POLICIES & CONTROLS IN SUGAR SECTOR IN INDIA ABINASH VERMA INDIAN SUGAR MILLS ASSOCIATION, NEW DELHI
Flow of presentation 2 Policies and controls on sugar sector Policies adopted in the past to solve demandsupply mismatch Implications of the policies & controls on sugar sector Suggested short term and long term policies
Controls prior to 2013 3 Sugar side Regulated release mechanism Levy sugar supplies for PDS Packaging in jute bags Tariff rate and quotas on export or import Sugarcane side Minimum distance between two sugar mills Cane area reservation SMP/ FRP for sugarcane price (North Indian States have SAP)
Post 2013 controls 4 Government controls removed on sugar sales No levy sugar supplies by mills at discounted prices No regulation on monthly sugar sales/ quota by each mill So what were/ are the controls left?? All controls on sugarcane continue North Indian States continue to fix SAP much above FRP And export-import controlled through tariff rates and quotas
2018: Old control back, along with a new one 5 Maximum monthly sugar sale quota on mills re-introduced from June 2018 Minimum ex-mill sugar price from June 2018 @ Rs.2900 per quintal So, in addition to sugarcane price, quantity of sugarcane and area, quantum of monthly sugar sales and price for the same are decided through Government controls
6 Implications of Government controls
FRP for sugarcane increasing very fast 7 Average FRP of Rs.297 per quintal, in 2018-19 SS, will be 92% above A2+FL cost (Rs.155 per quintal). The returns to farmers would be higher if the increased yield of 25% in last two years alone (will be even more for UP, Maharashtra, Karnataka etc.) is considered
Remuneration to farmers from sugarcane highest 8 3000 2800 2600 2550 2750 2400 2200 2100 2200 2300 2300 2000 1800 1600 1400 1200 1000 800 1700 1735 1625 1450 1750 1391 1525 1298 1450 1400 1550 1350 1470 1285 1410 1360 1310 1100 1120 1250 1080 1000 1000 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 Paddy (Rs./qtl.) Sugarcane (Rs./ton) Wheat (Rs./qtl) In report for 2018-19 FRP, CACP has stated that net returns of sugarcane will be 245% higher than (paddy + wheat) and 252% higher than (cotton + wheat) Therefore, even though FRP payment is delayed, farmers get more than other crops even if part of FRP is paid on time (rest can be taken as a bonus)
9 Average ex-mill price has not kept pace with FRP
10 Farmers incomes increased due to higher productivity Increase in farmers income due to higher productivity has also been accepted by CACP in its 2018-19 report, but not included in FRP calculation
11 Sugarcane acreage and production increase 60 500 475 55 50 48.85 342.4 51.06 52.79 353.8 354.5 53.41 345.6 53.07 52.84 366.8 336.9 49.45 410 50.42 445 54.35 450 425 400 375 350 45 44.15 285 292.3 41.75 303.6 325 300 275 40 2008-09 2009-10 2010-11 Area (lac ha.) 2011-12 2012-13 2013-14 2014-15 2015-16 Sugarcane production (mn. tons) 2016-17 2017-18 2018-19(E ) 250
Surplus sugar, reaching record levels 12 36.0 mn. tons 35.5 34.0 32.3 32.0 30.0 28.0 26.0 24.0 22.0 20.0 18.0 19.3 18.5 18.5 28.4 19.9 26.4 21.9 22.9 21.3 18.9 24.4 20.8 26.3 25.1 22.6 22.8 24.4 24.2 28.3 25.6 25.1 24.8 24.5 20.3 25.5 26.0 16.0 14.5 14.0 12.7 12.0 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 (E ) 2018-19 Production Internal Consumption
Past Government supports 13 Created buffer stock in 2006-07 & 2007-08 SS and provided subsidy for storage and insurance charges. Reimbursed internal transport, ocean freight charges on sugar exports in 2006-07 and 2007-08 SS. Imports allowed under AAS in 2008-09 and 2009-10 when there was deficit. Exports allowed in tranches (5 lac tons each) in 2010-11 and 2011-12 SS. Incentives on exports given in the form of marketing and promotion services in 2013-14. SEFASU and soft loans provided to sugar industry and interest subvention was borne by Government in 2007 & 2014.
