadu, besides putting up distilleries at Pudukottai and Sivaganga to produce value-added products from molasses.

Bannari Amman Sugars, another major player in the south, was perhaps the first to see the virtues of less reliance on sugar. The company built integrated sugar complexes much ahead of its peers. As a result, revenue from sugar constitutes only a little more than 60 per cent of overall income from operations in the first half of the current fiscal.

Moving into the power arena makes sound business sense. Companies can get Rs 3.15 for every unit of electricity they generate. Moreover, soft loans are available under the sugar development fund to encourage co-generation at an attractive 4 per cent interest rate.

So what is the ideal revenue mix for a sugar company in these fast changing times?
Typically, the company should get 40 per cent of its business each from sugar and ethanol and about 10 per cent from co-generation. Ideally, a 3,500 tonne of cane crushed per day (tcd) factory should have 20 MW co-generation facility and 50,000 litres per day of distillery capacity.

In some ways, the crisis in sugar has been a positive development — perhaps even a boon — forcing businesses to diversify when they might not have been done so if times were rosier. For this, they have to thank the state governments which ensured farmers very high prices for their crops, resulting in farmers using more land for sugarcane. This caused a huge rise in cane production in the past two years and a closing stock enough to meet consumption for more than six months. “Currently, the Indian sugar industry pays the highest cane price in the world while realising the lowest sugar price,” says P. Ramu Babu, managing director of EID Parry.


North-South Divide

While the southern mills have made headway in dealing with the crisis in innovative ways, the mills in north India seem reluctant or unable to change much with the times.

They are changing but they have been slow and started it much later compared with their southern peers. UP-based mills still get about 90 per cent of their revenues from sugar. While Bajaj Hindusthan, the country’s largest sugar company, gets about 90 per cent of revenues from sugar, Balrampur Chini, another behemoth, derives around 80 per cent from the commodity. The high state advised price (SAP) in UP and lack of diversification are the major reasons for the perilous state of north-based mills.

Still, giants like Bajaj Hindusthan are being forced to change with the times. The company has big plans for co-generation and will sell 90 MW power. Bajaj also wants to further diversify its product line with a foray into making medium density fibre boards and particle boards.

Policy Hurdles

While southern companies remain leagues ahead of their northern counterparts, other problems continue to shackle the industry. In Tamil Nadu, the ethanol programme has not taken off. Though the centre has done away with controls, molasses and alcohol continue to be highly regulated in the state since alcohol is a major revenue earner for the government.

With ethanol allotments not happening and molasses movement remaining regulated, the sugar industry is saddled with high molasses stock and low prices (around Rs 200 per tonne). There are no takers because of the huge oversupply, says an industry official.

The fortunes of the sugar industry seem to be unravelling very much like a Darwinian saga. The death blows of government pricing policies, global competition and inherent volatility in sugar has imperiled the fortunes of Indian firms. While southern companies such as SRSL have adapted nimbly to existing conditions, reinventing themselves as new-energy companies, their northern counterparts are still lumbering to their feet.

However Renuka Sugars has not abandoned its sugar expansion plans:

We intend to consolidate our leadership position in the fuel-ethanol market, when the blending increases to 10%, which the government is planning to introduce shortly. As part of this plan, we have also announced new capex which would take our production capacity to 900 KLPD from 450 KLPD over the next two years.....

also acquired a standalone distillery with a capacity of 100 KLPD which could be expanded to 250 KLPD. The distillery will help the Company in cutting down transportation costs for supply of its Ethanol contracts to the Oil Marketing Companies (OMC) located in coastal States of Goa, Karnataka and Kerala and for export purpose.....

SRSL is setting up a state-of-the-art 2000 tons per day (TPD) port-based refinery in Haldia, West Bengal. This refinery would use raw sugar and convert it into European grade sugar which fetches a premium in the world market. This refinery is strategically placed for servicing domestic and export markets and can operate round the year on combination of domestic and imported raw material. The facility can process up to 700,000 tons of sugar per year.

SRSL announced the setting up of another refinery of 1000 TPD capacity. This refinery would be integrated with its plant in Athani...

Sakthi Sugars

In the Distillery Unit at Sakthinagar, an Ethanol Plant with a capacity to produce 15000 KL of Anhydrous Alcohol has been established in the year 2002..

Sakthi Sugars has set up sugar units in different parts of India:
Sakthinagar unit
Sivaganga unit
Dhenkanal unit

EID Parry

Articulating the vision of the company, Mr. Rama Babu says, “In the long term we must be known as the largest Sugar Company in the country”.

