CONTENT

INTRODUCTION

INTRODUCTION TO SKIL

PROFILE

SUGAR PRICE

DEMAND FACTOR – GLOBAL

DEMAND FACTOR – INDIA

GLOBAL PRODUCTION, SUPPLY

SUGAR PRODUCTION AND SUPPLY IN INDIA

FACTORS AFFECTING PRODUCTION

THE BREAK-EVEN POINT

SUGARCANE UTILIZATION

SUGAR CONSUMPTION IN INDIA

SUGAR EXPORT

SUGAR PRODUCTION

SUGAR MARKETS IN DISARRAY

SUGAR IN THE NEXT CENTURY

TO SUM UP

INTRODUCTION:

India is the largest producer of sugar in the world. In terms

of sugarcane production, India and Brazil are almost equally

placed. In Brazil, out of the total cane available for crushing,

45% goes for sugar production and 55% for the production of

ethanol directly from sugarcane juice. This gives the sugar

industry in Brazil an additional flexibility to adjust its sugar

production keeping in view the sugar price in the

international market as nearly 40% of the sugar output is

exported.

Sugar industry – Global:

Brazil and India are the largest sugar producing countries

followed by China, USA, Thailand, Australia, Mexico,

Pakistan, France and Germany. Global sugar production

increased from approximately 125.88 MMT in 1995-1996 to

149.4 MMT in 2002-2003 and then declined to 143.7 MMT in

2003-2004, whereas consumption increased steadily from

118.1 MMT in 1995-1996 to 142.8 MMT in 2003-2004.

The world consumption is projected to grow to 160.7

MMT in 2010 and 176.1 MMT by 2015. According to ISO, the

world sugar output is forecasted to reach 145.0 MMT and

consumption to reach 147.0 MMT in 2004-2005, resulting in

a deficit of around 2 MMT in 2004-2005. Further, since

October 2003, nearly 5 MMT of surplus sugar are expected

to have been removed from the world sugar balance,

reducing the stock/ consumption ratio to less than 42%.

INTRODUCTION TO SKIL:

Sugar Knowledge International Limited, known throughout

the world's sugar industry as SKIL, was established in 1980

to provide consultancy services to the cane sugar sector. It

was intended that advice would be available for both

agricultural and factory operations. From these modest

beginnings it has grown into a company providing a broad

range of professional services for all aspects of the beet and

cane sugar industries.

The founders of SKIL, and all the current directors, built their

careers working for multinational sugar companies such as

Tate + Lyle, Booker and British Sugar. This ensures that

services are provided with a clear understanding of the

corporate context including, perhaps most importantly, full

commercial awareness. The company, however, jealously

guards its independence from any sugar group and is one of

the few truly independent organisations offering professional

services to the sugar industry internationally.

It is difficult to identify a single project as typical of the work

undertaken by the company because of the diversity shown

in the project listings. The work for PTP XXIV / XXV in

Indonesia comes closest because it involves several projects

ranging from the initial concept to subsequent expansion.

PTP XXIV / XXV, an Indonesian Government company,

appointed SKIL to assist in establishing sugar estates in the

outer islands. SKIL oversaw the development and initial

operation of two large estates financed by the World Bank

and other International Lending Agencies. SKIL was also

retained in later years to assist with their subsequent

expansion.

Today SKIL is an independent professional services company

with the resources necessary to provide consultancy, project

engineering, project management and operational

management to both the beet and cane sugar industries,

including the utilisation of molasses and other by-products.

The company has the flexibility to work with its clients in the

way most appropriate to the particular project. Its clients

have the assurance of working with a UK registered

company with full Professional Indemnity and Public Liability

insurances.

Since its establishment, SKIL has completed projects in most

parts of the sugar world and worked with many International

Lending Agencies:

Studies for new sugar developments and acquisition of

existing operations

Operational reviews and remedial assistance for agricultural,

factory and refinery operations

Design and supervision of agricultural and factory

refurbishments

Design and project management of new developments and

expansions

Training of staff and management both on site and via

external visits

SKIL is steadily expanding its role in the sugar industry,

offering a comprehensive range of services:

Operational consultancy in the field and factory to resolve

acute problems and guide their recovery through

refurbishment.

Development planning and conceptual design at both new

and existing sites.

Assistance with rising of project finance.

Engineering design and commissioning.

Contract administration and construction supervision of

projects.

Operational management of cane sugar estates.

Most organisations require assistance from time to time,

often during projects when work loads peak but also when

operational problems arise. SKIL, recognising this, has

responded by ensuring that it is quickly able to offer the

appropriate help.

PROFILE:

We are a focused, innovative corporation having core

competencies in the areas of sugar and engineering. Our

growth has been empowered with steadfast and distinctive

adherence to business ethics, transparent governance and

commitment to highest standards of social responsibility.

From a humble beginning in 1930s, we have

transformed ourselves into an INR 10 billion company

through an interesting blend of people, technology and

entrepreneurial spirit.

