INDIA: END OF THE SUGAR CYCLE? PRESENTED BY: ABINASH VERMA, DG, ISMA
Outline of Presentation 2 The Indian Sugar Cycle Factors impacting the Cycle Do we see an end to the Cycle? Can the Cycle be better Managed? 2012-13 and 2013-14 seasons
Sugar Production Cycle in last 10 years 3 28.4 26.4 24.4 26.0 24.0 18.5 18.5 20.1 19.3 18.9 13.5 12.7 14.5 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 (E) Sugar Production in million tons
The year-wise swings: Since 2000-01 4 Period No. of seasons Range (mn tons) Swing from previous high/low (mn tons) Swing % 00-01 to 02-03 3 18.5 to 20.1 03-04 to 04-05 2 13.5 to 12.7 (-) 6.6 (-)33% 05-06 to 07-08 3 19.3 to 28.4 (+) 6.6 (+)52% 08-09 to 09-10 2 14.5 to 18.9 (-) 11.9 (-)42% 10-11 to 12-13 3 24.0 to 26.2 (+) 5.5 (+)29%
Production Consumption in last ten years 5 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13(E) Production (mln ton) Consumption(mln ton)
Cyclical sugar trade in last 20 years. 6 4.956 Import ( mln tn) Exports (mln tns) 3.5 2.6 1.767 1.728 1.021 1.107 0.562 0.411 0.01 0.063 0.419 0.069 0.022 0.066 0.987 1.082 0.266 0.004 0.165 0.235 0-0.2-0.935-1.003-0.404-0.124-0.553-2 -2.138-2.403-4.08
Therefore, The Cycle is 7 Indian sugar production follows a 5 year cycle 2 to 3 year of high production; followed by 2 to 3 years of low production; and vice versa. Consumption growth is linear Results in huge swings in the sugar equation
Outline of Presentation 8 The Indian Sugar Cycle Factors impacting the Cycle Do we see an end to the Cycle? Can the Cycle be better Managed? 2012-13 and 2013-14 seasons
Sugar production dependant on.. 9 1. Cane production Area under sugarcane Weather & Rainfall 2. Cane drawal by sugar industry Price of cane offered by sugar industry Diversion into gur, khandsari etc. 3. Government policies
Fluctuations in cane area and production 10 6 600 5 500 4 400 3 300 2 200 1 Cane Area (mln. ha) Cane Production (Mln.Tonnes) 100 0 0 Price for cane and Arrears of farmers Returns from alternative crops like wheat, paddy, cotton, turmeric etc.
Sugar Production & Sugar Price Price Trend 11 30.00 10.00 Sugar Production( mln tn) Sugar wholesale prices ( INR/ qtl) 3200 3000 2800 2600 2400 2200 2000 1800 1600 1400 1200 1000
Cane Price Arrears (as on 30 th June in Rs. crore) 12 4600 4185 3182 1800 1955 745 1031 1286 752 1216 209 215 231 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12
The Indian Sugar Cycle High Sugarcane Production High Sugar Production Decline in sugar prices Lower Profitability/ losses Good, timely cane price payments High Cane price arrears Decline in area under cane Improved Profitability High sugar prices Lower Sugar Production Lower sugarcane production
Number of subdivisions 40 Indian variability of Monsoons 35 30 25 20 15 10 5 0 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Excess/Normal Deficient/Scanty Although 93% of India s cane crop is irrigated, performance of the 4 month (Jun-Sept) monsoon season has a significant impact on crop output This affects yield as well as sucrose formation impacting sugar recovery
Cane Yield 15 70.9 68.6 67.4 63.6 64.8 66.9 69 68.9 64.5 70 70.1 68.5 59.4 Yield (ton/ha)
mmt Cane diversion for alternate sweeteners 400 350 300 250 200 150 100 50 - Cane for Seed For Jaggery Cane for sugar Substantial variation in yearly drawals - Higher drawals in low production years and lower in high production years
Cane drawal by sugar industry 78.6% 67.6% 67.1% 71.8% 63.5% 72.0% 71.7% 59.7% 60.7% 56.7% 52.6% 50.9% 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 20010-11 20011-12
Policy Contribution to the Cyclicality 18 Regulated Release Mechanism Control on sugar prices & Blockage of working capital Levy Sugar Obligation on mills Carry forward of levy sugar, blockage of capital Export-Import of Sugar Timing and quantity permissions Cane Price Unreasonably high and no linkage with sugar price
Cane Price Arrears vis-à-vis Sugar Inventory 19 10000 9000 8000 7000 6000 5000 4000 3000 2000 1000 0 2011-12 October November December January February March April May June 200 180 160 140 120 100 80 60 40 20 0 Sugar Inventory (lk tn) Cane Arrears( Rs. Cr.) Cane price arrears directly related to sugar inventory which industry forced to carry Industry has no control on cash flow which are need to pay cane price to farmers during crushing season.