Mr.A Vellayan, vice-chairman, EID, voices the vision for the future, “The whole business model of EID will change in the next couple of years. We want to position it as one of the largest sugar companies. We want to make it an integrated company producing a range of value added products.”

Ethanol India

the sugar industry will not be lacking in meeting the requirement of ethanol. In a market economy, there would be a considerable shift from the gur and khandsari sectors which are inefficient producers with poor quality. In the current scenario of glut in sugar production, it may be advisable to divert such additional cane for the production of alcohol after meeting the sweetener requirement.

Indian markets rebound: considered safer

TOI
Rashmee Roshan Lall

Fund managers and analysts here, in the world's financial capital, said "there is no safe market but India is still considered safer" than others, in an unqualified vote-of-confidence for India Inc, 24 hours after Black Monday forced traders to bet on the risk of a synchronized global downturn.

With fears of a looming US recession spreading to every continent, the vote of confidence in India came as Monday's global crash in share prices wiped nearly 80-billion-pounds off the value of FTSE's blue-chip stocks in the biggest one-day points fall in London's history.

Speaking to TOI , Deepak Lalwani, director of the high-end stockbroker Astaire & Partners, said the shivery state of global markets, not least India, had not deterred clients looking to invest in one of the world's fastest-growing markets.

"My clients are quite happy to buy blue-chip Indian shares at these levels," Lalwani said, rattling off a list of stocks – Ranbaxy, Reliance, L&T – snapped up by London-based investors looking to the long haul.

He cautioned that at least part of the Sensex fall was because "the Indian market had run ahead of itself...if you look at Indian funds, India's looked very pricey, so it is right too, to be sold off".

Lalwani, who claims his clients rarely look to inject hot money into growth markets, said he had been struck by the prevailing view that Indian blue-chips were meant to "buy and hold".

In a comfortable, if interesting, take on the day-old reverses on stock exchanges worldwide, not least India, fund managers here said the falls in emerging markets such as India should not be taken as a general loss of confidence but as a sign that "select stocks had their froth removed, compared to a week ago".

The Indian market correction, characterized by some as a "stretched evaluation", is also being seen in the intensely comforting, well-worn framework of India's overall growth story. This, declared Lalwani, "had not changed because of the US recession".

Said Nick Parsons, head of strategy for NAB Capital, "There was no real trigger for what was a Black Monday. Overnight there was the very large sound of pennies dropping followed by a general market capitulation. What the markets have woken up to is that, yes, there will be a recession in the US and, no, the rest of the world won't be immune to that slowdown."

Added Graham Turner of GFC Economics, the gloomy mood in the markets might have been the delayed reaction to news last week of financial troubles for the US companies that insured the bonds linked to subprime mortgages, the value of which has plummeted as a result of falling real estate prices and rising home repossessions. He said, "The stock market has finally cracked and it has cracked because of all the underlying problems. People are worried about consumer spending going down, and with the stock market going down as well the two factors will start to feed off each other".

But many believe London's India fund-managers may be whistling in the dark considering that share prices have dropped by 14 per cent since the start of the year, with the near 900-point fall in the FTSE 100 wiping out all the gains of the last 18 months and putting renewed pressure on UK pension funds.

Monday's 5.48 per cent fall is the biggest in percentage terms since the immediate aftermath of the 9/11 terrorist attacks on the US, but it is at least still less than half as big as the record 1997 drop by 12.2 per cent.

FII money pulled out on global fears, disregarding the strength of the Indian market, and now it is set to come back in and snap up prime stocks at low prices. This is why small investors feel done in. See the list of the top FIIs investing in India.


See this prediction on the World Economy last September:

Vinod Sethi manages a $1-billion foreign fund investing in India. “The Indian markets have been driven by FII money till now, and some of their favourite stocks have very high valuations even by global standards,” he says. “The short-term impact can be that foreign fund flows slow down or stop; but this is debatable, and its impact is based on how long the contagion will last, and which banks and investors get pulled into it.”

“As investors in US markets consider recessionary expectations and returns on both equity and debt, they will look towards growing emerging markets, including India,” says B.P. Singh, advisor to the UK-based Atlantis Fund. “In the past five years, FIIs have gotten used to an absolute rate of return; they want 8-20 per cent returns on their investment.” In other words, almost all institutional investors, be they pension funds or university endowments, want hedge fund type returns.

Some folks favour the opposite view. If the credit cycle worsens in the US, most foreign funds will probably book profits in emerging markets, either to inject liquidity into their home markets or because of redemption pressures.