Today, we touch the lives of millions of people globally

by serving our customers in the areas of sugar, turbines,

gears & gearboxes and water & wastewater treatment. While

we are amongst the three largest sugar manufacturers in

India, we are also the market leaders in our engineering

businesses, having a global footprint.

Embracing the virtues of integrity, excellence and

commitment, we move ahead to take on the opportunities

and challenges offered by the future. We are geared to

transform into a truly global enterprise through a prudent

mix of technical innovation and exceptional customer service

delivery.

Our commitment to excellence and strong corporate

governance guides us in this endeavor, as we look ahead at

powerful growth and building a socially equitable,

sustainable future

Business Overview:

Triveni's association with the Sugar Industry is as old as the

Industry itself. In pre- independence India, the promoters of

what is now the Triveni Group established several sugar

factories in pre independent India. Even now, Triveni is the

pre- eminent name in the Indian sugar industry.

With a current cane crushing capacity of 43,500 TCD

(Tonnes Crushing per Day) and new sugar units underway,

the Triveni Group continues to be one of the largest

producers of sugar in India. The crush capacity of the

existing plants are (as follows;

Khatauli, in District Muzaffarnagar (16,000 TCD)

Deoband in District Saharanpur (14,000 TCD )

Ramkola in District Kushinagar (6,500 TCD)

Subitgarh in District Bulandshehar (7,000 TCD)

All Four sugar factories are located in the state of Uttar

Pradesh. In all the factories, double suphitation process is

followed for sugar production.

Triveni is operating a 10,000 TCD (and is in the middle of

increasing it to 14,000 TCD) capacity sugar unit at Deoband

in District Saharanpur, Uttar Pradesh. As a result of

modernisation activity taken up at Deoband, there was

substantial reduction in process steam consumption and

therefore increased availability of bagasse. It was decided to

use the additional savings of bagasse as result of the

modernisation of the plant synergitically in a high pressure &

temperature cogeneration power plant at Deoband.

The sugar produced at Triveni's factories is direct

consumption plantation white low ICUMSA (an International

method for determining colour value of sugar, lower value

means whiter sugar), bold grain sugar which commands

premium in the market. A lot of emphasis is placed on the

quality control procedures and quality of sugar produced in

the factories.

At all the factories, emphasis is on usage of energy

efficient systems, modern technology and R & D for better

operations and for improved per hectare sugar output. As a

result of Triveni's tie up with Sugar Research International of

Australia, the group factories have access to modern

equipments & process knowhow.

Khatauli & Deoband plants are located in fertile, well

irrigated and high cane intensity region of western Uttar

Pradesh where the sugar cane crop is least dependent on

the vagaries of the Monsoon & therefore are very consistent

in terms of the cane availability & capacity utilization.

The Ramkola unit is located in lucrative eastern UP

where the realization of sugar (particularly because of the

robust demand from sugar deficient West Bengal) is better

as compared to western UP.

Khatauli & Deoband units have been one of the largest

exporters of sugar to Pakistan just 3 years back when sugar

export was allowed to this country.

The cane development activities taken up by the

factories are regarded to be amongst the best in the

industry. Group has been pioneer in using modern

techniques like Satellite tracking for getting information on

area in its command for enabling decisions on which variety

to be propagated in which area. Factory has huge data base

on individual farmer's field data (total cane area, past

supplies, ratoon and plant cane acreage, soil details, land

type details etc.) to take prudent decisions on cane

development.

Through aggressive cane development during last couple of

years, factory has now over 40% of its command area under

high sugar cane varieties. This helps the factory to achieve

better sugar recovery so as to be amongst the best

performing factories in the state.

Major cane varieties are:

Early (High Sugared) Varieties General Cane Varieties

CoJ -64 CoS -767

CoS -88230 CoS -84212

CoS -8436 CoS -8432

   

SUGAR PRICE:

The Government has been following a dual pricing policy for

sugar, under which, a fixed percentage of the total

production is to be necessarily sold by the sugar mills to the

Government or its nominees at a pre-determined price

referred to as "levy sugar". The sugar so collected is

distributed to consumers through Fair Price Shops under the

public distribution system.

The balance sugar referred to as "free sale sugar" can be

sold in the open market. Free sale sugar is also regulated to

some extent, by way of a release mechanism, whereby the

Government determines the quantum of sugar that can be

sold every month. This helps the Government maintain

stability in sugar prices, by regulating the supply of sugar

based on the underlying demand. Thus, the Government

statutorily determines the price of levy sugar, while the price

for the free market sugar is market determined, affected to

some extent by the release mechanism. As per Tuteja

Committee, the Central Government decided, in February

2002, to dispense with the release mechanism with effect

from April 1, 2003. However, in March 2003, it was decided

to continue with the release mechanism up to September

2005 and to review the position in February, 2005. The

Tuteja Committee has also recommended that the Central

Government may dispense with the release mechanism for

free sale sugar with effect from October 1, 2005

The levy imposed has reduced from 40% in the 1990s to

10% effective from March 2002. The Tuteja Committee has

also recommended continuing with the 10% levy obligation

level. The Committee has also recommended that beyond

the initial time limit, a maximum of 3 months may be

permitted for lifting of levy sugar by the Government, where

after, the levy sugar quota would automatically be converted

into free sale sugar, without any recurring levy obligation on

this portion of levy sugar.

