SUGAR INDUSTRY IN INDIA:

STATUS AND POLICY NEEDS

INDIAN SUGAR MILLS ASSOCIATION, NEW DELHI
 Sugar Production & Consumption
2
284 283
280

lac tons 264 263

260
251 251
244 244 256 242
240 248
242

220 229 226 228 213

219
213
200 193 189 208
199
180
185 185

160
145
140
127
120

2004
-05
2005
- 06
2006
-07
2007
-08
2008
-09
2009
- 10
2010
-11
2011
- 12
2012
-13 013-14 -15 6 (P) (E )
2 2014 2015-1 2016-17

Sugar Produc on Internal Consump on

Production in surplus over consumption continuously for 6 years since 2010-11

 Sugar trade from & to India
3
60
49.56 lac tons
50

40
29.92
30 26.00
21.27
20 17.67 17.28 16.56
10.82 11.07 11.01
10
2.66 1.65 2.35 3.48
0.04
0
-1.24 -0.98
-10 -5.53 -6.76

-20
-21.38
-30 -24.03

-40
-40.80
-50
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 )

Imports Exports

Forcing India to export sugar in last 6 years, even to an unviable global market.

Important to note that India still imported 7.75 lakh tons in the midst of surplus.
 Average domestic sugar prices
4
Rs. per ton

7.75 lakh tons of imports in the midst of surplus in 12-13 & 13-14, got stuck in domestic
market, further depressing the already low domestic sugar prices, for the next 2 years in
13-14 and 14-15.

Recovery could happen only after 16 lakh tons exported with production subsidy from
Govt. in 2015-16
 Cane Price fixed by Government of India
5
255
250

Rs. per quintal 230 230

225
220
210
200

175
170

150
145
139.12
129.84
125

100

79.5 80.25 81.18 81.18

75 74.5

50

FRP

FRP has increased very steeply 3 times in 09-10, 12-13 and 13-14, which made FRP
also unaffordable for the industry.
The mistake seems to be getting repeated for 2017-18 SS
 Cost of production vs. Average ex-mill prices
6 Rs./quintal

Cane prices increased steeply in 09-10, 12-13 & 13-14

Increasing cost of production
Ex-mill sugar prices were depressed, thanks to surplus sugar, due to both high
domestic production as also imports
Sugar prices much lower to cost of production from 2013-14 to 2015-16
The Industry incurred massive losses
 Cane price arrears accordingly reached record levels
7

Rs. Crore

20099
18648

12702 13530

8577

2011-12 2012-13 2013-14 2014-15 2015-16

 Mismatch between sugar prices and cane prices
8
Currently FRP is fixed by GOI, and SAP by 5 States
No link between cane and sugar prices/revenue realisation

Cane price sometimes crosses even 90-100% of revenue realisation,

leaving nothing for other liabilities

In last 8-9 years, FRP has increased by almost 100%

Sugar prices not kept pace at 20-25%; have even fallen in

some years
FRP has become unaffordable to sugar mills

Other countries have a cane price sugar price linkage

Cane price generally at 62 - 65% of revenue realised in those countries
 FRP v/s average ex-mill price in last 5 years
9 Rs. per quintal

255 4000

230 230 3500

225 220 3480
3148 210 3121
2951 2951 2917
3000
195 2727
2492 2500
170
165
2000
145
139.12
135 129.84
1500

105 1000

75 500
0 1 2 3 4 5 6 )
2009-1 2010-1 2011-1 2012-1 2013-1 2014-1 2015-1 -17( ll Jan'17
2016

FRP Ex-Mill Price

 FRP of Sugarcane Vs MSP of Paddy & Wheat
11
2400
2300 2300

2200
2200
2100

2000

1800
1700

1600
1450 1525
1391 1450
1400 1400 1470
1298 1350 1410
1285 1360
1310
1200 1250
1100 1120

1000 1080
1000 1000

800
2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17

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

 Rangarajan Committee recommendations
11

Cane price should be automatically determined as per a

linkage or revenue sharing formula (RSF), at:
70% of revenue from sugar & primary by-products or

75% of revenue from sugar alone

Farmers to be guaranteed a minimum FRP as 1st instalment

If RSF is above FRP, a 2nd instalment paid at end of the season

 Implementing RR Committee recommendations
12
GOI allowed States to decide on the recommendations

