SUGAR INDUSTRY IN INDIA:

INDIAN SUGAR MILLS ASSOCIATION, NEW DELHI

Presentation to Food Secretary on 25.10.2017

Indian sugar production: an overview

World’s 2nd largest producer at 25-26 million tons

Brazil largest at around 36 million tons

Around 5 million hectares of land under sugarcane

50 million cane farmers and their dependants

Around 700 sugar mills installed

530 or so operational

75-80% of production from Mah., UP and Karnataka

2

Domestic consumption: an overview

India is world’s largest consumer of sugar

Generally, all sugar produced is consumed domestically

Per capita consumption is low at around 19-19.5 kilo

Annual consumption estimated at 24-25 million tons

62-65% of sugar consumed directly by bulk users

(AC Nielsen report of 2007)

Only 35% consumed by households

3

Sugar Production

127

193

284

264

145

189

244

263

251244

283

251

203

251

185 185

199

219

229

213208

226 228

242

256248

245

250

120

140

160

180

200

220

240

260

280

Sugar Production Internal Consumption

lac tons

4

Sugar trade from & to India

-1.24-5.53

-21.38-24.03

-40.80

-6.76

-0.98-5 -3

10.82

17.67

2.660.04

11.07

17.28

49.56

1.65 2.35

26.0029.92

3.48

21.27

11.01

16.56

0.00 0.00

-50

-40

-30

-20

-10

0

10

20

30

40

50

60

200

1-0

2

200

2-0

3

200

3-0

4

200

4-0

5

200

5-0

6

200

6-0

7

200

7-0

8

200

8-0

9

200

9-1

0

201

0-1

1

201

1-1

2

201

2-1

3

201

3-1

4

201

4-1

5

201

5-1

6

201

6-1

7

201

7-1

8

Imports Exports

lac tons

5

Sugar Production & Consumption in India

127.0

193.0

284.0264.0

145.0

189.0

244.0263.0

251.0 244.0283.0 251.0

203.0

251.0

85.0

40.0

43.0

110.0

105.0

44.0

50.0

59.066.0

93.0

75.0

91.0

77.039.0

185.0 185.0

199.0 219.0229.0

213.0208.0

226.0 228.0

242.0

256.0248.0 245.0

250.0

100.0

150.0

200.0

250.0

300.0

350.0

400.0

2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 (P)

2017-18€

Production opening Balance Internal Consumption

lac tons

6

Government Controls

Price for sugarcane fixed by Govt. of India (FRP)

Which then becomes the minimum price for cane

5 State Govts. fix another price for cane (SAP), which then

becomes minimum price for cane in those States

Cane area reserved for each factory

Two way obligation on farmers and millers

Min. distance between two factories 15 or 25 kms

7

74.579.5 80.25 81.18 81.18

129.84

139.12145

170

210

220

230 230

255

50

75

100

125

150

175

200

225

250

2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18

FRP

Rs. per quintal

Cane Price fixed by Government of India

8

A few States still fix a higher price called SAP

107115

125 125

140

165

205

240

280 280 280 280

305

74.579.5 80.25 81.18 81.18

129.84139.12

145

170

210220

230 230

255

50

100

150

200

250

300

350

2004

-05

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

2012

-13

2013

-14

2014

-15

2015

-16

2016

-17

2017

-18

SAP of UP SMP/FRP

Rs. per quintal

9

Average domestic sugar prices

1,420 1,577

1,205 1,247

2,022

2,651 2,727

2,951

3,148

2,917

2,492

3,121

3620

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17

Ex-mill Sugar Price

Rs. per quintal

10

Cost of production vs. Average ex-mill prices

Rs./quintal11

All India average ex-mill price of sugar

3081 3067

2950

2790

2618

24602405

2157

2433

2583

2910

3170

3400

3450

3475 3456

3408

3597

3730

3640

3560

37213710

3689

2000

2200

2400

2600

2800

3000

3200

3400

3600

3800

4000Rs. per quintal

12

Under partial decontrolled environment

Sugar sales and sugar prices are market determined

But sugarcane price and quantity controlled

Mismatch between cane price and sugar price

13

FRP v/s average ex-mill price in last 8 years

129.84

139.12145

170

210

220

230 230

2951

2727

2951

3148

2917

2492

3121

3620

500

1000

1500

2000

2500

3000

3500

4000

75

105

135

165

195

225

255

FRP Ex-Mill Price

Rs. per quintal

14

Cost of production of sugar in India is high

Making Indian sugar uncompetitive

Making Indian exports unviable

Surplus sugar in India depresses sugar prices

Resulting in massive losses to millers and cane price

arrears of farmers

15

Important policy directions for way forward…..

