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NATURAL PRODUCT: SUGAR INDUSTRY OF BHARATH

Introduction:

India is the 2nd largest producer of cane sugar in the world

next to Brazil and also largest consumer of sugar. There

were 527 operating sugar mills in different parts of the

country in 2011-12; in 2015, India had reported 703 sugar

mills. Sugar companies have been established in six large

sugarcane growing states like Uttar Pradesh, Maharashtra,

Karnataka, Gujarat, Tamil Nadu, and Andhra Pradesh.

These six states contribute more than 85% of total sugar

production in the India. About 50 million sugarcane farmers

and a large number of agricultural labourers are involved in

sugarcane cultivation and ancillary activities, constituting

7.5% of the rural population. Also, the industry provides

employment to about 2 million skilled/semi-skilled rural

workers. The industry generates power for its own

requirement, based on byproduct bagasse and exports

excess to the grid. It also produces ethanol, an eco-friendly

and renewable energy fuel that can be blended with petrol.

Following table gives the details of impressive contribution of

the Indian sugar industry to the national economy.

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Table I

NATIONAL ECONOMY

No. of Working Sugar

Factories in 2015

703

Cane Price Per Tonne US$ 20

Cane Price paid annually US$ 3700 Million

No. of cane farmers 50 Million

Sugar Production 25.0 Million Tonnes (Raw

Value)

Annual Tax contribution to

exchequer

US $ 500 Million

Employment including ancillary

activities

2 Million People

Fuel Ethanol of 5% blend

(Value)

US $ 200 Million per

annum

Current export of Co-generated

power (Value)

US $ 100 Million per

annum

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Growth in Capacity

Indian sugar industry has grown horizontally with large

number of small sized sugar plants set up throughout the

country as opposed to the consolidation of capacity in the

rest of the important sugar producing countries, where

greater emphasis has been laid on larger capacity of sugar

plants. The average cane crushing capacity in India, Brazil

and Thailand in 2004, is given below:

Country Avg. Capacity (TCD)

Thailand 10300

Brazil 9200

India 3500

The Government of India licensed new units with an initial

capacity of 1250 TCD upto 1980s which was subsequently

increased to 2500 TCD.

Government de-licensed the sugar sector in August 1998,

thereby removing the restrictions on expansion of existing

capacity as well as on establishment of new units, with the

only stipulation that a minimum distance of 15 Kms would

continue to be observed between an existing sugar mill and

a new mill. The number of sugar mills and the growth in

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capacity over decennial period 1980-81 to 2000-01 and in

the year 2001-02 to 2003-04 is given in Table No. II.

Table No. II

GROWTH IN AVERAGE CAPACITY OF SUGAR MILLS

Decennial period

ending

No. of Units Average Capacity

Per Unit (TCD)

1980-81 299 1650

1990-91 377 2030

2000-01 423 3000

2001-02 437 3200

2002-03 433 3350

2003-04 453 3500

Cane Acreage & Production

Sugarcane occupies about 2.7% of the total cultivated area

and it is one of the most important cash crops in the country.

The area under sugarcane has gradually increased over the

years mainly because of much larger diversion of land from

other crops to sugarcane by the farmers for economic

reasons. The cane area has, however, declined in the year

2003-04 mainly due to drought and pest attacks.

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Table III

SUGARCANE AREA AND PRODUCTION

FROM 1980-81 TO 2000-01 & UPTO 2003-04

Year Area under cane

(Million hectares)

Cane Production

(Million tonnes)

1980-81 2.67 154

1990-91 3.69 241

2000-01 4.32 296

2001-02 4.41 297

2002-03 4.36 282

2003-04 3.99 236

Unlike sugarcane, where the farmers are assured of a

minimum price by way of a statutory order issued by the

Government, in respect of all other agricultural crops

including food grains, the Government of India only

announces the minimum support prices (MSP). On the other

hand, with statutory protection, sugarcane farmers receive

the price as statutorily notified from the sugar mills even

when it resulted in sizable loss to the sugar undertakings.