LEVY OBLIGATION OVER THE YEARS

Year Levy Sugar: Free sale sugar ratio

1996-1997 40:60

1997-1998 40:60

1998-1999 40:60

1999-2000 40:60

2000-2001 30:70 (wef. January 2000)

2001-2002 15:85 (wef. February 2001)

2002-2003 10:90 (wef. March 2002)

2003-2004 10:90

2004-2005 10:90

(Source: Government of India Gazette, Sugarcane

Directorate of Uttar Pradesh Government)

As can be seen from the table, while the gap between levy

sugar prices and free sale sugar prices had narrowed

considerably until 2002-2003, it has since widened due to

high free sale sugar prices.

Historical Free sale sugar and Levy Sugar Prices

(Rs. / metric tonne)

DEMAND FACTORS – GLOBAL:

   

According to ISO, the world sugar output is forecasted to

reach 145.0 MMT and consumption to reach 147.0 MMT in

2004-2005, resulting in a deficit of around 2 MMT in 2004-

2005. Further, since October 2003, nearly 5 MMT of surplus

sugar are expected to have been removed from the world

sugar balance, reducing the stock/ consumption ratio to less

than 42%.

The world consumption is projected to grow to 160.7

MMT in 2010 and 176.1 MMT by 2015. According to ISO, the

world sugar output is forecasted to reach 145.0 MMT and

consumption to reach 147.0 MMT in 2004-2005, resulting in

a deficit of around 2 MMT in 2004-2005. Further, since

October 2003, nearly 5 MMT of surplus sugar are expected

to have been removed from the world sugar balance,

reducing the stock/ consumption ratio to less than 42%.

The world's largest consumers of sugar are India,

China, Brazil, USA, Russia, Mexico, Pakistan, Indonesia,

Germany and Egypt. According to USDA Foreign Agriculture

Service, the consumption of sugar in Asian countries has

increased at a faster rate, as a direct result of increasing

population, increasing per capita income and increased

availability.

DOMESTIC CONSUMPTION FOR 2004-2005

(All units in MMT)

The Essential Commodities Act (ESA) was amended and the

sugar release mechanism was brought within the direct

purview of the ESA. This will bring discipline in the sugar

release mechanism by making it legally enforceable.

In the past, the Government permitted only small sized units

of 1,250TCD and 2,500TCD. Expansions for 5,000 TCD and

above were discouraged. The industry has grown

horizontally as a result of this. The Government of India de-

licensed sugar sector in August 1998 encouraging

entrepreneurs to set up sugar mills without a license but at a

distance of 15kms away from existing factories. The de-

licensing is applicable not only for new capacity initiatives

but also for expansion of existing capacities.

The Government permitted futures trading in sugar and

granted approval to three Companies for setting up Futures

Exchange. Consequently, certain sugar Companies floated

Public Limited Companies to cater to this new segment.

Futures trading will allow sugar companies to hedge and

manage their risk better.

The Government of Uttar Pradesh has issued a new UP Sugar

Policy. The UP Sugar Policy recognises the need to attract

new private mills because the Government sector and the

Co-operative sector may not be able to put up these mills

due to constraints of funds. The incentive package under the

UP Sugar Policy includes capital subsidies, reimbursement of

transportation costs of sugar, etc.

DEMAND FACTORS – INDIA:

The demand or in other words, the consumption of

sugar is increasing and the demand is being fulfilled by more

production. Still, the price of sugar has been elastic and

rising steadily. Though, being a basic commodity, price hike

limit has been fixed time to time by the government.

Otherwise, sugar would have been directly influenced by

little fluctuations in demand and supply.

In India, major sugarcane growing states are Uttar Pradesh,

Maharashtra, Karnataka, Gujarat, Tamil Nadu, and Andhra

Pradesh. These six states contribute more than 85% of total

sugar production in the country; Uttar Pradesh and

Maharashtra together contribute more than 57% of total

production.

Sugarcane occupies about 2.7% of the total cultivated area

(Source: ISMA Website accessed on May 16, 2005) 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 sugarcane area has, however, declined in the

year 2003-04 mainly due to drought and pest attacks.

Following table shows area under sugarcane farming and

total can production.