Recent policies to import-export sugar 14 To tackle the surplus sugar in 2015-16 Export quotas for each sugar mill under 40 lakh tons of MIEQ Production subsidy on cane as part of FRP given, which helped reduce losses, and also indirectly a part of the export loss To tackle deficit due to drought in 2016-17 Allowed raw sugar imports in specific regions by sugar mills only To tackle the surplus sugar in 2017-18 Export quotas for each sugar mill under 20 lakh tons of MIEQ Production subsidy on cane as part of FRP being given, which helped reduce losses, and also indirectly a part of the export loss
15 Negative impacts of the controls & policies on the sector??
Sugar prices have become unremunerative 16 320 323 4000 300 284 283 3620 3500 280 260 240 264 2951 244 263 2951 251 3148 244 2917 251 3121 3100 3000 220 200 180 193 2022 189 2727 2492 203 2500 2000 160 140 120 1420 127 1577 1205 1247 145 1500 1000 Sugar Production (lac tons) Ex-mill sugar prices (Rs./qtl)
Cane Price Arrears as on 30 th June 17 In crores
India pays the highest cane price 18 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%
Indian sugar uncompetitive in global market 19 4300 CoP in India v/s Global prices (white) Rs/qtl 580 550 573.92 CoP India v/s Brazil USD/ton 3800 3750 3580 520 490 515 3300 3277 3100 3300 460 430 400 2800 2300 2405 2707 2732 370 340 310 333.74 345.35 2002 2080 280 1800 2013-14 2014-15 2015-16 2016-17 2017-18 250 2016-17 2017-18 Cop(India) Global price (White sugar) India Brazil
Surplus sugar produced and high sugar inventory 20 In mn. tons 50.0 46.0 10.2 42.0 38.0 34.0 30.0 9.3 7.5 9.1 3.9 32.3 35.5 26.0 22.0 24.4 24.2 28.3 25.6 24.8 25.1 7.7 24.5 25.0 25.5 18.0 20.3 14.0 10.0 2013-14 2014-15 2015-16 2016-17 2017-18 (E ) 2018-19 (E ) Production opening Balance Internal Consumption
2018-19 SS scenario 21 OB sugar inventory: 100-105 lakh tons Sugar production: 350-355 lakh tons (E) Sugar consumption: 260 lakh tons (E) CB sugar inventory: 190 lakh tons (CB will reduce by the quantum of exports in 2018-19 SS) CB of 190 lakh tons = 9 months consumption requirement, as also blocks over Rs.60,000 crore of funds/ working capital
2018-19 SS looks extremely difficult 22 Cane crushing: 325 million tons at FRP of Rs.96,500 crore Will cross 1 lakh crore of cane price payable if SAP considered 260 lakh tons of domestic sales at Rs.3000 per quintal will give Rs.78,000 crore of revenue from Oct 18 to Sept 19 But by end of April 2019, cane price payable of over Rs.1,00,000 crore, whereas revenue from sugar sales of 150 lakh tons of Rs.45,000 crore Unpaid cane price could be Rs.50,000 crore (+ Rs.10,000 from 17-18)
To solve the current crisis 23 Increase minimum ex-mill domestic price to Rs.3600 per quintal On 80% of production sold in domestic market, mills will recover costs Supplement revenue by exports of 60-70 lakh tons Make exports compulsory, with power of seizure of unexported quota Advantages of above: No subsidy required and thus no cess on sugar required No WTO problem of subsidy Sugar inventory gets reduced Cane price of farmers will be paid on time
24 Domestic prices will remain reasonable
25 Ethanol policies: an attempt to balance sugar production
Surplus sugar to ethanol 26 Indian ethanol blending target with petrol is 10% From final C-molasses, industry able to meet 5% blending only Un-met demand of 5% blending means 160 crore litres Some surplus sugarcane or C-heavy molasses can be converted into ethanol, instead of making too much sugar Unmet demand of 160 cr litres =250-260 lakh tons of sugar Distillation capacities have to increase/ expanded 275 crore litres of capacities incl. with stand-alone distilleris Another 25 crore litres being added next year
Government policies encouraging for ethanol 27 New Bio-fuels policy allows diversion of sugarcane juice into ethanol Government extending subsidised loans for ethanol plants Price of ethanol has been fixed higher for next year For the first time a premium price has been fixed for ethanol made from B-heavy molasses Government examining possibilities of increasing blend percentage to 15%
Concluding: Policy framework; short & long term 28 Immediate policies required: To tackle the massive surplus sugar inventory To tackle the very high cane price arrears already accumulated and which is threatening to cross extremely high levels next year Policy framework should be able to address both these issues Long term policies required: Rationalised cane pricing policy to link cane price with revenue Robust futures market for sugar to help discover prices and hedge risks Ethanol procurement, pricing and blending policy to draw away surplus sugarcane
Thank you dgisma@indiansugar.com