PRESENTATION TO

“TASK FORCE ON SUGARCANE & SUGAR INDUSTRY”

INDIAN SUGAR MILLS ASSOCIATION

21.01.2019

Flow of presentation

General overview of Indian sugarcane & sugar sector

Immediate/ short term problems and suggestions

The problem of high cane prices

Balancing sugar production through ethanol

Long term and structural policy needs

2

Indian Sugar Industry – An Overview

World’s largest

sugar producer at

31 million tonnes

p.a.

World’s largest

consumer of sugar

at 26 million

tonnes p.a.

Annual turnover ~

Rs. 1 lakh crore

About 25-30

million sugarcane

farmers

Around half a milion

workers directly

employed in sugar

mills

Around 530 sugar

mills under

operation

Per capita

consumption is low

at around 20 kilo

Around 5 million

hectares of land

under sugarcane

About Rs.85,000

crore cane price

payment annually

Consumption Pattern of Sugar in India

4

Bulk Consumers 65%

Direct Household 35%

• Two sources of sugar demand – Bulk Buyers & Direct Household

Revenue realisation from sugar & by-products

81%

13%

6%

1%

Sugar Ethanol & RS Power Others

Total estimated revenue realisation in 2018-19 SS is about Rs. 1 lac crore.

Sugar constitutes 81% Ethanol and other by products constitute 19%.

Indian production and consumption

127.0

193.0

284.0

264.0

145.0

189.0

244.0

263.0251.0

244.0

283.0

251.0

203.0

325.0

307.0

185.0185.0

199.0

219.0229.0

213.0

208.0

226.0 228.0

242.0

256.0248.0

245.0

254.0260.0

30.0

50.0

70.0

90.0

110.0

130.0

150.0

170.0

190.0

210.0

230.0

250.0

270.0

290.0

310.0

330.0

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 2017-18 2018-19

(E)

Production Internal Consumption

lac tons

6

Sugar trade from & to India

7

-0.12

-0.55

-2.14-2.40

-4.08

-0.67

-0.10-0.5

-0.18

1.08

1.77

0.270.00

1.111.73

4.96

0.16 0.24

2.602.99

0.35

2.13

1.101.66

0.50

3.00

-5

-4

-3

-2

-1

0

1

2

3

4

5

6

Imports Exports

mn. tons

Immediate and short term problems of

sugar sector

8

Indian production, consumption and opening balance

127.0

193.0

284.0

264.0

145.0

189.0

244.0

263.0251.0

244.0

283.0251.0

203.0

325.0307

185.0185.0

199.0

219.0229.0 213.0

208.0

226.0 228.0242.0

256.0248.0

245.0

254.0 260.0

85

40 43

110.33 105

43.64 49.858.54 66.01

92.9874.74

90.8

77.52

38.8

107.2

30.0

50.0

70.0

90.0

110.0

130.0

150.0

170.0

190.0

210.0

230.0

250.0

270.0

290.0

310.0

330.0

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 2017-18 2018-19

(E)

Production Internal Consumption Opening balance

lac tons

9

Current year 2018-19 sugar balance sheet

Opening balance

(as on 1st Oct, 2018)

107.2 lakh tons

Estimated sugar production 307.0 lakh tons

Sugar availability during the season 414.2 lakh tons

Estimated sugar consumption 260.0 lakh tons

Estimated exports 30.0 lakh tons

Closing balance

(as on 30th Sept, 2019)

124.2 lakh tons

10

2

Closing Balance at end of the sugar season

60.02

66.01

92.98

74.74

90.80

77.52

38.76

107.2

124.2

10.00

30.00

50.00

70.00

90.00

110.00

130.00

150.00

170.00

2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 (P) 2017-18 (E) 2018-19 (E)

lac tons

11

All India average ex-mill sugar price & retail prices

12

25.1925.83

26.95

29.1

31.7

3434.5 34.75 34.56

34.08

37.3 36.9736.636.4

35.6

37.1

36.8936.25 35.15

32.4

30

32.1

30.4

26.5

31

31.7

31.2

31

31.15

30.1 30

30.55

31.57

33.15

34.64

37.4

39.2339.78

40.59 40.7640.68

41.8342.57

43.48 43.3242.5

41.37

40.35

39.01

36.88

38.8 38.5838.2

20

25

30

35

40

45

50

Oct'1

5

Nov'1

5

Dec'1

5

Jan'1

6

Feb'1

6

Mar'16

Apr.

16

May'1

6

Jun'1

6

Jul'1

6

Aug'1

6

Sept'1

6

Oct'1

6

Nov'1

6

Dec'1

6

Jan'1

7

Feb'1

7

Mar'17

Apr.

17

May'1

7

Jun'1

7

Jul'1

7

Aug'1

7

Sept'1

7

Oct'1

7

Nov'1

7

Dec'1

7

Jan'1

8

Feb'1

8

Mar.

'18

Apr.