SUGARCANE AREA AND PRODUCTION

FROM 1980-1981 TO 2000-2001 & UPTO 2003-2004

YearArea under sugarcane

(Million hectares)

Sugarcane

Production (MMT)

1980-81 2.7 154.3

1990-91 3.7 241.1

1999-'00 4.2 299.2

2001-02 4.4 298.4

2002-03 4.3 281.6

2003-04 3.9 221.2

2004-05 3.7 201.9

(Source: National federation of Co-operative Sugar Factories,

Energy Lines (2005))

From a level of 154 MMT in 1980-1981, the sugarcane

production increased to 241 MMT in 1990-1991 and further

to 296 MMT in 2000-2001. Since then it has been hovering

around 300 MMT until few years. In the season 2003-2004,

however, sugarcane production declined to 236 MMT mainly

due to drought. (Source: ISMA Website accessed on May 16,

2005

GLOBAL PRODUCTION, SUPLLY:

Following table provides an overview of the production,

supply and distribution of sugar in the international market.

WORLD SUGAR PRODUCTION, SUPPLY, AND

DISTRIBUTION

(September - August)

(All figures in '000 metric tons)

 2003-

2004

2002-

2003

2001-

2002

2000-

2001

1999-

2000

Opening

Stocks69,327.3 62,040.0 62,063.3

62,223.

657,611.7

Production 143,701.9 149,405.2 137,982.6132,20

0.0

134,753.

9

Imports 48,190.3 48,593.2 45,261.1 43,573. 41,226.3

9

Exports 52,062.7 51,339.9 47,759.744,212.

942,720.6

Consumption 142,766.9 139,371.1 135,507.313,172

1.2

128,647.

7

Ending Stocks 66,389.9 69,327.3 62,040.062,063.

362,223.6

Ending stocks

as % of

consumption

46.50% 49.74% 45.78% 47.12% 48.37%

(Source: FO Licht World Sugar Balance for 1995/1996 till

2004/2005)

According to ISO, the world sugar output is forecasted

to reach 145.0 MMT and consumption to reach 147.0 MMT in

2004-2005, resulting in a deficit of around 2 MMT in 2004-

2005. Further, since October 2003, nearly 5 MMT of surplus

sugar are expected to have been removed from the world

sugar balance, reducing the stock/ consumption ratio to less

than 42%.

SUGAR PRODUCTION & SUPPLY IN INDIA:

The sugar industry in the country uses only sugarcane as

input, hence sugar Companies have been established in

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 country; Uttar Pradesh and

Maharashtra together contribute more than 57% of total

production. Following table shows the state-wise

sugar production in India for 2002-2003 and 2003-2004.

SUGAR PRODUCTION BY STATE IN INDIA (in MMT)

State2002-

2003%of Total

2003-

2004% of Total

Uttar Pradesh 5.65 28.06% 4.55 33.60%

Maharashtra 6.22 30.86% 3.18 23.44%

Karnataka 1.87 9.28% 1.12 8.24%

Gujarat 1.25 6.22% 1.07 7.87%

Tamil Nadu 1.64 8.16% 0.92 6.80%

Andhra

Pradesh1.21 6.01% 0.89 6.54%

Haryana 0.64 3.16% 0.58 4.30%

Punjab 0.59 2.91% 0.39 2.88%

Uttaranchal 0.50 2.47% 0.39 2.86%

Bihar 0.41 2.03% 0.27 2.02%

Others 0.17 0.85% 0.20 1.46%

TOTAL 20.14 100.00% 13.55 100.00%

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 sugarcane crushing capacity in India,

Brazil and Thailand is given below:

AVERAGE SUGARCANE CRUSHING CAPACITY

Country Avg. Capacity (TCD)

Thailand 10,300

Brazil 9,200

India 3,500

FACTORS AFFECTING PRODUCTION:

Sugarcane availability depends on:

Area under sugarcane cultivation: The area under cultivation

of sugarcane in the proximity of the mill determines the

amount of sugarcane that can be made available. Crop

switching from sugarcane to other crops effectively lowers

the area under cultivation of sugarcane.

Climate and irrigation facilities: Sugarcane is a tropical crop

which requires adequate water and sunshine. In addition,

monsoons can affect the crop yield and quality of the crop.

The state of UP is supplied water from the Ganga, which

along with its tributaries and associated canal system

accounts for 34% of the total river water available in the

country (Source: Ministry of Water). This available perennial

water reduces the state's reliance on seasonal monsoons.

Crop diseases and pests: Crop diseases affect both the

quantity and quality of sugarcane. Harvests have been

impacted severely by insects and pests (Eg. Wholly Aphid).

Several sugar factories are currently investing in research

and development in the field of Entomology to control such

pest outbreaks.

Sugarcane yield: This is the total sugarcane output per

hectare of land. It depends upon several factors like climate,

soil, variety of sugarcane, and development measures

undertaken by sugarcane farmers, agencies, co-operatives,

government, and sugar manufacturers. Agricultural

engineering and extension services, usually undertaken by

individual sugar mills, have played an important role in

increasing sugarcane yields

Diversion of sugarcane to other products: The sugarcane

producers may not supply the sugarcane to a sugar

manufacturer and divert the production to other products

like gur, and khandsari which are forms of crude sugar.