Outline of Presentation 20 The Indian Sugar Cycle Factors impacting the Cycle Do we see an end to the Cycle? Can the Cycle be better Managed? 2012-13 and 2013-14 seasons
Production Consumption in last ten years 21 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13(E) Production (mln ton) Consumption(mln ton)
Production Consumption in last ten years 22 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13(E) Production (mln ton) Consumption(mln ton)
Policy front. 23 Permissions in last 2 years for exporting the surplus Timing and Quantities Market for Indian sugar Cash Flow needs better met Quarterly release mechanism Levy sugar: Conversions and Carry forward rule Sugar price vis-à-vis cost of production Government and public awareness and acceptance
Sugar Production & Sugar Price Price Trend 24 30.00 10.00 Sugar Production( mln tn) Sugar wholesale prices ( INR/ qtl) 3200 3000 2800 2600 2400 2200 2000 1800 1600 1400 1200 1000
Cane Price Arrears 25 4185 4600 3182 1955 1800 1286 1216 1031 745 752 209 215 231 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 High Cane Price Arrears are usually followed by fall in Cane Acreage and fall in sugar production It is not expected to happen in 2012-13
Diversion of cane and area 26 Price of competing crops Returns to farmers from wheat, paddy, cotton, turmeric etc. Cane drawal for gur, jaggery, khandsari etc. Price offered by alternate sweetener manufacturers
Outline of Presentation 27 The Indian Sugar Cycle Factors impacting the Cycle Do we see an end to the Cycle? Can the Cycle be better Managed? 2012-13 and 2013-14 seasons
Management of the Surplus: suggestions 28 Freedom from Government controls Cane price sugar price linkage Freer trade policy Diversion of surplus cane into ethanol Diversion to alternate sweeteners
Outline of Presentation 29 The Indian Sugar Cycle Factors impacting the Cycle Do we see an end to the Cycle? Can the Cycle be better Managed? 2012-13 and 2013-14 seasons
Sugar Production Cycle in last 10 years 30 28.4 26.4 24.4 26.0 24.0 18.5 18.5 20.1 19.3 18.9 13.5 12.7 14.5 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 (E) Sugar Production in million tons
2012-13 and 2013-14: Will the Cycle come back? 31 2012-13: Very good cane price in 2011-12 Cane area higher by 4% over previous 2 seasons Doubts regarding rainfall in Maharashtra and Karnataka Rains have picked up in last 2 weeks Highest ever cane area in Uttar Pradesh Estimated sugar production of 24.0 million tons
2012-13 and 2013-14: Will the Cycle come back? 32 2013-14: Price for competing crops vis-a-vis cane price Cane price arrears in 2012-13? Sugar prices covering cost of production Surplus sugar in 2012-13 not as large as in previous years With some late rainfall and the outcome of retreating monsoon, reservoirs in Maharashtra and Karnataka may have more water 18 month crop in Maharashtra showing signs of picking up However, still very early to estimate, but indications as of now do not indicate a swing in cane area or fall in sugar production
Thank You