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Apart from fixation of statutory minimum price for sugarcane,

the industry is also required to share 50% of the extra

realisation on free sale sugar over the levy price with the

cane farmers. Delay in making the cane price payment over

15 days also attracts 15% penal interest. For the season

2003-04, the average sugarcane price paid being Rs.950/-

per tonne, is much higher than the cane prices, paid in the

major sugar producing and exporting countries, where it is

linked to sugar sales realisation and is also disbursed in 2 to

3 installments.

Tempted by such security of price, farmers preferred to

increase area under cane causing spurt in cane acreage and

sugarcane production significantly. From a level of 154

million tonnes in 1980-81, the cane production increased to

241 million tonnes in 1990-91 and further to 296 million

tonnes in 2000-01. Since then it has been hovering around

300 million tonnes until last year. In the season 2003-04,

however, sugarcane production declined to 236 million

tonnes mainly due to drought.

Cane Utilization

Not only cane acreage and cane production has been

increasing, even drawal of cane by the sugar industry has

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also been increasing over the years. For, in India sugarcane

is utilized by sugar mills as well as by traditional users like

gur and khandsari producers. In early 1980s, the proportion

of cane drawn by the sugar industry was hovering around

35% which went upto to 50% in 1990s and to as high as

69% in the year 2002-03. In the year 2003-04, percentage

drawal of cane, however, declined a bit due to more intense

competition from the alternate sweeteners gur and

khandsari. Table No. IV gave data on cane production and

cane utilization for different purposes.

Consumption Trends

Apart from white sugar, India also consumes alternate

sweeteners - jaggery and khandsari, which are placed at

about 9 million tonnes per annum. Taking into account all the

3 sweeteners i.e. white sugar, jaggery and khandsari, on a

per capita basis, Indian consumption stands at a reasonably

high figure.

The consumption of white sugar in India is generally urban

based, in rural areas the alternate sweeteners gur and

khandsari are consumed predominately.

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Table No. IV

% Cane utilisation for

Year White sugar Gur and

khandsari

Seed, feed and

chewing

1980-81 33.4 54.8 11.8

1990-91 50.7 37.4 11.8

2000-01 59.7 28.8 11.5

2001-02 57.4 31.5 11.1

2002-03 68.9 20.1 11.0

2003-04 56.1 32.5 11.4

Global sugar production exceeded 170 million tonnes (MT) a year in

2011-12. Approximately 80% of the output was sourced from sugar

cane, which is largely grown in tropical countries.

The remaining 20% is produced from sugar beet, which is grown

mostly in the temperate zones of the northern hemisphere.

Data of per capita consumption of sugar in various countries

is given in Table No. V.

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Table No. V

PER CAPITA CONSUMPTION OF SUGAR IN VARIOUS

COUNTRIES, in kilogram, (raw value)

Country 2000 2001 2002 2003

Australia 63.5 55.2 55.8 54.9

Brazil 57.5 57.7 60.2 58.0

E.U. 37.5 36.0 38.4 37.2

U.S.A. 32.6 31.5 32.4 30.3

Thailand 29.1 31.0 31.2 32.6

Japan 19.0 18.4 19.1 18.9

World Average 20.7 21.0 21.7 22.1

INDIA |Sugar| 16.5 17.5 17.5 18.0

INDIA |Cane based

Alternate Sweeteners|

10.0 9.0 9.0 9.0

Source: ISO Year Book

World consumption of sugar has also grown at an average annual

rate of 2.7% over the past 50 years, driven mostly by rising incomes,

population growth and changes in diet in the developing economies.

More than 123 countries produce sugar worldwide, with 70% of the

world’s sugar consumed in producer countries and only 30% traded

on the international market. Around 170 MT of sugar are produced

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every year. The largest producers are Brazil (22%), India (15%) and

the European Union (10%).

The consumption of sugar in urban areas in some of the

states of Indian union with higher GDP and income levels, is

given in Table No.VI.