THE BREAK-EVEN POINT:

In its simplest form, the break-even chart is a graphical

representation of costs at various levels of activity shown on

the same chart as the variation of income (or sales, revenue)

with the same variation in activity. The point at which

neither profit nor loss is made is known as the "break-even

point" and is represented on the chart below by the

intersection of the two lines:

`In the diagram above, the line OA represents the variation

of income at varying levels of production activity ("output").

OB represents the total fixed costs in the business. As output

increases, variable costs are incurred, meaning that total

costs (fixed + variable) also increase. At low levels of output,

Costs are greater than Income. At the point of intersection,

P, costs are exactly equal to income, and hence neither

profit nor loss is made.

SUGARCANE UTILIZATION:

Not only has the sugarcane acreage and sugarcane

production been increasing, drawal of sugarcane by the

sugar industry has also been increasing over the years. In

India sugarcane is utilised by sugar mills as well as by

traditional users like gur and khandsari producers.

In early 1980s, the proportion of sugarcane 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

2002-2003. The sudden growth in 2002-2003 can be

attributed to the fact that sugar prices in this year were very

low and Gur and Khandsari manufacturers could not

effectively compete with the low sugar prices.

In the year 2003-2004, percentage drawal of

sugarcane, however, declined due to rising sugar prices and

more intense competition from the alternate sweeteners -

gur and khandsari.

Following table gives data on sugarcane utilization for

different purposes.

SUGARCANE UTILISATION

% Sugarcane utilisation for

YearWhite

sugar

Gur and

khandsari

Seed, feed and

chewing

1980-1981 33.4 54.8 11.8

1990-1991 50.7 37.4 11.8

2000-2001 59.7 28.8 11.5

2001-2002 57.4 31.5 11.1

2002-2003 68.9 20.1 11.1

2003-2004 56.1 32.5 11.4

(Source: ISMA accessed on May 16, 2005)

SUGAR CONSUMPTION IN INDIA:

Total Indian Consumption of sugar has grown at a

Compounded Annual Growth Rate of 3.6% from 14.7 MMT in

1997-1998 to 18.2 MMT in 2003-2004 (Source: ISMA and

CRIS-INFAC).

Apart from white sugar, India also consumes alternate

sweeteners - gur and khandsari, which are placed at about 9

MMT per annum. Taking into account all the 3 sweeteners

i.e. white sugar, gur and khandsari, on a per capita basis,

Indian consumption is more than the world average (See the

table below). However, white sugar consumption is much

lower than the world average.

The consumption of white sugar in India is generally

urban based. In rural areas the alternate sweeteners gur and

khandsari are consumed in larger quantities. The

consumption of sugar in urban areas in some of the Indian

states with higher GDP and income levels, matches favorably

with various developed countries. The highest per capita

consumption of sugar is in the states of Punjab and Haryana

which are adjoining the sugar producing region of western

UP. As income levels and GDP rises, it can be expected that

there will be a gradual shift from consumption of alternate

sweeteners to white sugar. Also, as can be seen from the

following table, the total per capita consumption of

sweeteners in urban India is higher than total India average

by around 5 kg per annum. This clearly implies that per

capita consumption of sweeteners in rural India is much

lower. It can be expected that this gap will close with

increase in urbanization leading to a growth in the total

sweeteners market in India.

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

In India, the glut on the domestic market following the sharp

rise in 1998/99 production did not stop importers bringing in

huge amounts, given the differential between world and

domestic prices, and low import tariffs. Following protests by

the domestic industry, the government stepwise raised the

import duty. But imports continued because of the sharper

fall in world market prices.

Even Malaysia, the government of which took steps to

control domestic demand to stem the outflow of foreign

exchange, kept imports at reasonable levels. The same is

true of South Korea, where net imports dipped only slightly

in 1998, while a modest rise is forecast for 1999.

In the Philippines, careful economic management, together

with liberal import rules to augment domestic supplies after

the 1998/99 crop shortfall, prevented a fall in sugar

consumption. As a result, imports in 1998/99 were

noticeably above those of the previous year.

The very high support levels for sugar that form part of the

stabilization regime in Japan have for years impacted on that

country's sugar consumption and imports. While Japan has

been affected by the economic crisis in the Far East, the

long-term declining trend of imports and demand has hardly

varied in the past two years.

The Chinese economy has remained largely untouched by

the Asian financial crisis, although GDP growth has slowed to

single digits. But an expected growth of more than 6 percent

in 1999 can hardly be called a disaster. What has affected

China's demand growth is not so much the slowdown of the

economy but the large usage of high-intensity sweeteners,

mainly saccharin. And that has nothing to do with Far

Eastern economic problems.