Food trade and the environment

Businessworld
Sumati Nagrath

Twenty-six-year-old sarah rudd, who lives in the small town of Rugby in the UK, has never been abroad. She has not even been inside an airplane. But the food she eats has. In fact, most of the fruits and vegetables neatly stocked in her fridge have travelled thousands of kilometres from far-flung countries. The onions she picked up from her local supermarket have travelled over 19,000 km from New Zealand, the green beans around 6,800 km from Kenya, the cherry tomatoes almost 9,000 km from the US and the bananas have travelled 5,000 km all the way from India.



So, while Rudd, who works as an office administrator, is yet to earn a single air mile, her evening meal has already clocked up several thousand ‘food miles’, a measure of the distance that fresh food travels from the farmer’s field to the consumer’s plate. However, ‘food miles’ — an idea that originated in the UK and Sweden a few years ago — is more than just about the distance. It translates into energy consumption, pollution and greenhouse gas emissions. As a concept, it is meant to raise awareness amongst consumers and policy makers of the problems associated with a food system that is based on global sourcing and rather complicated, transport-intensive supply chains.

At the core of the idea of food miles is a desire to understand and highlight the social and environmental impacts of the changing food system as well as consumers’ food choices. And it is a concept that is fast gaining currency with various consumer and environmental groups.

Reducing Food Pollution

Doubtless, it is insufficient to simplify the impact of food production, distribution and consumption to merely a unit of length. Measuring a food product’s actual carbon footprint would take into account mode of production, packaging, cooking process, and wastage as well. Still, the term ‘food miles’ does have a growing resonance and has become a hot topic of discussion for government, industry, consumers and environmental groups in many of the developed countries. Take the case of Australia where the Australian Conservation Foundation is supporting a call by the country's farmers for clearer country of origin labelling, or Canada where the government has asked food retailers to reduce food miles as a measure to reduce their emissions contribution.

According to a 2005 report by the UK’s Department for the Environment, Food and Rural Affairs, food miles in the country rose by 15 per cent between 1992 and 2002 to total up to a staggering 20 billion vehicle-kilometres. In 2002 alone these food miles created 19 million tonnes of carbon dioxide — almost 2 per cent of the UK’s total carbon emissions, costing the British economy almost £9 billion.

These findings led to ‘food miles’ being cited as a priority area of action by the British government in its recently published Food Industry Sustainability Strategy. The document proposes that “as a contribution to both carbon saving and other environmental benefits and to local sourcing there needs to be a reduction in the domestic level of the environmental and social costs associated with the industry’s food miles by, say, 20 per cent by 2012”.

In India, meanwhile, mention of the term ‘food miles’ invites blank expressions and requires much explanation. But this is not necessarily a result of apathy or unawareness. It would appear that we in India simply do not clock up significant food miles. Being the second largest producer of fruits and vegetables in the world — ‘exotic’ foods such as kiwis, asparagus and pak-choi are also grown in parts of the country — minimises the need to import. “In India we are lucky that most of our fresh produce is procured locally, all across the hotel industry,” says Niranjan Khatri, general manager of Welcomenviron Initiatives, a division of ITC-Welcomgroup Hotels.

“We do import some exotic foods such as certain varieties of cheese but it is so expensive that there are few takers.” Given that transportation costs of flying in produce are almost prohibitive, he says “in some ways economic concerns are actually helping the environmental ones”.

Indian food retailers such as Reliance Fresh, too, source locally, with imports such as Chinese apples forming a minuscule proportion of their total stock. “Our big concern is how to strengthen the supply chain in order to minimise wastage, which can amount to almost 40 per cent,” says a Reliance Industries spokesperson. “Given that we have so much local produce easily available, imports just don’t make sense.” It would seem that a combination of abundance of produce and prohibitive transportation costs mean that we in India don’t have to worry about food miles, yet.

In the West, however, as concerns over climate change grow, the distances travelled by food are coming under greater scrutiny and retailers are responding to heightened consumer awareness through a variety of measures. “We find that our consumers are increasingly concerned about the environment and want to know the provenance of food products, especially fresh produce,” says Greg Sage, international corporate affairs manager of Tesco, the UK-based retail giant. “We have clear labelling that indicates not just the country of origin but also the mode of transportation used to import it so that customers can make an informed choice.”