Table No.VI

PER CAPITA CONSUMPTION OF SUGAR IN URBAN

INDIA

States Kgs. per annum

Punjab 71.5

Haryana 68.5

Maharashtra 40.9

Gujarat 40.9

Kerala 41.5

Uttar Pradesh 35.2

Tamil Nadu 29.1

Karnataka 23.3

All India 31.5

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Table 1: Sugar mills

in India (segregated

on the basis of

ownership structure)

Sr. No.

Sector Number of Units

1. Private Limited

Companies

335

2. Co-operative Societies 325

3. Public Limited

Companies

43

Total 703

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Cogeneration of steam and Power:

Cogeneration of power by sugar mills in India began a

decade back in the year 1993-94 with the Ministry of Non-

conventional Energy Sources (MNES) formulating its

guidelines for fixation of the rate of power supplied by sugar

mills to the Electricity Boards.

With a small beginning by 8 sugar mills generating 50 MW

power, in 2005, 48 units have set up their power plants

generating 680 MW power.

According to information currently available, an equal

number or say 50 sugar mills are in the process of putting up

power plants to produce yet another 700 MW, taking the

total generation to about 1400 MW against an assessed full

industry potential of 3500 MW. The State-wise breakup of

installed cogeneration capacity is given in Table No.VII.

Though, there have been problems mainly related to

acceptance and continuation of the power rates as per the

MNES guidelines as also with regard to actual payment

against power supply to the Electricity Boards. Yet as would

be evident, there has been appreciable growth and this trend

is likely to continue in future as well because of growing

demand for power in the country.

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Table No. VII

STATEWISE ANNUAL INSTALLED COGENERATION

CAPACITY

State Number of Units

Installed Capacity MW

Andhra

Pradesh

10 130

Karnataka 11 160

Tamil Nadu 14 255

Uttar

Pradesh

9 100

Punjab 1 10

Maharashtra 3 25

Total 48 680

Fuel Ethanol

Encouraged by the success of the pilot projects in the year

2000-01, the Minister for Petroleum and Natural Gas

announced in Indian Parliament in December 2001, the

Government's decision to implement the mixed fuel

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programme with ethanol in three phases. The

implementation of first phase (5% blend) was further sub-

divided into two parts, it has been taken up first in 9 States

and 4 Union Territories with effect from 1st October, 2003,

where sugarcane crop is being extensively grown. In the

second part, the rest of the country is to be covered. Under

this programme the requirement of fuel ethanol worked out

to roughly 350 million litres to go upto 500 million litres when

the entire country is covered. The Government have also

indicated the second and third phases of the ethanol

programme. In the second phase, the objective is to

increase the blending of ethanol to 10% with petrol. Apart

from ethanol, work had also begun on blending ethanol with

diesel.

Enough capacity has been created for production of ethanol

within a short period. Mostly, distilleries attached with sugar

mills have taken up this programme. Out of 295 distilleries,

as many as 118 distilleries are attached with sugar mills, of

them 70 have added new ethanol plant with production

capacity of over 700 million litres sufficient to meet 5% blend

for the entire country. The state wise position is given in

Table No. VIII.

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Table No. VIII

The state wise installed Ethanol production capacity

State/UT Requirement of Oil

Marketing Cos.

Availability in

the State & UT

Uttar Pradesh 51 190

Punjab 32 Nil

Haryana, Chandigarh 24 Nil

Maharashtra 70 350

Gujrat, Daman Diu &

Dadra & Nagar Haveli

40 30

Goa 5 Nil

Andhra Pradesh 40 30

Karnataka 35 58

Tamil Nadu &

Pondicherry

48 52

Total 345 710

Besides 128 million litre capacity is under implementation in

UP and about 200 mln. litre capacity is under various stages

of implementation in Maharashtra and other states making

the total capacity to over 1000 million litres sufficient to meet

the requirement at 10% ethanol blend under the second

phase. Following table gives the details of Ethanol

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production at 90% utilisation of molasses for distillation from

2001-02 to 2003-04 and estimates upto 2006-07.