 

CHART OF ASIAN SUGAR CONSUMPTION

SUGAR EXPORT:

Exports of sugar from the country have been de-canalized

since 1997, enabling sugar mills to undertake exports on

their own and to compete directly in the international

market. Further, exports from a mill do not form part of the

quota under the market quota release system.

Despite this, India has not been a consistent exporter

of sugar in the past. It has been exporting sugar occasionally

in periods of sugar surpluses. In the last five years it

exported 4.07 MMT sugar. In these years, India had an

average exportable surplus of 6.23 million tones every year.

As against this, on an average, the sugar exported was

only 0.81 MMT or 7.69% of the total exportable surplus. This

is primarily because domestic prices have remained higher

than international prices. However, should quotas for LOME /

APEC for India increase; there will be enough incentive for

Indian manufacturers to export.

EXPORTABLE SURPLUS, SUGAR STOCK & ACTUAL

EXPORTS

Year

Closing

Stock

(MMT)

Exportable

surplus (MMT)

Actual

Export

(MMT)

% export of

surplus

stocks

1999-

009.38 5.38 0.07 1.30

2000-

0110.4 6.4 1.2 18.75

2001-

0211.3 7.3 1.1 15.06

2002-

0311.6 7.6 1.5 19.73

2003-

048.5 4.5 0.2 4.44

Averag 10.23 6.23 0.81 7.69

e

Lax financial discipline forced Brazil to freely float the real

from January 1999. Between March 1998 and March 1999,

the real devalued by more than 60 percent, which greatly

increased Brazil's competitiveness and the attractiveness of

the export market relative to the domestic market for the

country's sugar producers. The devaluation of the real has

undoubtedly drawn significantly more sugar into the

international arena. To a large extent, the devaluation

cushioned the effect of the fall in world market prices and

helped Brazil to pump out enormous amounts of sugar,

facilitated by the diversion of cane from alcohol to sugar

production. Greater competitiveness and low freight rates

made Brazilian sugar appear in markets as far afield as

South Korea, Malaysia and Indonesia. The growth of Brazilian

sugar exports must be regarded as one of the main factors

behind the fall in world prices.

 

 

Asian exporters have also contributed to weak prices, albeit

to a far lesser extent. Thailand's sugar industry was plunged

into financial difficulties by the country's economic problems

and poor returns from the world market. Many mills had to

put sugar up as collateral against bank loans. The creditors

in turn were unwilling to release the sugar at rock-bottom

prices, which restricted legal exports in 1998/99, despite a

recovery of production.

Following table provides an overview of the Import and

Export of sugar in the international market.

Net Sugar Imports/Exports - 1000 Tonnes, Raw value

Notwithstanding such gyrations, it cannot be denied that the

structure of the world market has changed and that today's

price response differs markedly from that before the mid-

1980s. Without going into details, it is obvious that one of

the consequences of these changes is greater price stability

than in the past.

SUGAR PRODUCTION:

»  Business Overview

With a current cane crushing capacity of over

43,500 TCD and further expansion/new sugar

units underway, Triveni continues to be one of

the largest producers of sugar in India

   

»  Facilities

Using the most productive and eco-friendly

processes, we crush 43,500 tonnes of sugar

cane from three efficient production facilites at

Khatauli, Deoband and Ramkola.

   

»  Raw Material

We believe that in order to deliver a superior

quality product, we need to have superior

quality raw material too. We lay special

emphasis on procurement as well as sugarcane

development to ensure this...

   

»  Plants & Machinery

For us, from sugar manufacturing to supply of

sugar plant & machinery was a natural

diversification. We entered in this field in mid

60s.

   

»  Plants & Process

The standard double sulphitation process of

clarification and 3 1/2 massecuite boiling

scheme for production of direct plantation white

sugar...

   

»  Branded Sugar - Shagun

Shagun brand of sugar stands for pure, healthy

and superior quality. Triveni employs advanced

technology from UK and USA that ensures

hands-free and sterile environment in

production.

   

»  Environmental Compliance

We conduct our business in accordance with a

well laid out, comprehensive environmental

policy and environment management system...

 

»  Technology

Know about our state-of-the-art technology that

helps us leverage our superior manufacturing

capabilities, reduce energy consumption and

improve sugar quality.

   

»  Future Initiatives

Our new production units, capacity

enhancement and initiatives for cleaner

environment are geared to serve our customers

and society at large. We present an account of

our future initiatives before you.

   

»  Key Strengths

Our strengths go beyond vast collection

network, sound financial support, strategic

location of plants and ultra modern facilities. We

strengthen our base through strong &

transparent relationships with farmers.

   

»  Strategic Alliances

With a strong strategic alliance partner like

Sugar Research International, we have access to

the best sugar equipments & knowledge in the

world.

   

»  Milestones

We had a prosperous journey since the setup of

our first sugar production unit at Khatauli in

1933. These are some of our key milestones

that we have crossed during our journey.

   

»  Contact

You can get in touch with us at the specified

address and contact numbers for all the

information that you need and business

enquiries you have.