While major UK chains such as Tesco, Asda, Marks and Spencer and Waitrose have all expressed an intention to ensure that local sourcing accounts for almost 70 per cent of the stock in the near future, at the moment imports continue to outweigh local sourcing. This is because “there is a demand for different fruit and vegetables all year round,” says Sage. “We do have to import some produce, including bananas and citrus fruit, which cannot be grown in the UK.” He adds that Tesco tries to minimise the environmental impact by bringing in the vast majority of products by sea, and less than 3 per cent by air — the mode of transportation with the largest carbon footprint.

A similar argument is given by the US retail giant Wal-Mart. “While we buy millions of dollars of imported produce, that volume comes primarily when the product is off season in the US, the product is not grown in the US, or adequate supply or quality is not available from our US sources,” says Wal-Mart spokesperson via e-mail.

Although both Tesco and Wal-Mart hold consumer demands for off-season products responsible for the significant proportion of imports, it is the supermarkets themselves that have spoilt the consumers by offering, what would typically be seasonal fruits and vegetables every day of the year, even if it has meant having to air-freight them from long distances. “Hopefully we will learn from the West’s mistakes,” says Khatri. “The day we start importing potatoes, is the day we should start worrying.”

A Question Of Livelihood

Now the pressure is on from farmers groups, the government and consumers such as Rudd who want food retailers to source more and more produce locally, organically and according to season. But will doing that really ease environmental impact?

Firstly, there is a real dilemma in the case of organic produce. Traditionally consumers opt for organic foods, not only because they are more wholesome but also because organic production includes less energy use and therefore lower greenhouse emissions. However, if organic products are transported long-distance, particularly by air, the emissions are far greater than the reduced emissions resulting from organic, rather than conventional farming. This realisation recently led the Soil Association — Britain’s leading organic food certifying body —to almost stripping air-freighted foods of their organic status.

The decision was called off in the face of criticism from various development organisations who argued that air-freighted organic food is crucial to the economy of poor countries such as Ghana, Peru and Kenya where small-holder farmers have invested huge amounts to meet the standards demanded for export.

The fact that their produce could become an environmental pariah and be shunned by consumers in the West is deeply worrying and could have serious developmental implications for their fragile existence.

Stuart Rose, the CEO of Marks & Spencer (M&S), which has also started to label air-freighted produce to inform shoppers, released a press statement in July 2007 to assuage the fears of Kenyan farmers. The release quoted Rose as saying, “We are aware there have been recent discussions in Kenya about the issue of food miles. As a part of our wider commitment to make M&S a carbon neutral business, we are looking at ways of reducing our use of air freight. However, I want to emphasise that we aim to do this by using alternative modes of transport, like shipping, and not by reducing our trade with developing countries.”


As of now none of the major retailers have reversed their sourcing decisions based on food miles. “We have not stopped buying imported product from any country due to concerns about food miles,” says the Wal-Mart spokesperson. Neither Tesco nor Wal-Mart source any fresh produce from India at the moment and refuse to comment on the possibility that the option to do so might be also be thwarted if food miles gains traction.

However, there are those who are sceptical of the whole concept of food miles. A 2006 report produced by the Lincoln University in New Zealand shows that even if the environmental cost of transporting goods to the UK is taken into account, New Zealand still uses considerably less energy than the UK in the production of sheep meat, dairy, and apples.

There are also those who argue that it is more energy efficient to truck fresh tomatoes grown in the fields of Spain into the UK rather than cultivate them in hot houses in the country.

Whether food miles catches on as a concept in India as it stands at the cusp of a retail revolution, remains to be seen. And although it is not the most accurate of measures, ‘food miles’ is doing a good job of attracting attention towards the fundamental issues surrounding the sustainability of the globalised food trade and the increasing concentration of the food supply base and distribution in the hands of fewer and fewer transnational corporations.

Pension Funds

IE
Vikas Dhoot

The Sensex was at 5,000 when the government proposed switching to a new pension scheme for government employees that would allow investment of 10 per cent in equities. Three years and 16,000 points later, while the government, under pressure from the Left, dithers on that scheme as well as stock investments by the Employees’ Provident Fund Organisation that covers private sector workers, pension funds from across the world are flocking to Dalal Street to cash in on the market.

Consider this: when California Public Employees’ Retirement System (better known as Calpers), one of the world’s largest pension funds, registered as a Foreign Institutional Investor with the Securities Exchange Board of India in July 2004, there were only about a dozen and a half global pension funds active in India.


Now, as many as 152 global pension funds from 18 countries are here and the number is growing fast—46 registered in the last 12 months.

Pension funds now make up for almost 13 per cent of the 1,240-odd FIIs in the country. Last month, Microsoft registered its 401 (K) plan (the US pension system for private sector workers) with SEBI, following the who’s who of the global corporate world who have registered in recent months like Citigroup, JP Morgan Chase, Cargill, Hewlett Packard and Xerox.

