The Indian Sugar · PDF fileTHE INDIAN SUGAR INDUSTRY: ... * This includes 97 lac tons of...
Transcript of The Indian Sugar · PDF fileTHE INDIAN SUGAR INDUSTRY: ... * This includes 97 lac tons of...
THE INDIAN SUGAR INDUSTRY:
CURRENT STATUS & WAY FORWARD
- ABINASH VERMA,
DIRECTOR GENERAL, INDIAN SUGAR MILLS ASSOCIATION
Indian sugar production: an overview
World’s 2nd largest sugar producer at 28 million tons
Around 5 million hectares of land under sugarcane
50 million cane farmers and their dependants
Around 700 sugar mills installed
530 operational
World’s largest consumer of sugar
Usually consume all sugar produced domestically
62-65% of sugar consumed directly by bulk users
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Infamous Indian production cycle
Previously there was a 5 year sugar production cycle
3 years of surplus sugar, followed by 2 years of deficit
Large scale net exporter or importer of sugar
Deficit sugar production acted as a self correcting
mechanism and controlled surplus sugar
But in last 5 years, India has continuously
produced surplus sugar
Surplus expected again next season, 6th year in a row
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Sugar Production & Consumption4
12.7
19.3
28.4
26.4
14.5
18.9
24.4
26.3
25.124.4
28.3 28.0
18.5
18.5
19.9
21.9
22.9
21.320.8
22.6 22.824.2
25.1
25.5
5.0
10.0
15.0
20.0
25.0
30.0
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15
(P)
2015-16
(E)
Sugar Production Internal Consumption
Million tons
India of & on an exporter or importer5
Carry forward sugar stocks increasing….
60.0566.01
92.98
75
96
0
20
40
60
80
100
120
2010-11 2011-12 2012-13 2013-14 2014-15 (E )
(lac tons)
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Every 10 lac tons of sugar BLOCKS Rs.3000 crore of working capital
Normative requirement 60 lac tons
74.5 79.5 80.25 81.18 81.18
129.84
139.12 145
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
FRP
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Rs. per quintal
Cane Price fixed by Government of India as SMP/FRP
FRP of Sugarcane Vs MSP of Paddy and Wheat
Average domestic sugar prices have been falling
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Cane price arrears as on 31st March ……
8577
12702
1864820099
2011-12 2012-13 2013-14 2014-15
10
Rs. Crore
Cost of production vs. Average ex-mill prices
3053
3200
3277
3100
2951
3148
2917
2400
2000
2200
2400
2600
2800
3000
3200
3400
2011-12 2012-13 2013-14 2014-15 (E )
Cost of Production Average ex-mill price
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Rs./quintal
2850
2800
2650
2600
2540
24502420
2400
2300
2150
2230
2100
2300
2500
2700
2900
All India Ex-Mill Prices
Rs. per qtl
All India Ex-mill prices in 2014-15 SS
Economics in 2015-16 SS
All India average FRP at 10.3% recovery-
Rs.249/qtl.
Ex-mill sugar price may remain at same level –
Rs.2500/qtl.
Cane price as per revenue sharing formula of 75% –
Rs.193/qtl.
Gap between PRSF and FRP would be around
Rs.15,000 crore
Adequate sugar price to pay FRP next year
Ex-mill price (Rs. per quintal) PRSF @ 75%
Rs. 2400 Rs. 185
Rs. 2500 Rs. 193
Rs. 2600 Rs. 201
Rs. 2800 Rs. 216
Rs. 3000 Rs. 232
Rs. 3200 Rs. 247
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Sugar balance sheet in 2014-15 and 2015-16 SS
S.No Particulars 2014-15 2015-16
1 Opening Stock as on 1st Oct. 75 96
2 Production(Estimated) 283 280*
3 Imports ---- ---
4 Total Availability 358 376
5 Off-take
I) Internal Consumption 251 255
ii) Exports 11 ?
Total offtake 262 255
6 Closing Stock as on 30th Sept. 96 121
* This includes 97 lac tons of sugar production in Maharashtra (105 lac tons of production in 2014-15 SS). ISMA will revise
estimates of Maharashtra on account of lower rainfall and low water in reservoirs on 28th September, 2015 after considering
retreating monsoon.