Maharashtra and Karnataka adopted RSF

Working well for last 2 years or so

U.P., Punjab, Haryana, Uttarakhand & Tamil Nadu continue to

fix SAP unilaterally, at much higher levels

CACP in last 3 years, has continuously recommended that

Liability of mills be restricted at Revenue Sharing Formula

And yet guarantee farmers to get at least FRP

Hence, in years of low sugar prices, gap between FRP and RSF be filled
from a Price Stabilisation Fund (PSF) created by Government
 Price Stabilisation Fund (PSF): ISMAs suggestions
13
Source of funds: Cess on sugar
Instead of cess going to SDF, can use it for PSF

or SDF can be exclusively used for cane price shortfall

Cess can be levied when ex-mill sugar prices are depressed

Consumers will still pay retail price less than or equal to normal years

Will also ensure a more stable retail price

Win win for all stakeholders, including Government

Re.1 per kilo cess will give Govt. Rs.2500 crore annually
Equivalent to Rs.10 per quintal of cane price

The payment from PSF can be made directly to farmers

 Sugar mills need time to recover
14
Losses incurred during last 3-4 years
Mills had to borrow money to fund losses, including to pay cane price
of farmers

Debt burden jumped from Rs.12,000 cr in 2007-08 to

Rs.50,000 crore now

The Rs.10,000 crore of Soft/SEFASU loans given (with

interest subvention by Government) is due for repayment now

Industry unable to service all debt burden simultaneously

Companies becoming sick or becoming NPA accounts

 Debt Restructuring
15

S4A scheme of RBI allows restructuring of debt

For major industries with debt over Rs.500 crore and above

Allows coversion of upto 50% debt into various instruments including

non-convertible debentures etc.

Request to get S4A scheme extended to sugar industry too

Only modification required is reduction of threshold limit to Rs.100
crore since most sugar companies are in small/medium level

This will give time to sugar industry to recover its losses and
get back on its feet
 Fuel grade ethanol
16
At 10% blending with petrol, 280 crore litres of ethanol reqd.

Last year requirement was 266 crore litres

Supplies were 111 crore litres @4.3% blending

Against 280 crore litres reqt., 2 Rounds of EOI has given 78

crore litres of contracts for 2016-17 (Dec - Nov)
 Policy changes and supplies
16
Exemption
Changed to market from Central
Fixed Price Policy driven price policy Excise Duty

Changed to fixed Excise waiver

price policy. Price withdrawn.
not linked to crude Procurement
oil/petrol price Price reduced
1110.0

779.3
674.1
413.9 382.2

300.6

2011-12 2012-13 2013-14 2014-15 2015-16 2016-17

Policy Change Quantity Contracted (Million Litres)
 Positive policies on ethanol & withdrawal later
18
There has been a flip-flop on ethanol policies and pricing

Dec 2014 Cabinet decision is an important milestone

Modi Govt. decided on a fixed pricing policy for ethanol

Linked ethanol price to sugar price and delinked from crude oil price

In July 2015, another positive decision taken to exempt

ethanol from central excise duty of 12.5%

However, these two positive decisions were suddenly reversed

Ethanol prices reduced by Rs.2-3 per litre

Excise duty waiver withdrawn in middle of contract period

Has resulted in much lower ethanol offers for 2016-17 period

 Ethanol supply constraints
19
Feedstock availability
B-heavy molasses can be diverted from sugar to ethanol to give enough
for even 15% blending, but require encouraging prices

Ethanol production capacity

Only 130 out of 530 mills have ethanol capacities

Ethanol movement
Taxes & duties by States and insistence of excise permits incorrect

Reiterated by GOI by amending IDR Act in 2015

Stable policies, pricing and incentives required

To attract investments as also ensure more feedstock for the purpose
 Policy requests for ethanol
20

Restore excise duty waiver on ethanol and pass on benefit to

sugar companies/ethanol manufacturers

Ethanol price should be fixed not only to cover its producing

cost, but should also give credit to
Ethanols property to control pollution and improve air quality

Also that it improves returns of farmers

And that it reduces net oil import bill

 GST for sugar industry: Industrys requests
21

On sugar, currently taxes & duties are around 2.5%

GST on sugar should therefore, be at the lowest rate of 5%

On sugarcane, no central tax or duty

To ensure returns of farmers dont get affected, sugarcane be exempted

Current excise duty on ethanol is 12.5%

But considering its several benefits, including reducing air pollution,
tax on ethanol should be minimal: GST on ethanol at lowest rate of 5%

Cess on sugar currently at Rs.124 per quintal

Cess be used for cane payment/ PSF; if not, should be subsumed
 Current year 2016-17 sugar balance sheet
22