Following table provides an overview of the production of

Alcohol in India from 1998-99 to 2006-07.

Alcohol Production

(in million liters)

Alcohol

Year

Molas

ses

Prod.

Produc

tion of

Alcohol

Industri

al Use

Potabl

e Use

Othe

r

Uses

Surplus

Availabili

ty

 

1998-99 7.00 1411.8 534.4 5840 55.2 238.2

1999-00 8.02 1654.0 518.9 622.7 576 455.8

2000-01 8.33 1685.9 529.3 635.1 588 462.7

2001-02 8.77 1775.2 5398 647.8 59.9 527.7

2002-03 9.23 1869.7 550.5 660.7 61.0 597.5

2003-04 9.73 1969.2 578.0 693.7 70.0 627.5

2004-05 10.24 2074.5 606.9 728.3 73.5 665.8

2005-06 10.79 2187.0 619.0 746.5 77.2 742.3

2006-07 11.36 2300.4 631.4 765.2 81.0 822.8

SUGAR MARKETS IN DISARRAY:

 

Much has been said in recent years about the greater

stability of world sugar market prices, resulting from the

structural changes since the mid-1980s. Deregulation has

increased the number both of producers and users that are

exposed to movements in world market prices. Hardly any

large state entities remain which are prepared to sell

surpluses to the world market regardless of price. The

tendency is for surpluses to be withheld and stored when

returns from the world market fail to meet the costs of

production. Moreover, developing countries with higher

income and price elasticities now play the leading role on the

import side. Those that are exporters lack the resources to

subsidise the dumping of surpluses on the world market. All

this makes for more stable global prices and helps avoid a

prolonged price depression.

And yet, the Daily Price of the International Sugar

Organization fell from 13.28 cents/lb in 1995 to 8.92 cents/lb

in 1998 and further to a low of 5.42 cents/lb in April 1999.

This is a decline of 59 percent in nominal values and nearly

62 percent in 1995 money. That does not look like a stable

market, although prices have recovered to some extent.

 

ECONOMIC TURMOIL, PRICES, CONSUMPTION AND

TRADE FLOWS:

So what has gone wrong? Were there exceptional

circumstances which caused the steep fall in world market

prices?

The first thing coming to mind is the recent economic turmoil

in Asia, Latin America and Russia. The collapse of the Thai

baht in July 1997 marked the beginning of the financial crisis

in Asia. Within weeks, Thailand's difficulties turned into a

regional problem. Soon, Indonesia, the fourth most populous

country in the world, and South Korea, the world's eleventh

largest economy, were engulfed in crisis. Until then vibrant

Asian economies were plunged into steep recession. And not

only emerging economies were hit - look at Japan - nor were

the repercussions confined to Asia. The trouble reverberated

around the world.

The root of the problem is excess capacity. There have been

numerous warnings in recent years that the continuing build-

up of export capabilities in Latin America and the Pacific Rim

would lead to overcapacities and low global prices. These

warnings were not heeded, and the expansion process

continued unabated.

NET SURPLUS –GLOBAL:

Pakistan has increased its production capacity in recent

years until it is now far beyond domestic needs, giving rise

to large exports. High production costs and low world market

prices mean that these have to be subsidized. But financial

constraints forced the government to limit subsidized

exports to half a million tonnes, not enough to make much

difference to the market.

But is the situation really as serious as world prices might

suggest? Some will recall that the International Sugar

Agreement of 1977 aimed to stabilize prices in the range of

11 to 21 cents/lb. The Australian sugar industry, one of the

most efficient in the world, argued at the time that 12

cents/lb was needed to ensure the viability of the industry.

RUSSIA SUGAR IMPORT:

What about Russia, the largest importing country? It was

assumed that the rouble devaluation in August 1998 and

declining per capita incomes would take their toll on sugar

consumption. However, here, too, things did not turn out so

badly. Helped by the fall in world market prices, Russia

imported much more than western observers had thought

possible. One explanation is that, due to the lower value of

the rouble, imports of sugar-containing products virtually

stopped and domestic products took over. Moreover, it is

believed that the use of sugar for illegal distilling was

significantly greater than in 1998 due to a ban on alcohol

imports, which came into effect on January 1, 1999. Even

financing more than 5 mln tonnes of sugar imports was not a

problem. Ironically, the financial crisis greatly facilitated

sugar import financing. Before the crisis, private banks

seldom engaged in import financing, as gambling with

treasury bonds was more attractive. But after the August

devaluation, the banks turned to the real economy.

According to Russian trade sources, the August crisis made

investment in raw sugar and tolling uncommonly profitable,

and imports were mainly financed from domestic funds.

 

Russia's economy again weakened, after some modest

growth in 1997 and early 1998, the first since the transition

began. Although Russia plays only a limited role in the world

economy, it heightened fears of a global slowdown.