SEASONAL ETHANOL PRODUCTION AT 90 %

UTILISATION OF MOLASSES FOR DISTILLATION

Year Million litres

2001-2002 1620

2002-2003 1755

2003-04 1215

2004-05* 1140

2005-06* 1600

2006-07* 18 70

*Projected

However, the pricing of ethanol is an important issue which

needs further consideration particularly in view of the steep

decline in sugarcane and sugar production in the year 2003-

04 and 2004-05, thereby affecting the output of byproduct

molasses, which is being used for production of fuel ethanol

in India. Moreover, the recent budget proposal for the year

2005-06 to hike the excise duty on molasses from Rs.500/-

to Rs. 1000/-per tonne is a matter of serious concern and

needs immediate reconsideration by the Government.

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Fortunately, the use of ethanol as a blend fuel adopted by

most of the countries producing / exporting sugar is a

healthy development, which provide flexibility for the sugar

industry in those countries to absorb cane supplies for

production of ethanol, thereby balancing the sugar economy

and also ensuring the reasonable price structure for sugar.

Such corrections in the future will ensure a healthy growth of

the sugar industry.

India in the World Market

Indian approach towards export of sugar is vastly different

and market friendly. India has been exporting sugar

occasionally in periods of sugar surpluses. Whereas, most

other countries dump their excess sugar in the International

market despite easy accessibility to funds carrying low rate

of interest, the Indian sugar industry has observed

considerable constraint by limiting its exports. In the last five

years it exported 4.07 million tonnes sugar. India had an

average exportable surplus of 6.23 million tonnes during the

last 5 years. As against this, on an average, the sugar

exported was only 0.81 million tonnes or 7.69% of the total

exportable surplus as would be evident from the data given

in Table No. IX.

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Table No. IX

Exportable surplus, sugar stock & actual exports

Year

Closing

Stock

(Million

Tonnes)

Exportable

surplus

(Million

Tonnes)

Actual

Export

(Million

Tonnes)

% export

of surplus

stocks

1999-00 9.38 5.38 0.07 1.30

2000-01 10.4 6.4 1.2 18.75

2001-02 11.3 7.3 1.1 15.06

2002-03 11.6 7.6 1.5 19.73

2003-04 8.5 4.5 0.2 4.44

Average 10.23 6.23 0.81 7.69

Sugar exports, in a limited manner, were mostly confined to

the neighbouring countries. If India were to liquidate its huge

stocks in the international market, the world sugar prices

would have nose-dived affecting all exporting nations.

Disciplined Indian approach towards exports deserves

consideration so as to bring about order in the world sugar

market, rather than resorting to subsidized exports.

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Sugar Marketing Scene

Indian sugar sector has a large stake in the world sugar

economy. From an era of large production, high surpluses

and virtually unmanageable stocks, India can turn into an

importer of sugar, albeit of raw sugar, to meet the gap

between supply and demand thereof, following two

consecutive years of exceptionally low sugar output.

Reasons for this may be due to severe drought conditions in

Southern and Western India, in particular, or due to attack

of pests and diseases, that take a heavy toll of sugarcane

crop, with sugar output plummeting. Also, notwithstanding

such a steep decline in production, large opening stock of

sugar can be considered as unbearable burden.

As would be evident from the table below, after meeting

adequately the projected demand for sugar, the carry

forward stocks at the end of sugar year 2004-05 would stand

at a reasonable figure of 4.5 million tonnes, equal to broadly

three months' consumption requirement for the initial period

of 2005-06 sugar year.

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Table X: SUPPLY AND DEMAND POSITION OF SUGAR

FOR THE SEASON 2003-04 AND ESTIMATES FOR 2004-

05 & 2005-06

(Figures in million tonnes)

2003-04 2004-05 2005-06

Opening stock 11.6 8.5 4.5

Production 14.0 12.5 17.5

Imports 0.55 2.0 1.5

Total availability 26.15 23.0 23.5

Off-take for

1. Internal

consumption 17.45 18.5 19.0

2. Export 0.2 - -

Total 17.65 18.5 19.0

Closing stocks 8.5 4.5 4.5

However, for the first time, the new Government with its

farmer and rural area centric approach, evolved a policy for

import of raw sugar that has not only helped the sugar

economy, but has also helped to crossover the period of

aberrations in a manner that has protected all the three

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major stake holders - sugarcane farmers, sugar industry as

well as the consumers.