18

May'1

8

Jun'1

8

July

'18

Aug'1

8

Sept'1

8

Oct'1

8

Nov'1

8

Dec'1

8

Jan'1

9

Rs. /kilo

Cane arrears will reach historic levels in Mar 2019

8577

12702

1864820099

13530

9526

1978019000

??

5000

7000

9000

11000

13000

15000

17000

19000

21000

23000

25000

27000

29000

31000

33000

35000

2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 (As on 31st Dec.)

2018-19 (As on 31st Mar)

Rs. in crore13

• In April 2018 cane price arrears reached Rs. 22,000 crore

• Will reach alarming levels by April, 2019

Problems mainly because of very high

cane price & the mismatch with sugar price

14

FRP for sugarcane has increased very fast

Rs. per quintal

130139

145

170

210220

230 230

255

275

0

50

100

150

200

250

300

2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19

FRP

FRP

15

FRP has doubled in last 9 years

But ex-mill sugar prices have hardly moved up….

129.84

139.12145

170

210

220

230 230

255

275

2951

2727

2951

3148

2917

2492

3121

3620

3120

3040

2000

2200

2400

2600

2800

3000

3200

3400

3600

3800

100

120

140

160

180

200

220

240

260

280

300

2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19(till Jan.)

FRP Avg. ex-mill price

16

17

1298

13911450

1700

2100

2200

2300 2300

2550

2750

1000 10001080

12501310

13601410

14701550

1750

1100 1120

12851350

14001450

1525

1625

1735

800

1000

1200

1400

1600

1800

2000

2200

2400

2600

2800

3000

2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19

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

Revenue from sugarcane substantially higher than

competing crops

Sugarcane the most attractive crop

1. Sturdy crop: Can withstand weather fluctuations better than

others

2. Better remuneration: Farmers get 50-60% higher returns from

sugarcane as compared to any competing crop

3. Assured buyer: Each farmer is attached to a sugar mill. The mill

can’t close till it crushes all sugarcane grown in its area.

4. Assured price: Farmer gets full cane price fixed by Central or

State Govt. even if late, which is not the case for other crops

5. No middlemen: Cane bought directly and payment made directly

into bank accounts of farmers

18

Amongst large producers, India pays the highest cane price

27.4525.11 24.06

42.3

10

15

20

25

30

35

40

45

50

Thailand Brazil Australia India

USD/ton of cane in 2017-18 season

Note: Prices include cost of harvesting & transportation

Source: Australia – Queensland Sugar Ltd.

Thailand – Office of Cane and Sugar Board

Brazil - CONSECANA

India – Average FRP at all India average recovery of 10.77%

19

Indian cost of sugar production is very high

20

554535

333.74345.35

250

280

310

340

370

400

430

460

490

520

550

580

2016-17 2017-18

CoPIndiav/sBrazil

India Brazil

USD/ton

Indian sugar has become uncompetitive

21

3277

3100

3300

3750

3580 3600

2405

2002

2707 2732

2324

18511800

2300

2800

3300

3800

4300

2013-14 2014-15 2015-16 2016-17 2017-18 2018-19

CoP in India v/s Global prices (white)

Cop(India) Global price (White sugar)

Rs/qtl

Hence, it has become almost impossible

to export surplus sugar without Govt.

help

22

Solutions: Immediate and short term

23

Steps taken by Govt. in last one year

Increase in import duty from 50% to 100%

Removal of the 20% export duty

Stock holding limit on sugar mills in Feb and Mar 2018

Announcement of DFIA scheme and export quotas without subsidy

Production subsidy on cane as part of FRP in 2017-18

Max. monthly sugar sale quota for each mill fixed by Govt. since June ‘18

Min. ex-mill sugar sale price fixed by Govt. at Rs.29/- kg since June ‘18

Buffer stock subsidy for 30 lakh tons

Production subsidy, transport subsidy and 50 lakh tons export quotas

24.

Yet record cane price arrears & sugar inventories

The policies and incentives given by Govt. is not enough

Clearly means that something more needed to solve problem of

A) Fast accumulating cane price arrears to alarming levels (reported to

have already crossed Rs.19,000 crore by end Dec 2018)

B) High sugar inventory expected at end of this season at unprecedented

record high levels of over 124 lakh tons

Any policy should attempt to solve both the above

problems simultaneously

25

Sugar Production and ex-mill prices

127

193

284

264

145

189

244

263

251244

283

251

203

325

307

14201577

1205 1247

2022

2951

2727

29513148

2917

2492

3121

3620

3200

3000

1000

1500

2000

2500

3000

3500

4000

120

140

160

180

200

220

240

260

280

300

320

Sugar Production Ex-mill sugar prices (Rs./qtl)

lac tons

26

• Sugar prices are inversely related to sugar production and stocks

1. To address the problem of cane price arrears

Cash flows of sugar mills needs improvement

Can be done by either/and:

Giving soft loans at zero interest rates

Increasing revenue realisation of sugar mills from sugar

Soft loans will not solve current problem

Even if announced now, loan will get disbursed in at least 3-4 months

Max. arrears with sugar mills having distressed balance sheets, who won’t get loan

Only way is to increase minimum sugar price to Rs.35-36/- kilo

To cover the cost of production, including interest, maintenance costs etc.

