Post on 21-Mar-2021
CRISIS IN THE INDIAN SUGAR INDUSTRY:
INDIAN SUGAR MILLS ASSOCIATION
Indian sugar industry: contribution to the economy
5 crore farmers and their families directly dependent
Rs.65,000 crore of cane price annually
Direct & indirect employment to 2 mln. people.
Enough sugar production for domestic requirement
Foreign exchange earnings of USD 5000 mn in last 5 years
Green power, surplus of 5000 MW exported to grid
12 mn tons molasses giving 300 cr. litres of alcohol
Incl. 120 cr. litres ethanol to replace 5% petrol consumption
Direct positive impact on rural economy
Annual direct & indirect contribution of Rs.75,000 cr. to the
Exchequer
2
Sugar Production & Consumption
12.7
19.3
28.4
26.4
14.5
19
18.5
18.5
19.9
21.9
22.9
21
10.0
15.0
20.0
25.0
30.0
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
Sugar Production Internal Consumption
24.4
26.3
25.124.4
28.3
26.0
20.8
22.6 22.8
24.2
25.6 25.6
10.0
15.0
20.0
25.0
30.0
2010-11 2011-12 2012-13 2013-14 2014-15 (P) 2015-16 (E)
Sugar Production Internal Consumption
Infamous cane and sugar production cycle was a
self-correcting mechanism to surplus sugar and
shortages.
High prices of sugarcane has resulted in surplus
sugarcane, which in turn, has caused continuous
surplus sugar production for 6 years in a row.
Million tons3
74.579.5 80.25 81.18 81.18
129.84
139.12145
170
210
220
230
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
4Rs. per quintal
Cane Price fixed by Government of India as SMP/FRP
• Steep increase in the cane price fixed by GoI from 2009-10 SS has made cane price
unaffordable.
• Additionally, some State Governments fix an even higher cane price (SAP) further
burdening and making the industry unviable.
FRP of Sugarcane Vs MSP of Paddy and Wheat
10001000 1080
1250
13101360
1410
1298
13911450
1700
2100
2200
2300
1100 1120
12851350
1400 14501525
1000
1200
1400
1600
1800
2000
2200
2400
2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16
Paddy (Rs./qtl.) Sugarcane (Rs./ton) Wheat (Rs./qtl)
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The steep increase in FRP for sugarcane from 2009-10 onwards was not matched by similar
increase in competing crops.
It has led to 50 to 60% higher returns from sugarcane over other crops resulting in farmers
shifting hugely to sugarcane. With Governments guaranteeing price payments, farmers have
not left sugarcane despite delays.
Average domestic sugar prices have been falling
29,510
27,270
29,510
31,480
29,170
24,920
28,500
22,000
24,000
26,000
28,000
30,000
32,000
2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 (till 5th
Feb)
Sugar Price (Rs./ton )
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Cost of production vs. Average ex-mill prices7
Rs./quintal
Financial crisis in sugar industry
Surplus sugar continuously for the 6th year depressed sugar prices
Massive losses to sugar industry in last 3 years
Unable to pay cane price of farmers
Unable to service debt, resulting in sickness/BIFR and NPAs
In about 5 years, the debt burden increased 4 times
Debt of private mills Rs.11,500 cr. in Mar’08 to Rs.40300 cr. in Oct’15
Incl. cooperative mills, debt burden much higher at Rs.50,000 crore,
Concessional Soft & SEFASU loans to pay cane price helped
But it also increased debt by over Rs.10,000 crore in 2 years
Repayment due from 2016, but industry unable to repay now
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8A
Unable to pay both cane price and bank loans
Expected cash flow for next 12 months Outstanding debt as per RBI (Scheduled
and Commercial banks)
UnitApr. to
Jun
July to
Sep.
Oct. to
Dec
Jan to
MarTotal
Rs. Cr)
1Average sugar sales Lac tons 66 62 65 63 256 1
Outstanding as on
31.10.201535800
2Average domestic ex-mill price Rs./ton 29000 2900029000 29000 29000 2
Soft loan (sanctioned upto
Oct. 2015)4500
3 Realisation from sale of sugar Rs.Cr. 19140 1798018850 18270 74240 3 Total Bank Loans 40300*
4 Cane price payable to farmers (@
Rs.275 all India average and
10.3% recovery) Rs. Cr.