Import of raw sugar, in fact, began in the previous season

2003-04 itself - initially under DFRC license against white

sugar exported out of the country, followed by fairly sizeable

imports under the "Advance Licensing Scheme" (ALS) of the

Commerce Ministry. No doubt, to facilitate import of raw

sugar, Government of India at the initiative of Ministry of

Agriculture and Food, relaxed certain stipulations by de-

linking grain to grain matching of raw sugar import with white

sugar export for fulfillment of export obligation. Further a

much longer period of 36 months has been allowed to fulfill

the export obligation as against the normal period of 24

months.

Under the impetus of this scheme, sugar factories in

Southern India, Northern India as well as Western India

imported significant quantities of raw sugar to increase

availability of sugar for domestic consumption during the

sugar year 2004-05. Thus, availability of additional sugar

supply was fairly wide spread, although in Southern India

with higher imports, larger additional supplies of white sugar

became available. However, this did not cause any regional

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imbalance considering the larger deficiency in supply in the

Southern and Western India.

In the table No. XI, the estimates for import of raw sugar

regionwise for the years 2003-04 to 2004-05 has been given.

Table XI REGION-WISE RAW SUGAR IMPORT (Figures in

Lakh Tonnes)

Region

2003-

04(Oct.-

Sep.)

2004-05 (Oct.

2004 to 10th

Mar.2005)

Addl. Qty.

expected by

30th

Sept.

2005*

Karnataka 0.49 3.79 1.60

Tamil Nadu 3.65 2.78 1.30

Andhra

Pradesh

0.89 1.84 0.60

Uttar Pradesh 0.50 4.82 1.80

Maharashtra - 0.57 0.80

Bihar - 0.07 -

Total 5.53 13.87 6.10

*Projected

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Outlook for sugar industry:

With an annual production capacity of over 30 million metric tonne

(MMT), the Indian Sugar Industry (ISI) is the second largest producer

of sugar in the world. It is also the second largest agro-based industry

in the country after cotton. The sugar industry contributes significantly

to socio-economic development of the rural population. ISI remains

highly regulated and is a source of livelihood for 50 million farmers

and their families; and provides direct employment to over 5 lakh

skilled and semi-skilled labour in sugar mills and allied industries

across the country. The annual turnover of the industry is estimated

at Rs.41,000 crore and it pays about Rs.2,500 crore per annum to the

government in the form of taxes.

In the past, inadequate availability of sugar arising out of decline in

production was supplemented by way of additional supplies through

import of white sugar from the world market. The Government has

instituted the policy of facilitating import of raw sugar thereby placing

greater reliance on the ability of the sugar industry to process raw

sugar and make additional supplies of refined white sugar available

for consumption in the domestic market.

Sugar industry on its part has also responded to the needs of the

situation and discharged satisfactorily its consequential obligation.

The success of the new policy clearly underlines that in future too

whenever any such occasion arises, emphasis would be laid on raw

sugar import rather opening up white sugar imports. Thus, a new

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demand driven policy has taken shape in the large interest of all

concerned within the sugar sector.

On the other hand, sugar has a long established international market

with sizeable volumes of over 45 million tonnes being traded each

year. Asian continent, Far East and the Middle East region importing

around 15 million tonnes of sugar annually, provides an excellent

means of increasing our exports, especially in view of the steep

increase in the ocean freight in the recent past. Moreover, India has a

great potential to increase sugarcane and sugar production as the

sugarcane crop merely occupies about 3% of our cultivable area.

What is needed is a fresh outlook i.e. sugarcane pricing policy based

on sugar prices and a trade policy akin to the one followed by other

regular sugar exporting countries. Larger production and higher sugar

exports on a regular basis may provide incidental added value to the

sugar sector and enable setting up of large sugar complexes -

producing clean energy i.e. ethanol and power beside sugar, thereby

ensuring adequate and timely payment of sugarcane price to the

millions of sugarcane farmers.

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