Latin America came under pressure in January 1999, when

Brazil abandoned its crawling currency peg. Given that Brazil

accounts for almost a third of the region's output and that

the Brazilian GDP is set to decline by an estimated 1.2

percent in 1999, Latin America as a whole was bound to be

affected.

Fortunately, the crisis remained confined to parts of the

world, and it would be wrong to speak of a global economic

crisis. But as this brief review indicates, several major sugar

importing and exporting countries were at the epicentre of

the turmoil. Currencies were drastically devalued, and it is

reasonable to think that this should have impacted on the

sugar market.

SUGAR IN THE NEXT CENTURY:

Looking towards the next century, we need have no fears

about the future of sugar demand. On any estimate of world

population growth, a great deal more sugar will be needed.

Can the additional sugar be produced and which countries

will be the main suppliers?

Technological advances already under way in the areas of

genetic engineering; ground-based and satellite-borne

sensor and positioning systems for precision field and

transport management; juice filtration; combined heat and

power generation and so on promise that the ever greater

productivity achieved in this century will continue in the

next. The wide range of unit sizes and performance still

existing within most national sugar industries, as well as

between countries, indicates the vast production and

efficiency reserves not yet exploited. There will also be new

developments in the field of alternative sweeteners. These

new products will contribute to still the world's hunger for

sweetness, but, at the same time, will impose a ceiling on

the price expectations sugar producers can entertain in the

longer run, without opening the gate to competitors.

Structural changes on the supply side are the daily bread of

the market. At the beginning of the 19th century, Jamaica

was the world's leading sugar exporter; at the end, it was

Germany. From 1904 onwards, Cuba was for decades firmly

installed in first place. On the eve of the 21st century, Brazil

is the greatest sugar exporter.

There is circumstantial evidence that with the devaluation of

the real Brazil can make money, or at least break even, at 5-

6 cents/lb. If true, this could completely change the face of

the supply side, unless the Brazilian cost structure changes

markedly for the worse. None of the other efficient producers

(Australia, Guatemala, and Thailand) are profitable at this

price.

Brazil already controls 25 percent of the market and still has

enormous potential for expansion. In a few years, perhaps,

the world sugar market will mirror that for coffee, and

adverse weather in Brazil will send shock waves through the

global sugar market.

Alongside the challenges posed by the ongoing process of

liberalization, the call to the world's sugar industries in the

21st century is to devise strategies of sustainable

development in order to avoid the dangers of an excessive

concentration of production and associated price

fluctuations.

WHAT CRISIS ?

Last autumn, the spectre of a global recession loomed over

the world economy. Asia's crisis appeared set to deepen.

Russia had defaulted. European banks, currencies, and stock

markets were affected and the euro area was seen to be

faltering. Contagion was threatening Latin America with the

Brazilian real under siege. Fears that even the United States

economy would not withstand the downturn in other parts of

the world engendered visions of world-wide depression.

Concerted policy responses by OECD member countries and

strong reflationary policies in the crisis-affected Asian

economies averted a meltdown. Synchronized interest rate

cuts and fiscal stimuli laid the basis for an upturn in the

global economy at the beginning of 1999, and the gloom

began to lift. Stability was restored to Asian currency and

financial markets. The euro area withstood the Russian

crisis, and the Brazilian infection was effectively contained.

Estimated GDP growth rates suggest the worse is over. True,

there are still danger areas, such as Indonesia and Russia.

The fears that the US economy might be heading towards a

hard landing have not been entirely banished. But overall

the situation is much brighter than it was a year ago.

This will stimulate sugar consumption, which can be

expected to grow at a healthier rate than in 1998/99.

Exporters have reason to hope for better prices. The EU will

be forced to reduce output in 2000/01, and Brazil also

expects to produce less. Indian sugar production could be

sharply down next season due to the effects of previous

oversupply. As a result, there could be an absolute decline in

production next season. The long-awaited draw-down of

stocks could become reality in 2000/01.

That will take the wind out of the sails of protectionists, who

already have sleepless nights because of the impending

World Trade Organization negotiations. These are likely to

bring further cuts in support, increased market access

thanks to lower tariffs, and further reductions of export

refunds and quantities. The overall objective is continuing

trade liberalization. That makes cost-cutting the name of the

game, in order to survive in a more liberal economic

environment.

To sum up:

The evidence indicates that the economic turmoil in the Far

East had only minor impact on sugar consumption and

import demand. The reason is that the economic difficulties

and currency devaluations were outweighed by the drastic

fall in global sugar prices and political considerations.

In conclusion, 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. The additional availability of alcohol on the

assumption that the entire cane is utilized for the production

of sweeteners will be about 200 million liters over and above

that indicated in the table. Alternatively, if additional cane

available is utilized for the production of alcohol to bring in a

balance in the demand and supply of sugar, the alcohoI

production at the end of the 10th Plan would be around

1,485 million liters.

Such flexibility has become very relevant in the current

scenario of economy liberalization and more particularly as a

means to correct the aberrations in sugar production.