SUGAR INDUSTRY IN INDIA:

STATUS AND POLICY NEEDS

INDIAN SUGAR MILLS ASSOCIATION, NEW DELHI

Sugar Production & Consumption

2

127

193

284

264

145

189

244

263

251244

283

251

213

185 185

199

219

229

213208

226 228

242

256248

242

120

140

160

180

200

220

240

260

280

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

2010-11

2011-12

2012-13

2013-14

2014-15

2015-16(

P)

2016-17(

E)

SugarProduc on InternalConsump on

lactons

Production in surplus over consumption continuously for 6 years since 2010-11

Sugar trade from & to India

-1.24-5.53

-21.38-24.03

-40.80

-6.76

-0.98

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

-50

-40

-30

-20

-10

0

10

20

30

40

50

60

2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16(E )

Imports Exports

lac tons

3

Forcing India to export sugar in last 6 years, even to an unviable global market.

Important to note that India still imported 7.75 lakh tons in the midst of surplus.

Average domestic sugar prices

4Rs. per ton

7.75 lakh tons of imports in the midst of surplus in 12-13 & 13-14, got stuck in domestic

market, further depressing the already low domestic sugar prices, for the next 2 years in

13-14 and 14-15.

Recovery could happen only after 16 lakh tons exported with production subsidy from

Govt. in 2015-16

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

FRP

5

Rs. per quintal

Cane Price fixed by Government of India

FRP has increased very steeply 3 times in 09-10, 12-13 and 13-14, which made FRP

also unaffordable for the industry.

The mistake seems to be getting repeated for 2017-18 SS

Cost of production vs. Average ex-mill prices

6Rs./quintal

• Cane prices increased steeply in 09-10, 12-13 & 13-14

• Increasing cost of production

• Ex-mill sugar prices were depressed, thanks to surplus sugar, due to both high

domestic production as also imports

• Sugar prices much lower to cost of production from 2013-14 to 2015-16

• The Industry incurred massive losses

Cane price arrears accordingly reached record levels

7

8577

12702

1864820099

13530

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

Rs. Crore

Mismatch between sugar prices and cane prices

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 8-9 years, FRP has increased by almost 100%

Sugar prices not kept pace at 20-25%; 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

8

FRP v/s average ex-mill price in last 5 years

9

129.84

139.12 145

170

210

220

230 230

2951

2727

2951

3148

2917

2492

3121

3480

500

1000

1500

2000

2500

3000

3500

4000

75

105

135

165

195

225

255

2009-10

2010-11

2011-12

2012-13

2013-14

2014-15 2015-1

6

2016-17( llJan'1

7)

FRP Ex-MillPrice

Rs. per quintal

FRP of Sugarcane Vs MSP of Paddy & Wheat

1000 1000

1080

1250

13101360

1410

14701298

1391

1450

1700

2100

2200

2300 2300

1100 1120

1285

13501400

1450

1525

800

1000

1200

1400

1600

1800

2000

2200

2400

2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17

Paddy (Rs./qtl.) Sugarcane (Rs./ton) Wheat (Rs./qtl)

11

Rangarajan Committee recommendations

Cane price should 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

11

Implementing RR Committee recommendations

GOI allowed States to decide on the recommendations

Maharashtra and Karnataka adopted RSF

Working well for last 2 years or so

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

fix SAP unilaterally, at much higher levels

CACP in last 3 years, has continuously recommended that

Liability of mills be restricted at Revenue Sharing Formula

And yet guarantee farmers to get at least FRP

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

from a Price Stabilisation Fund (PSF) created by Government

12

Price Stabilisation Fund (PSF): ISMA’s suggestions

Source of funds: Cess on sugar

Instead of cess going to SDF, can use it for PSF

or SDF can be exclusively used for cane price shortfall

Cess can be levied when ex-mill sugar prices are depressed

Consumers will still pay retail price less than or equal to normal years

Will also ensure a more stable retail price

Win win for all stakeholders, including Government

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

Equivalent to Rs.10 per quintal of cane price

The payment from PSF can be made directly to farmers

13

Sugar mills need time to recover

Losses incurred during last 3-4 years

Mills had to borrow money to fund losses, including to pay cane price

of farmers

Debt burden jumped from Rs.12,000 cr in 2007-08 to

Rs.50,000 crore now

The Rs.10,000 crore of Soft/SEFASU loans given (with

interest subvention by Government) is due for repayment now

Industry unable to service all debt burden simultaneously

Companies becoming sick or becoming NPA accounts

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Debt Restructuring

S4A scheme of RBI allows restructuring of debt

For major industries with debt over Rs.500 crore and above

Allows coversion of upto 50% debt into various instruments including

non-convertible debentures etc.

Request to get S4A scheme extended to sugar industry too

Only modification required is reduction of threshold limit to Rs.100

crore since most sugar companies are in small/medium level

This will give time to sugar industry to recover its losses and

get back on its feet

15

Fuel grade ethanol

At 10% blending with petrol, 280 crore litres of ethanol reqd.