17621 1655317354 16820 68350 4Outstanding cane price
arrears as on 15th Jan.'1612000
5* Conversion cost @ average Rs.
3400 per ton of sugar* Rs. Cr.2244 2108 2210 2142 8704 5
Total current dues of banks
& farmers52300
6 Balance available with mills {3
minus 4 minus 5}
Rs. Cr. -725 -681 -714 -692 -2814 * Above is regarding private sugar
companies. There will be additional loan
of another Rs. 10,000 crore for
cooperative banks etc. to cooperative
sugar mills.
Note:
* Conversion cost (excluding interest on working capital) taken as per Tariff Commission Report
(2012) @ Rs. 6500/ton (deducted Rs. 3100/ton towards revenue from by products). Conversion
cost includes salaries/wages, power, chemicals, repair & maintenance, factory overheads etc.)
1 Mills have to pay the following loans:
(a) Outstanding term loans of Rs. 35800 crore
(b) Working capital loans taken with interest taken during the current 2015-16 SS
(c) SEFASU loan with interest from March/April 2016 onwards (Rs. 732 cr., Rs. 671 Cr., Rs. 655 cr. and Rs. 640 cr., respectively in 4 quarters)
(d) Soft Loan taken in 2015 will become due from 1st October, 2016. Mills have to repay Rs. 680 cr. in Oct - Dec.'16 qtr. And Rs. 596 Cr. in Jan-Mar'17 qtr.
2 Current cane dues of Rs. 12000 crore will also need to be cleared from above cash flows only.
3 Therefore, as per row (6) of above table, mills will not have funds to service the above debts
Cane price arrears as on 31st March ……
8577
12702
1864820099
?2011-12 2012-13 2013-14 2014-15 2015-16
Rs. Crore
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Under current circumstances, it has become difficult to pay
cane price of farmers and also service the debt
ISMA’s requests
1. Financial restructuring of outstanding debt
2. Priority sector lending for bio-ethanol production
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1. Financial Restructuring under 5:25 flexible
structuring scheme
Cement, steel, natural gas, coal, crude oil, fertilisers, refinery
products & electricity included as “core industries”
On grounds that these act as catalyst for overall socio economic
development of nation
Sugar industry is the largest rural based industry
5 crore farmers, incl. their families, as also employment in rural areas
Produces and supplies green power/electricity, fuel grade ethanol to
replace petrol, organic manure
Catalyst for the socio-economic development of Indian villages
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Include sugar under 5:25 for restructuring
Sugar industry should justifiably be included as a core
industry for 5:25 flexible structuring scheme
However, due to the peculiarities of sugar, being an agri based
foodstuff
Working capital should also be part of restructuring
Right to Recompense (ROR) may be waived
A detailed paper on this could be presented by the sugar
industry
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2. Bio-ethanol has several benefits for the country
Fuel grade ethanol is a renewable bio-fuel, made out of by-product
of sugarcane viz. molasses
Reduces environmental pollution and improves fuel mileage
Extra oxygen of ethanol burns petrol much better in the engine
Better revenue from value addition to molasses results in healthier
sugar industry and better remuneration to farmers
At 5% blending, reduces net annual oil import bill by Rs.4500 cr.
To achieve 10% or more blending, distillation & storage
capacities need augmentation
But funding not easy
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Priority Sector Lending (PSL) for bio-ethanol
Almost all banks are unable to fulfil PSL targets every year
Eligible categories under PSL was expanded recently
To include ethanol projects under PSL (add another category):
a) Under Agriculture category, under sub-section ‘Agri Infrastucture’
create a new category for bio-ethanol projects
remove the upper limit of Rs.100 crore bank lending to a company
b) Under MSME category, under sub-section ‘Renewable Energy’,
create a new category of bio-ethanol projects
increase the upper limit of Rs.15 crore to Rs.100 crore or completely
remove it
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Thank you