In lac tons
Government policies in the past
Sugar sales
Regulated release mechanism to control sugar supplies and prices
Levy sugar obligation on sugar mills
Direct control on sugar export quantities
Import controls also through import tariff
Sugarcane side
Cane price fixed by Central Government; also by few States
Cane area reservation for each sugar factory
Minimum distance between two sugar factories
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Changed Govt. policies since April, 2013
Controls on sugar sales withdrawn in April, 2013
Factories have full freedom to sell as per need and market conditions
Sugar sales and sugar prices are therefore, market determined
Freedom to export and import, only control is on import duty
But sugarcane price and quantity still controlled
Which is not market determined, but politically fixed
Mismatch between cane price and sugar price
Cane area reservation and minimum distance
between factories remain
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Current Government policies
Sugar sales and sugar prices are market determined
But sugarcane price and quantity controlled
Mismatch between cane price and sugar price
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FRP v/s average ex-mill price in last 7 years
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129.84
139.12145
170
210
220
2302950
2700
2950
3150
2900
24002500
500
1000
1500
2000
2500
3000
3500
75
105
135
165
195
225
255
2009-10 2010-11 2011-12 2012-13 2013-14 2014-15(E )
2015-16(E )
FRP Ex-Mill Price
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
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What has changed is …….
PREVIOUSLY
5 year sugar cycle: 3 years of surplus sugar and 2 of deficit
India sugar industry was forced to export or import sugar
NOW
Surplus sugar continuously in 6 years, incl. in 2015-16
India is therefore no longer experiencing the cycle
Indian industry becoming structurally a surplus producer
With high sugarcane price, surplus expected in future too
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Competitiveness of Sugar Industry
Main reason for an uncompetitive sugar industry is
High cost of production of sugar
Which is in turn only because of an unrealistically high cane price
Sugar mills in India pay the highest cane price in the world
No other crop as remunerative, resulting in surplus sugarcane every year
Therefore, to make Indian sugar industry competitive,
Rationalise cane pricing policy, at par with norms across the world
Mechanism to export the surplus sugar
Use ethanol blending programme to balance surplus sugar
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Rationalised sugarcane pricing policy
Currently FRP is fixed by GOI, and SAP by 5 States
No link between cane and sugar prices
Cane price has crossed 100% of revenue realisation, leaving nothing for
other liabilities
All sugar producing countries have a cane–sugar price linkage
Cane price generally at 62 to 65% of revenue realised across the world
Rangarajan Committee recommended for a linkage formula
Cane price @ 70% of revenue from sugar & primary by-products or
@75% of revenue from sugar alone
With a minimum guaranteed FRP and in two instalments
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Cane price-sugar price linkage formula
In last 3-4 years, FRP has increased by over 50%
Sugar prices have not kept pace. It has decreased to lowest in
last 6 years
FRP has become unaffordable to sugar mills
Maharashtra & Karnataka have adopted the formula
With FRP as the minimum
But depressed sugar prices and higher FRP, mills unable to afford FRP
CACP has suggested for a system where mills will pay
cane price as per linkage/formula
And gap between this and FRP has to be filled up from a Fund
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Addressing the problem of surplus sugar
A combination of:
Exports, including mandatory exports
Strategic reserve
Conversion into ethanol
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Ethanol blending programme
Use the ethanol blending programme to balance surplus sugar
Recent Government steps are encouraging
Fixed pricing system
Removal of excise duty from ethanol
Some more steps needed
Easier inter-State movement of ethanol and molasses
Capacity build up for ethanol & faster environmental clearances
Stop States from imposing taxes/duties on ethanol
Longer distance transportation needs to be adequately covered
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Concluding ….. Way forward….
Linkage between cane and sugar price only way
forward
A vibrant ethanol blending programme
Sustainable mechanism to dispose off the surplus
sugar
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Creation of Price Stabilisation Fund
CACP has recommended as follows for 2015-16 SS
Rs.230 per quintal of cane price as FRP
Sugar mills pay as per revenue sharing formula (RSF)
If price as per RSF is lower to FRP, the gap be filled by Government,
for which Govt. should create a Price Stabilisation Fund (PSF)
Industry feels that this is the only long term solution, at least
till such time the distortion in prices between sugarcane and
other crops is corrected.
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Assistance from banking sector
Debt burden has increased from Rs.11,500 crore in FY 2007-
08 to Rs.44,000 crore in FY 2012-13
Main reasons for increased borrowing has been to fund the losses
Under current circumstances, it has become difficult to pay
cane price of farmers and also service the debt
Need to therefore, restructure industry’s debt including re-schedulement
of repayment period to 10-12 years, with few years of moratorium, and
conversion of part of working capital loans to term loans
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Thank you