INDIA S SUGAR MARKET DYNAMICS:

INDIA S SUGAR MARKET DYNAMICS: ABINASH VERMA, DG, INDIAN SUGAR MILLS ASSOCIATION

2 AN OVERVIEW OF INDIAN SUGAR INDUSTRY

Products and production 3 Annual sugar production is in the range: 25-28 million tons World s second largest producer of sugar Annual domestic consumption 16-17 SS: 26 million tons World s largest consumer of sugar 5000 MW of surplus green power from bagasse exported to grid (potential to go upto 8000 MW) 12 mn tons of molasses being produced Which gives 3 billion litres of alcohol Including 1.3 billion litres of ethanol to replace 5% petrol consumption

Contribution to Indian economy 4 40-50 million farmers and their families are directly dependent Over 10 billion US dollars of cane price paid annually Around $ 40-45 per ton of sugarcane is paid as cane price Direct & indirect employment to 2 million people Enough sugar is produced to fully take care of domestic requirement Sometimes, surplus is exported: foreign exchange earner too Direct positive impact on rural economy Mills located in villages Annual direct & indirect contribution of over 11 billion US dollars to the Government Exchequer

A fragmented industry 5 Around 75 to 80% of sugar & ethanol produced in 3 States 37% production by cooperative sector and 63% by private sugars 530 sugar mills operating Goa Half of them have a capacity of upto 2500 tcd Largest sugar company has a market share of 4% only

6 Sugar Production & Consumption Million tons 30.0 28.4 30.0 Sugar Production Internal Consumption 28.3 25.0 26.4 25.0 24.4 26.3 25.1 24.4 24.2 25.6 25.3 25.1 21.9 22.9 21 22.6 22.8 20.0 19.3 18.5 19.9 19 20.0 20.8 18.5 15.0 14.5 15.0 12.7 10.0 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 10.0 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.

India of & on an exporter or importer 7 6 5 Million tons 4.96 4 3 2 1 0-1 1.77 1.08 0.27-0.12-0.55 0.00 1.11 1.73 0.17 0.24 2.60 2.99 2.20 0.35-0.10-0.68 1.10 1.60-2 -3-2.14-2.40-4 -5 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 ) -4.08 Imports Exports

8 Carry forward sugar stocks pretty high in last 6 years mn. tons 10 9 8 7 6 5 4 3 2 1 0 9.3 9.1 7.5 7.3 6.6 6 Normative requirement 4.5 mn tons 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 Every 1 mn. tons of sugar BLOCKS 45 million USD of working capital

9 Government Policies & Controls

CANE SIDE CONTROLS Cane Area Reservation SUGAR SIDE CONTROLS Regulated Monthly Release Mechanism Minimum distance of 15/25 kms between two mills GOVT POLICY Levy Sugar Obligation on mills Dual Cane Pricing: Centre/State Import and Export of sugar

CANE SIDE CONTROLS Cane Area Reservation SUGAR SIDE CONTROLS Regulated Monthly Release Mechanism Minimum distance of 15/25 kms between two mills GOVT POLICY Levy Sugar Obligation on mills Dual Cane Pricing: Centre/State Revenue sharing model in 2 States Import and Export of sugar

Current regulations and freedom 12 Sugar side largely deregulated and free No restriction or control on sugar sales No burden for sugar supplies for Public Distribution System Import and export being controlled through tariff rates Sugarcane side though continues to be controlled Cane prices still fixed by Federal Govt., with no direct linkage to sugar prices or revenue realised Though 2 States viz. Maharashtra & Karnataka adopted revenue sharing formula for their States However, minimum distance and cane area reservation continue

13 IMPACT OF CANE PRICING POLICY

Sugarcane prices by Federal Govt. increased steeply 14 250 Rs. per quintal 225 220 230 200 210 175 170 150 125 129.84 139.12 145 100 75 74.5 79.5 80.25 81.18 81.18 50 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 Steep increase in the cane price fixed by GoI from 2009-10 SS has made cane price unaffordable.

FRP of Sugarcane Vs MSP of Paddy and Wheat 16 2400 2200 2000 2100 2200 2300 1800 1600 1400 1200 1000 1700 1525 1450 1400 1450 1391 1350 1410 1285 1360 1298 1310 1100 1120 1250 1000 1000 1080 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 Paddy (Rs./qtl.) Sugarcane (Rs./ton) Wheat (Rs./qtl) 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.

Cost of production vs. Average ex-mill prices 16 Rs./quintal 3400 3200 3000 2800 3275 3300 3300 3200 3150 3100 3053 2950 2900 2600 2500 2400 2200 2000 2011-12 2012-13 2013-14 2014-15 2015-16 (E ) Cost of Production Average ex-mill price

Cane price arrears as on 31st March 18 Under current circumstances, it has become difficult to pay cane price of farmers 306 318 Million USD 224 202 162 2011-12 2012-13 2013-14 2014-15 2015-16

18 Current situation and next couple of years High OB of 9.1 mn tons for 2015-16 SS, with production almost matching domestic consumption, And exports of 1.6 mn tons, carry forward stocks of 7.3 mn tons With drought in Western part of India, acreage has fallen, but Production next year 2016-17 SS estimated to be around 23.3 mn tons Though less than domestic consumption of 26 mn tons, healthy OB of 7.3 mn tons will give enough sugar and yet leave comfortable CB Above normal monsoon and reservoirs getting filled up Sowing for 2017-18 SS picked up, and may reach normal levels 2017-18 SS expected to be surplus production again

19 India has enough sugar. With 7.3 mn tons OB expected on 1 st Oct, 2016, there is enough sugar in next 12-14 months of 2016-17 SS Doubt being raised: is the OB of 4.5 mn tons for 2017-18 SS adequate? With no regulated release mechanism, new season s sugar comes into the market immediately on production Peak sugar production in India starts from Nov end Hence, India will not need to import sugar

20 Government policies currently in India Sugarcane price fixed by Federal Government for 2016-17 SS at Rs.2300 per ton of cane at 9.5% sugar recovery, With premium of Rs.242 per ton for every 0.1% recovery above 9.5% Cane area reservation in all States except Maharashtra Minimum distance between two mills at 15 or 25 kms Import duty of 40% and export duty of 20% Stock holding limit on sugar traders Sugar mills also told to have sugar stocks below 37% and 24% of sugar availability in 15-16 on 30 Sept and 31 Oct 16

21 ETHANOL BLENDING IN INDIA

22 Objective of ethanol blending in India Current Government reiterated its objectives behind the ethanol blending with petrol programme in India; To directly benefit millions of sugarcane farmers Help in reduction of net oil import bill Will reduce environmental pollution Current policy of Government is to produce fuel grade ethanol from domestic sources And also from non food items

23 Current policy Fixed price for fuel grade ethanol of 99.6% purity Rs.48.50 to 49.50 per litre delivered at the oil company depot Oil companies given target to blend upto 10% with petrol 1.3 bn litres of ethanol supply contracts finalised in 2016-17 Equivalent to 5% blending with petrol Govt. of India planning to encourage 2G ethanol production Tax benefit allowed on fuel grade ethanol for oil companies from Nov, 2015, withdrawn in Aug, 2016

24 Hurdles and constraints To move to 10% ethanol blending with petrol, India will need to divert some sugar into ethanol Or look at other sources and feedstock State Governments still not encouraging ethanol Few not giving permissions to produce ethanol Others imposing taxes and duties on movement of ethanol Excessive controls/ permissions on ethanol movement, esp. inter-state Need a stable and long term ethanol policy, tax incentives and ethanol pricing policy

Thank you