|
||||
Improving
profitability of the sugar industry
Since the mid 1970s the production pattern of sugar all over the world had changed. This was brought about by the oil crisis in 1973, which resulted in Brazil deciding on the production of ethanol as a substitute / additive to internal combustion engines. Ethanol can be used in spark ignition engines (petrol engines) on its own or in blends with petrol. It is used in compression ignition engines (diesel engines) as blends of diesel and ethanol. In compression ignition engines, ethanol had been used on its own within limitations - small and static units. What is unique about Brazil is the successful module it developed to process sugar cane juice. When the world faces a crisis in the supply of crude oil, it provides priority for conversion to ethanol and when the crude oil prices are low, the priority is to produce sugar. The market is ensured security by having two other raw materials in addition to sugar cane for the production of ethanol. The profitability of the sugar industry has become a major concern all over the world. Many a study was undertaken and many changes had been implemented elsewhere to overcome this loss of profitability. Certain countries, while pushing for globalisation, provide price supports to the sugar manufacturer. In one country the price support is as high as 65 percent. Taking into consideration, the circumstances endemic to Sri Lanka, I visualise that the sugar industry can be run with high profits. Tax
breaks no answer It is now accepted that a tax-free regime is not in the best interest of the country, especially under the "globalised" free market economy, as the government has no control over the economy per se. It is also against the very concept of globalisation and private sector entrepreneurship. Thirdly the world and Sri Lanka are moving away from subsidies. Prior to offering a bid to purchase the sugar factory, the bidder was expected to perform a due diligence study. Taxation can never be considered an imponderable parameter in such a study. The problem with the studies undertaken are that they were the sole effort of financial analysts. I doubt whether the views of agriculturists, manufacturing or engineering oriented persons associated with the industry, were sought prior to offering a bid. My
prediction is that unless the government, the Sugar Research Institute
(SRI) and the industry act objectively, with the least possible
delay, as Brazil did in the mid 1970s, the sugar industry will continue
on the wane, and even the two factories that are in operation will
cease to function within the next few years. It is a decade since the sugar factories were privatized. The manufacturing technology had been stagnant over the years. Elsewhere in the world, the cost centres had been pruned gradually over the years. We should be guided by such research, which are available free of charge. The introduction of combined harvesters was a failure, a failure that I welcome. Sri Lanka has enough and more workmen to handle this aspect. In contrast to the opinion expressed by some who had never worked in a sugar factory, I believe that this country does not need any more large factories. When Hingurana, Kantale, Sevenagala and Pelwatte are all in operation and adequately expanded, this country can achieve near self sufficiency in sugar. Expansion is far more easier and cheaper than installing "new" sugar factories. When one refers to "new" sugar factories, it necessary to define how "new" they are. Recently registered motor cars are new to Sri Lanka but are over five years old in the country of origin. I have serious doubts about the ability of Sri Lanka to finance a de facto new factory. The sugar industry is suffering from the contraction of land under cane. There were 158,100 acres (63,983 Ha) under sugar cane in the years past. This had shrunk to 15,400 acres (7, 200 Ha) in 2003. The main limitation in achieving self sufficiency is the supply of sugar cane. Sugar cane required to make crystalline sugar has to be grown in the " dry" areas. Sugar cane grown in the "wet" areas is not suitable to make crystalline sugar but ideal to make alcohol, sugar syrup etc. Tsunami
buffer zone The buffer zone is to be planted with mangroves. What is wrong in planting this zone with sugar cane in addition to mangroves? Sugar cane had been found to be salinity tolerant in Bangladesh and Guyana. The resentment among those forced to leave the buffer zones might ease if they are assured of an additional source of revenue. Converting this cane to sugar can be achieved easily if one is capable of reorienting one's thought processes. Sri Lanka imports 600,000 MT of sugar annually. To substitute this import, we require 450,000 acres of land based on a recovery of 7.5% sugar on cane and yield of 18 MT of sugar cane per acre. This drops to nearly 50,000 acres of land based on a recovery 13% sugar on cane and a yield of 96.4 MT of sugar cane per acre, which rates had been reported elsewhere in the world. SRI has to develop the necessary technology and the government together with the industry must ensure that the SRI delivers and delivers fast. Sugar can be produced in Sri Lanka at prices competitive with the imports if the inbuilt bottlenecks are circumvented. Sri Lanka has an advantage over many other countries to make the sugar industry profitable by seeking total import substitution of co-generated products such as electricity, fuel alcohol, carbon dioxide, fertiliser etc. Import substitution was given up as a policy over the last thirty years. For example the by-product carbon dioxide required by the industry is either imported or made by burning imported oil. "Fermentation" carbon dioxide is clean and easy to extract. In the greater interest of the country and the sugar industry, the government should find a market for the carbon dioxide from the distilleries. The bottlenecks to overcome are :- (i) Availability of cane (ii) Reduce the costs involved in transport (iii) Minimise the massive waste of energy - I would eliminate the energy "gobbling" mill house completely. (iv) Fuel efficiency at the boiler house. (v) Increase the turbine capacity, which should generate power round the year - sell this power to the CEB (vi) Maximise the utilisation of the installed capacity.