Opening balance 77.5 lakh tons

(as on 1st Oct, 2016)
Estimated sugar production 213 lakh tons

Sugar availability during the season 290.5 lakh tons

Estimated sugar consumption 242 lakh tons

Closing balance 48.5 lakh tons

(as on 30th Sept, 2017)
 Domestic requirement/ sugar sales
23

Sugar despatches in Oct-Dec 2016 lower by 5.5 lakh tons than

the sales last year Oct-Dec 2015

Field reports suggest sugar sales in Jan. 17 slow, and

therefore will be lower to the 25 lakh sold in Jan 16

Last sugar season 2015-16, 248.5 lakh tons was sold

Beverages, sweet makers etc. reporting lower sales/ growth

Considering, 5.5 + less sales in Jan 17 + similar sales in
balance 8 months, sugar desptaches in 16-17 at 242 lakh tons
 What is a good opening stock of sugar on 1st Oct??
24
Traditional norm was 3 months sales i.e. for Oct-Dec months
Oct-Dec 2016 it was 65.3 lakh tons, Oct-Dec 2017 was 59.8 lakh tons

But that was under regulated release mechanism

When there was a lag of at least 45 days between production and sale

Production reported after month got over, & ROs issued for next month

Nov. production was therefore available for sale only in January

With no release mechanism, no lag b/w production & sale

Sugar produced in Nov. is now available for sale in Nov itself

In current season, 28 lakh tons produced in Oct-Nov

New sugar is available in market from Nov. itself in full swing

 Surplus sugar production expected next season
25

Good initial sowing reports, good rainfall & water availability

Indicate surplus sugar production in 2017-18

Sugar production to be in full swing from end of Oct17

30 lakh tons of new sugar expected in market in Oct-Nov 17

Sales in Oct-Nov in past has been 37-40 lakh tons

Whereas OB on 1st Oct 17, expected at 48.5 lakh tons (equivalent to
2.5 months consumption requirement)
 ISMA will suggest on imports, if & when need arises
26
No need for any sugar import or change in import duty now
Final production nos. for 16-17 will be available by March-April

Enough time of 4-5 months to decide on imports to supplement OB

Imports would be required only if production and

consumption numbers are significantly different to estimates

Unrestricted and unnecessary imports will burden

industry and farmers for several years as seen in past

ISMA will be in constant touch with Government to

To decide to import as & when the need arises,

As also to decide on quantity and methodology of imports

 Cost of production higher in current year 2016-17
27 Higher SAP for cane in North India
Increased by States by 10-15%

Drought in West and South India

Lower production and sugar recovery means higher per unit cost

As compared to cost of sugar of Rs.33 per kilo last year,

the costs are therefore, higher at Rs.37.5 per kilo currently
At these costs, retail sugar prices would also be higher

Otherwise, cane price and bank loan repayments will fall in arrears

Plus, FRP for next year proposed to be increased by 10%

Will increase costs by another 10% next year
All India average ex-mill price of sugar vis--vis Cost of Production of sugar
3800
CoP Rs. 3750/qtl.
3600
3600
3450
3400
3400 3475
CoP Rs. 3300/qtl 3456

3400
3200
CoP Rs. 3100/qtl
3170

3081 3067
3000

2950
2910
2800
2790

2600
2618
2583

2400 2460
2433
2405

2200

2157

2000

All India Ex-Mill Prices

 Concluding .
29
1. Cane price be determined as a Revenue Sharing Formula
If it is below FRP, the gap be filled up from a Fund like PSF,

Which in turn could be funded through a sugar cess

2. Debt of sugar industry be restructured under S4A

By modifying threshold limit to Rs.100 crore

3. Ethanol price and excise duty waiver be restored

States be convinced against State duties and excise permit requirement

Can be started from BJP ruled States: Maharashtra, Haryana, Gujarat

4. GST: sugar & ethanol at 5%, cane exempted, Cess for PSF
 Concluding..
30
5. Adequate sugar availability in current 2016-17 season
With healthy carry forward of 48.5 lakh tons for next season

Enough for 2.5 months consumption requirement

New seasons sugar would be available in full swing by end Oct 17

No need of any imports or reduction in import duty

6. Cost of production of sugar is higher this year

Retail prices would therefore be higher to last year by 10-15%

Need to accept that costs will be higher next year by another 10% due
to an increase in FRP for 2017-18

Hence sugar prices this year and next year will be higher
Thank you