Following Calpers’ lead, other states, counties and cities in the US, Canada and UK have also joined the action—in 2007 alone, public employees pension funds were registered from Chicago, Florida, Ohio, New York, Strathclyde, Hartford city, Detroit, Utah, Ontario, Cheshire, Westminster, Colorado, Mississippi and Pennsylvania, among others.

Apart from regional school employees and teachers’ pension funds, even the top universities have registered—Massachusetts Institute of Technology in March 2007 and Duke University as recently as on January 8.

Countries such as Malaysia, South Korea, Northern Ireland, Australia and New Zealand have, in fact, started investing their national pension funds as well as civil servants’ pension funds in India. And on May 18, 2007, the Pension fund for members of the European Parliament entered India.

Jayanth R Varma, finance professor at the Indian Institute of Management, Ahmedabad, says, “Globally, pension funds constitute the single largest pool of managed money and they tend to be long-term investors as they have to invest for pensions to be paid 15 to 20 years from now, if not longer. So they won’t churn their money every three months and bring depth and resilience to the market.”


Pension funds the world over are fiercely regulated as they deal with the ‘sacred’ funds people work all their lives for—to retire in peace. As for Indian workers who would prefer to move some of their PF money out of 8-per-cent-yielding government bonds to high-yielding stocks, Varma points out that the framework is already there. “All you need to do is open up the new pension scheme for civil servants to everybody. The option of allowing workers to invest 10 per cent in index stocks instead of individual stocks is also good as in the long run, they won’t lose their capital as feared,” he says.

No more entry load

Moneycontrol

In what seems to a big blow for mutual fund distributors, may also turn out to be a big loss for the Indian mutual fund industry. The Securities and Exchange Board of India (Sebi) on Wednesday proposed to do away with the "entry load" fee for investors if they buy mutual fund schemes directly from fund houses.

Currently, all investors irrespective of whether they come through a distributor or directly are required to pay an entry load, which is around 2.25% of the money invested. This charge largely goes towards paying the brokerage or commission of the distributor.

Experts believe that this initiative is good for an investor who is equipped to make his/her own decision on choosing of schemes and has time to visit mutual fund office directly as he will save substantial amount. However, they have their concerns and suggestions too...

Sandeep Shanbhag, Investment expert

* Will inhibit market presentation. As it is, retail participation in the capital market is extremely low as compared with the percentage of household savings. This will be further inhibited as MF distributors were indirectly serving as catalysts for the retail investor's participation in the stock market.
* Will encourage rebating/giving a kickback of the commission
* After sales services that the distributor provided will henceforth be the client's responsibility.
* There should be consistency in policies across products. ULIPs, which are nothing but mutual funds of insurance companies, continue to dole out huge incentives.
* Large MFs especially bank sponsored ones will have an unfair advantage over smaller players on account of their inherent geographical reach.

Hemant Rustagi, Investment advisor

* Considering that mutual funds offer a variety of products, it would be difficult for investors to select the right ones and in the right proportion in the absence of any advice.
* There are possibilities that investors might be tempted to invest in funds just by looking at the advertisements and the themes highlighted in them.
* As in any industry, mutual fund industry also has “below average”, “average” and “excellent” performers. One requires a thorough understanding and research to select the consistent performers.
* Monitoring of the portfolio on an on-going basis is as important as designing the portfolio. Most investors do not have the tendency to monitor their investment and hence might remain invested in the non-performing funds and/or miss out on better opportunities.
* Considering the potential of equities over the longer term, loads are a non-issue for a long-term equity investor.
* The entry load covers expenses like brokerage, advertising, sales and printing costs etc. Apart from the brokerage, mutual funds will not be able to segregate the cost for those who come directly and those who invest thru distributors. In case of no entry load, it would be an additional burden for the AMCs.


Gaurav Mashruwala, CFP

* Over a period of time several Life and Non-Life insurance product should also have similar option.
* Let there be complete free pricing. Let investor and distributor agree on the load. There should be a box on every application form. In the box agreed load amount/percentage should be placed and be initialed by distributor and investor. AMC and/or insurance company from the investor's investment (premium) amount should deduct agreed rate and pay to distributor. Rest of the amount should be invested/insurance issued. This will bring tremendous transparency.

by Reena Prince

Removal of the entry load will also encourage small investors into making large one-time investments in mutual fund units....whereas in the past the entry load prompted them to invest in small monthly amounts through the SIP (Systemic Investment Plan).