Last year requirement was 266 crore litres

Supplies were 111 crore litres @4.3% blending

Against 280 crore litres reqt., 2 Rounds of EOI has given 78

crore litres of contracts for 2016-17 (Dec - Nov)

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Policy changes and supplies

16

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

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 ethanol price to sugar price and delinked from crude oil price

In July 2015, another positive decision taken 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

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Ethanol supply constraints

Feedstock availability

B-heavy molasses can be diverted from sugar to ethanol to give enough

for even 15% blending, but require encouraging prices

Ethanol production capacity

Only 130 out of 530 mills have ethanol capacities

Ethanol movement

Taxes & duties by States and insistence of excise permits incorrect

Reiterated by GOI by amending IDR Act in 2015

Stable policies, pricing and incentives required

To attract investments as also ensure more feedstock for the purpose

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Policy requests for ethanol

Restore excise duty waiver on ethanol and pass on benefit to

sugar companies/ethanol manufacturers

Ethanol price should be fixed not only to cover its producing

cost, but should also give credit to

Ethanol’s property to control pollution and improve air quality

Also that it improves returns of farmers

And that it reduces net oil import bill

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GST for sugar industry: Industry’s requests

On sugar, currently taxes & duties are around 2.5%

GST on sugar should therefore, be at the lowest rate of 5%

On sugarcane, no central tax or duty

To ensure returns of farmers don’t get affected, sugarcane be exempted

Current excise duty on ethanol is 12.5%

But considering its several benefits, including reducing air pollution,

tax on ethanol should be minimal: GST on ethanol at lowest rate of 5%

Cess on sugar currently at Rs.124 per quintal

Cess be used for cane payment/ PSF; if not, should be subsumed

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Current year 2016-17 sugar balance sheet

Opening balance

(as on 1st Oct, 2016)

77.5 lakh tons

Estimated sugar production 213 lakh tons

Sugar availability during the season 290.5 lakh tons

Estimated sugar consumption 242 lakh tons

Closing balance

(as on 30th Sept, 2017)

48.5 lakh tons

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Domestic requirement/ sugar sales

Sugar despatches in Oct-Dec 2016 lower by 5.5 lakh tons than

the sales last year Oct-Dec 2015

Field reports suggest sugar sales in Jan. ‘17 slow, and

therefore will be lower to the 25 lakh sold in Jan ‘16

Last sugar season 2015-16, 248.5 lakh tons was sold

Beverages, sweet makers etc. reporting lower sales/ growth

Considering, 5.5 + less sales in Jan ‘17 + similar sales in

balance 8 months, sugar desptaches in 16-17 at 242 lakh tons

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What is a good opening stock of sugar on 1st Oct??

Traditional norm was 3 months sales i.e. for Oct-Dec months

Oct-Dec 2016 it was 65.3 lakh tons, Oct-Dec 2017 was 59.8 lakh tons

But that was under regulated release mechanism

When there was a lag of at least 45 days between production and sale

Production reported after month got over, & ROs issued for next month

Nov. production was therefore available for sale only in January

With no release mechanism, no lag b/w production & sale

Sugar produced in Nov. is now available for sale in Nov itself

In current season, 28 lakh tons produced in Oct-Nov

New sugar is available in market from Nov. itself in full swing

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Surplus sugar production expected next season

Good initial sowing reports, good rainfall & water availability

Indicate surplus sugar production in 2017-18

Sugar production to be in full swing from end of Oct’17

30 lakh tons of new sugar expected in market in Oct-Nov ’17

Sales in Oct-Nov in past has been 37-40 lakh tons

Whereas OB on 1st Oct ‘17, expected at 48.5 lakh tons (equivalent to

2.5 months consumption requirement)

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ISMA will suggest on imports, if & when need arises

No need for any sugar import or change in import duty now

Final production nos. for 16-17 will be available by March-April

Enough time of 4-5 months to decide on imports to supplement OB

Imports would be required only if production and

consumption numbers are significantly different to estimates

Unrestricted and unnecessary imports will burden

industry and farmers for several years as seen in past

ISMA will be in constant touch with Government to

To decide to import as & when the need arises,

As also to decide on quantity and methodology of imports

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Cost of production higher in current year 2016-17

Higher SAP for cane in North India

Increased by States by 10-15%

Drought in West and South India

Lower production and sugar recovery means higher per unit cost

As compared to cost of sugar of Rs.33 per kilo last year,

the costs are therefore, higher at Rs.37.5 per kilo currently

At these costs, retail sugar prices would also be higher

Otherwise, cane price and bank loan repayments will fall in arrears

Plus, FRP for next year proposed to be increased by 10%

Will increase costs by another 10% next year

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All India average ex-mill price of sugar vis-à-vis Cost of Production of sugar

3081 3067

2950

2790

2618

2460

2405

2157

2433

2583

2910

3170

3400

3450

3475 3456

3400

3600

2000

2200

2400

2600

2800

3000

3200

3400

3600

3800

All India Ex-Mill Prices

CoP Rs. 3100/qtl

CoP Rs. 3300/qtl

CoP Rs. 3750/qtl.

Concluding ….

1. Cane price be determined as a Revenue Sharing Formula

If it is below FRP, the gap be filled up from a Fund like PSF,

Which in turn could be funded through a sugar cess

2. Debt of sugar industry be restructured under S4A

By modifying threshold limit to Rs.100 crore

3. Ethanol price and excise duty waiver be restored

States be convinced against State duties and excise permit requirement

Can be started from BJP ruled States: Maharashtra, Haryana, Gujarat

4. GST: sugar & ethanol at 5%, cane exempted, Cess for PSF

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Concluding…..

5. Adequate sugar availability in current 2016-17 season

With healthy carry forward of 48.5 lakh tons for next season

Enough for 2.5 months consumption requirement

New season’s sugar would be available in full swing by end Oct ‘17

No need of any imports or reduction in import duty

6. Cost of production of sugar is higher this year

Retail prices would therefore be higher to last year by 10-15%

Need to accept that costs will be higher next year by another 10% due

to an increase in FRP for 2017-18

Hence sugar prices this year and next year will be higher

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Thank you