(vii) Higher value addition to the by-products. In the first instance one cannot discus a sugar industry, without having sugar cane. Sugar cane is grown by the farmers. The first principle is to get more farmers to grow cane. This can be done on a command structure by employing them as farm labour, which is economically a negative concept or by providing the farmers with incentives to take to cane farming. The best incentive is an attractive market price. I believe that unless the factory is willing to price cane at least at Rs 2500 per tonne, as at today, it is impossible to encourage a farmer to take to sugar cane cultivation. The yield of cane in Sri Lanka is very low - it averages at best 18 - 20 MT per acre. In 1981, it was reported that the yield in Hawaii was 96.4 MT per acre. The land available to grow cane is no longer virgin, which means that the soil had got depleted of nutrients. It is a world wide phenomenon that increased application of fertiliser had not led to improvement in the yield. This is specifically true in lands with mono crops. This problem too has to be tackled. Sugar cane requires a very high input of agro chemicals. The SRI should have found a solution to this. Crop rotation could be the solution, subject to the proper crops being identified. A well planned policy will help to provide fertiliser that is manufactured 'in house' to the farmer, at a fraction of the cost at which it is available in the market. One of the problems associated with the traditional factory system of sugar cane farming and processing, is the use of land within the vicinity of the factory to grow sugar cane. This is a major problem in Sri Lanka. Driving past Moneragala nearly two months ago, I saw lorries that were transporting cane that was very dry, fungus infected, suitable to be used only as firewood. They were being transported over long distances. That exercise is going to skew the bottom line of the company concerned without a doubt. The industry had identified a minimum time gap between " harvesting" and crushing. This time gap has to be minimal because as the time gap increases the quality of the sugar cane tends to deteriorate. On the other hand if the planting and crushing technology is varied this problem can be overcome. Feeder
factories The determining parameter of success will be the degree to which the juice is extracted from the cane. The juice / crude sugar processed at these primary factories will be delivered to the main factories ( let us call them secondary factories, which will include Hingurana, Kantale, Sevenagala and Pelwatte ). The process has to be developed in order to keep the secondary factories in operation round the year. When the primary mills are in operation, the energy required to operate these factories are minimal and can be obtained from many sources other than those based on imported fuel. Thus by decentralising the crushing operation the secondary factory will save the cost of energy consumed within its mill house. I would venture to suggest the primary factory be owned by the farmers themselves as a co-operative. The decentralised crushing and processing will make a major contribution to making locally made sugar prices competitive vis a vis the imports and the factories very profitable. This will eliminate the necessity of running the mill house at the secondary factory. The mill house consumes nearly or in excess of half the energy generated. The energy generated but not consumed by the factory can be sold to the CEB. The secondary factory will process the crude sugar from the primary factories to refined white sugar and the "molasses" to alcohol. There is a second reason to justify a decentralised processing system. When a sugar factory is rated at 2880 tonnes of cane a day the factory should receive 576 loads of cane each weighing five tonnes. This means that the factory should receive a load of cane every 2.5 minutes - not at shorter or longer intervals. If this does not happen, the factory operates at low efficiency as the boilers have to be kept operational and idling, which is a very costly exercise. This will result in the bagasse being burnt under unproductive conditions, which in turn results in the use of secondary fuels which are imported. This waste is critical to the ex-factory price of sugar and its profitability. Though the primary mills need not be very efficient, technology is available match a major factory in efficiency. The waste from these factories - call it "primary molasses" - and waste from the refinery - call it "secondary molasses" - can be processed in to fuel alcohol. A question that could be raised over this model is the source of energy to run the primary factories. The solution I visualise are the "gassifiers", for which the technology is available with the NERD centre. In the alternative power from the national grid could be used. With the isolation of the mill house the only functional piece of equipment is in the processing unit. Except the centrifugals the rest are brute hardware, which can be easily fabricated. One factor that influences the profitability of an industrial operation is the capacity utilisation of the installed machinery - higher the capacity utilisation, higher are the profits. I would determine that any factory should operate at least 330 days a year, 360 is better. In practise sugar factories operate 150 to 270 days. In Sri Lanka the average span is 150 days per year. It is to be noted with regret that the capacity utilisation within this period of 150 days is below expectation. There is a lot of idle time. The determining factor is the availability of cane. The world had been living through a series of crises in the energy supply. The problem had become very acute with no solution being offered to the Sri Lankan taxpayer though the problem had lasted through 1973. The sugar industry will benefit immensely, if the government implements a fuel alcohol policy in par with Brazil or Australia. Such a policy will contribute to make the sugar industry earn attractive profits. All the sugar alcohol distilleries can produce fuel alcohol. There is a facility available to toxify the alcohol in situ. The toxification can be reversed only at another similar facility, not by small time illicit distillers. The sugar industry can make a major contribution to solve the electricity problem facing our country. The government, instead of selling the sugar factories, should have invested in upgrading the power generation capabilities. If this was undertaken all the money spent on buying electricity from private suppliers at exorbitant prices could have been avoided. The potable alcohol produced cannot be disposed of with ease. The liquor bottlers complain of loss of the market to the illicit liquor trade. The loss is estimated to be in the region of about Rs 65,000,000,000 per year. Imported bottled liquor, considered to be in the purchasing purview of the scavenger class in the country of origin, sell at prices over Rs 2800 per bottle while locally bottled liquors containing alcohol produced from sugar cane are sold for a pittance. I believe that these are the major problems facing the sugar industry and not the paltry VAT. Sri Lanka still has a chance. (The writer is a former Production Manager (By-products) Sri Lanka Sugar Corporation.) |
||||
Copyright © 2001 Wijeya Newspapers
Ltd. All rights reserved. |