1. Need to rationalize sugarcane pricing policy

2. Need to ensure a vibrant ethanol sector

3. Need to plan for 2018-19 SS surplus

16

1. Rationalise sugarcane pricing policy

Currently FRP is fixed by GOI, and SAP by 5 States

No link between cane and sugar prices/revenue realisation

Cane price sometimes crosses even 90-100% of revenue realisation,

leaving nothing for other liabilities

In last 3-4 years, FRP has increased by over 50%

Sugar prices not kept pace; have even fallen in some years

FRP has become unaffordable to sugar mills

Other countries have a cane price – sugar price linkage

Cane price generally at 62 - 65% of revenue realised in those countries

17

Rangarajan Committee recommendations

Cane price to be automatically determined as per a linkage or

revenue sharing formula (RSF), at:

70% of revenue from sugar & primary by-products or

75% of revenue from sugar alone

Farmers to be guaranteed a minimum FRP as 1st instalment

If RSF is above FRP, a 2nd instalment paid at end of the season

18

Implementing RR Committee recommendations

In 2013, GOI advised States to decide on the recommendations

Maharashtra and Karnataka adopted RSF

U.P., Punjab, Haryana, Uttarakhand & Tamil Nadu continue to

fix SAP unilaterally, at much higher levels

CACP continuously recommended RSF for last 3 years

Liability of mills be restricted at RSF

But in years of low sugar prices, gap between FRP and RSF be filled

from a Price Stabilisation Fund (PSF) created by Government

CACP recommendations yet to be accepted by Government

19

Price Stabilisation Fund (PSF)

Source of funds for PSF

Cess on sugar meant for SDF subsumed

Govt. however, has powers to levy cess through a new legislation

Cess can be levied when sugar prices depressed

Consumers will still pay less than normal years

Will also ensure a more stable retail price over the years

Re.1 per kilo cess will give Govt. Rs.2500 crore annually

Equivalent to almost Rs.10 per quintal of cane price

The payment from PSF may be made directly to farmers

20

FRP for 2018-19 SS and RSF

Report/recommendations for FRP for 18-19 wd. have been

submitted by CACP in Aug-Sept 2017 (Govt. yet to accept)

Like previous years, CACP must have recommended for RSF and PSF

Request for acceptance of FRP along with RSF and PSF

RSF-PSF will ensure

One Nation - One Cane Price – for One Unified Market

A viable & globally competitive Indian sugar industry

Remunerative & timely cane price payment: nil or negligible arrears

Stable retail sugar prices over the years

21

2. Vibrant ethanol sector

At 10% blending with petrol, 303 crore litres of ethanol reqd.

In 2015-16, requirement was 266 crore litres

Supplies were 111 crore litres @4.3% blending

But fell to around 75 crore litres in 2016-17 due to the drought

EOI for ethanol supply for 17-18, invited by OMCs on 18 Oct

For 313 crore litres

Bids by 7th Nov, 2017

Procurement price for 17-18 expected to be finalised soon

With good sugarcane crushing, ethanol supplies should improve

22

Policy changes and supplies

2011-12 2012-13 2013-14 2014-15 2015-16 2016-17

Policy Change Quantity Contracted (Million Litres)

Fixed Price Policy

Changed to market driven price policy

Exemption from Central Excise Duty

Changed to fixed price policy. Price not linked to crude

oil/petrol price

Excise waiver withdrawn.

Procurement Price reduced

674.1 413.9 382.2

300.6

779.3

1110.0

23

Positive policies on ethanol & withdrawal later

There has been a flip-flop on ethanol policies and pricing

Dec 2014 Cabinet decision is an important milestone

Modi Govt. decided on a fixed pricing policy for ethanol

Linked to sugar price realisation and delinked to crude oil price

July 2015, another decision to exempt ethanol from central

excise duty of 12.5%

However, these two positive decisions were suddenly reversed

Ethanol prices reduced by Rs.2-3 per litre

Excise duty waiver withdrawn in middle of contract period

Has resulted in much lower ethanol offers for 2016-17 period

24

Ethanol supply constraints

Capacity enhancement

Current capacity with sugar industry & stand alone is 225 crore litres

Out of 530 sugar mills, only 130 have capacity to produce ethanol

Need help with concessional loans to increase capacities

Movement of ethanol

Denatured fuel grade ethanol, which cannot be consumed, is Central

Govt. subject (IDR Act amended in May, 2016, to reiterate this)

Yet, States insist on State Excise permits and even levy taxes & duties

Duties of Rs.2 -3 per litre reduces realisations by 5-7%

Only Karnataka has in July, 2017 made it free and levies no taxes

Other States should follow, esp. after IDR amendment of May, 2016

25

Current year 2017-18 sugar balance sheet

Opening balance

(as on 1st Oct, 2017)

39.00

Estimated sugar production 251.00

Imports 3.00

Sugar availability during the season 293.00

Estimated sugar sales (considering 2%

growth)

250.00

Closing balance

(as on 30th Sept, 2018)

43.00

2

2626

3. Huge surplus expected in 2018-19 SS

Very good rainfall in 2017 and with reservoirs back to normal

or above average

Sugarcane planting for 2018-19 harvest excellent

Maharashtra, Karnataka and TN expected to be back to normal

UP should be better, esp. with the early high yielding variety increasing

Other States too will increase production

Experts expect surplus sugar globally too

Hence, the global prices may not be viable for Indian exports

Undisposed off surplus sugar will burden the sugar sector

Sugar prices will fall, cash flows get affected & cane price arrears

27

Export the surplus sugar or convert to ethanol

Export some of the surplus

Like in 2015-16, export quotas (MIEQ) may be fixed for each mill

And Govt. can reward them with production subsidy on cane price

Bangladesh, Sri Lanka & China markets will have to be tapped

Convert B-heavy molasses or cane juice into ethanol

20 lakh tons of sugar can be converted into 120 crore litres of ethanol

For that, the price of ethanol needs to be at 1.5 times price of sugar so

sacrificed, i.e. at least Rs.10 per litre above the current ethanol price

As also, ethanol capacities will have to be majorly augmented

28

Thank you

29