Sugar valuation will increase by Rs.6-7 per kilo, giving addl. Rs.20,000

crore to sugar mills from the current stocks and further production

27

To reduce sugar stocks

Impactful diversion of surplus sugar into ethanol will become

successful in next 2-3 years

More ethanol production capacities required for that success

Currently, only way is by exports

Export quotas and incentives not proving enough to incentivise or force

mills to export their quota

There is thus need to find ways to ensure mills fulfil their

export quotas

Which can happen if there is some penalty for non-performing mills

28

Ethanol policies: an attempt to balance

sugar production

29

Surplus sugar to ethanol

OMCs currently targeting 10% ethanol blending with petrol

In 2017-18 (Dec-Nov), around 4.5% blending achieved

For 2018-19, 10% blending requires 330 crore litres

Contracts entered into for 260 crore litres (almost 8% blend levels)

Includes 50 crore litres from cane juice/ B-molasses (first time ever)

India currently has over 70 lakh tons of surplus sugar

Instead of making more sugar, enormous scope to divert surplus cane

30

What are/were the constraints in moving forward?

Ethanol production capacity

Around 300 crore litres, incl. 30 crore litres from grain based

Inter-State movement

State Governments reluctant to give up control

Storage capacities

Both at the distilleries as also at Oil depots

Reluctance on the part of automobile manufacturers

Challenge, if any, on old vehicles

31

Recent steps by Govt. of India

New Bio-fuel Policy in 2018

Allows sugar mills/distilleries to make ethanol from cane juice, B-

molasses, foodgrains, potato etc.

Procurement price of ethanol being fixed by Govt. since 2014

Price increased significantly for 2018-19

Premium prices for ethanol made from cane juice/B-molasses/grains

Relevant Act amended to make ethanol movement smoother

States being convinced/ pursued to withdraw the controls

Standards fixed for 20% ethanol blended gasoline in India

Subsidised loans by Govt. for new/ expansion of capacities

32

Need to implement 20% blending levels

Govt. has already fixed ethanol blend standards at 20%

With ethanol production capacities being set up at a great

pace, we expect creation of another 200 crore litres in 2 years

This would mean possibility of 450-500 crore litres of ethanol

production by 2020-21

Equivalent to over 15% blend levels

Which will only continue to increase

Hence, immediate need to get all stakeholders to move to 20%

blend levels, starting with UP and Maharashtra in 2019-20

33

Long term policy directions

34

India a structural surplus sugar producer & exporter

12.7

19.3

28.4

26.4

14.5

18.9

24.4

26.3

25.124.4

28.3

25.1

20.3

32.5

30.7

18.5 18.5

19.9

21.9

22.921.3

20.8

22.6 22.8

24.2

25.624.8

24.6

25.426.0

10.0

14.0

18.0

22.0

26.0

30.0

34.0

Sugar Production Internal Consumption

Million tons

35.

Rationalisation of cane pricing policy

International laws/practice across sugar producing nations:

Cane price automatically gets determined as per formula as a

percentage of revenue from sugar and/or by-products

It varies in the range of 60-66%

Brazil, Thailand, Australia, EU, Mauritius, Kenya, Tanzania etc.

If India has to export sugar, it needs to be competitive and

adopt similar systems/ practice

Expert Committee had recommended a formula

Adopted in Maharashtra and Karnataka, though not properly

implemented

36

The linkage formula …..

Revenue sharing formula (RSF) for India

Based on historical data in India and international practices:

Cane price at 70% of revenue from sugar and primary by-products or at

75% of revenue from sugar alone (giving 5% weightage to by-products)

CACP, for last 4 years, also recommended for RSF, as follows

FRP will be the minimum price the farmers will get

Cane price payable by mills will be as per RSF

If it is below FRP, gap to be filled up through a Fund created by Govt.

But Govt. has only been accepting the FRP, but ignoring

the second part of the recommendation on RSF and Fund

37

CACP’s recommendations for the Fund

Contribution into the Fund:

To set MSP of sugar for consumers at certain level.

When it falls below MSP, certain amount of cess can be

collected from consumers.

During high sugar prices, part of surplus generated under

RSF can be retained and deposited in PSF.

A committee should be constituted for creating and

managing PSF.

38

Concluding …….

Implement RSF with FRP and a Fund

Create a Cane Farmers Welfare Fund (CFWF)

To fund the gap between what industry can pay and FRP fixed by Govt.

By restricting cane price liability of millers to their paying capacity,

Indian sugar will become competitive world wide

Payment of cane price in two instalments

Stop State Govts. from fixing SAP for sugarcane, above FRP

Make them liable to pay the difference between SAP and FRP

Continue to encourage diversion of surplus sugar to ethanol

Fixed pricing policy should be linked to FRP

39.

Thank you