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1
INDIA & THE GLOBAL SUGAR
DYNAMICS- A MANUFACTURER’S PERSPECTIVE
Mahesh Deshmukh
Lokmangal Sugars
2
CURRENT SCENARIO
Opening Stock
Production
Consumption
Exports - Imports
Ending Stock
2010-11 4 24 21 3 4
2011-12 4 26 21 3 6
2012-13 6 25 22.5 -1 9.5
2013-14 9.5 24 24 2 7.5
2014-15* 7.5 28 24.5 1 10
* For Year 2014-15, expected numbers for Exports/Imports and consumption have been assumed
3
INFERENCES FROM BALANCE SHEET
Continuous Bumper production for last five years. Including near record production for 2014-15.
Increased Carry Forward stock every year. (Piling pressure on industry as a whole)
Less than expected exports (Current structure of government policies not enough to support industry)
4
PROBLEMS?
Sugar Cane cost ~ Rs 2400 Sugar Production Cost ~ Rs3200 Sugar Selling Price ~ Rs2200
“Cane Pricing is not rational” If the sugar selling price is based on normal
Supply Demand fundamentals, Then so should be the cane purchase price.
Current Cane pricing structure is skewed and harms the industry in the long run
5
MORE PROBLEMS…
Year Sugar Price
Sugar Price Change
Sugar Cane Prices
Sugar Cane Price Change
2010-11
2641 -9.7% 1390 + 7.7%
2011-12
2910 +10.2% 1450 +3.57%
2012-13
3150 +5.8% 1700 +17.2%
2013-14
2885 -6.3% 2100 +23.5%
2014-15
2200 -23.7% 2200 +8.3%This considerable difference in cane price & sugar price change puts extreme pressure on millers.
Sugar Price change to Sugar cane price changes over last 6 yearsThough, the sugar prices have fallen over the years. But, Cane prices have consistently risen over the last years
Source:ISMA
6
MORE PROBLEMS…
Supply – Demand Distortion The Indian consumption is at around 24.5 million MT, while
we have sugar availability of around 35 million MT, with negligible exports happening. Thus, More pressure on industry.
Exports Conundrum Brazil is the biggest producer and seller of sugar in the world. For
last one year, Brazil’s sugar prices have plummeted at an
astonishing rapid rate compared to Indian sugar prices. But
Brazil’s sugar industry is not facing any problems. Reason being
their devalued currency.
7
WORLD SUGAR BALANCE SHEET
Production
Consumption
Ending Stock
2011-12 173.5 168.8 39.7
2012-13 177.5 165.7 44
2013-14 175.7 168.7 45
2014-15* 174.3 170 42.
Production: Overall world sugar production is consistent.
Consumption: We see a roughly 1% increase YoY in sugar consumption.
8
WORLD MARKET TO INDIA’S SUGAR MARKET
FACTS World sees consistent production, While, India is seeing a
consistent rise and near record production in 2014-15 During Excess production years, India tends to export 2-3
mn MT of sugar. In 2014-15, India produced near record 28 mn MT sugar
with Excess availability of 10mn MT this year. But, We are unable to export even the stipulated 1.4 mn mT subsidized raw sugar.
Questions: Why have India been unable to meet even the 1.4 mn MT
exports? Even after huge domestic consumption, still the sugar
availability in India’s is very high.
9
REASONS: LITTLE TO NO EXPORTS
Source: XE.com
10
Not just the Brazilian “Real”, almost every currency depreciated against USD, except the INR
11
EFFECT OF STRONG CURRENCY ON EXPORTS
Reason: For same Dollar of sugar in international market now,
India is getting 30% less money than Brazil, If compared.
Brazil’s currency is cheaper, Thus they receive more Brazilian Reals for each Dollar. While in India, We are getting less rupees for each dollar, compared to Brazil.
Brazil sugar manufacturers are selling at even $ 350. While Indian sugar manufacturers cannot meet even the cane payments with current sugar prices.
12
SOLUTIONS - IMMEDIATE TO SHORT TERM
Increase the Quantum & Quantity of export subsidyCurrent quota for only 1.4 million MT sugar is not sufficient. As, we are still long way off from exporting 1.4 mn MT raw sugar. Rs 4/Kg subsidy needs to be revised upwards.
Government Support to FRP payments to farmersDeposit the FRP subsidy directly to farmers account to ease their pain.
Government purchase sugar or buffer stockBuying of sugar by the govt can diffuse the unbalanced supply demand scenario instantly. A 10% purchase by govt from the millers at cost prices.
Quick & Easy Export DocumentationEach export contract should not be required to be registered with the DGFT.
13
SOLUTIONS (LONGER TERM)
Farmers
Farmers should diversify their crop portfolio. Rather than planting cane in all their area, they should also go for planting other alternate crops in addition to sugarcane.
Reduce the water usage by switching over to drip irrigation.
Increasing the cane yield/Hectare.
14
SOLUTIONS (LONGER TERM)
Government Government needs to announce the export
subsidies ideally before the crushing begins. Otherwise, there is hardly any advantage to the industry.
Rationalize the FRP for Sugarcane: A thorough revision to the FRP structure is required. Rangarajan committee has given a fair solution to this problem and the formula needs to be adopted
Stabilize the sugar market: We can follow China, where Government purchases the sugar from manufacturers when the prices are low, and sells in the market when prices start rising.
15
SOLUTIONS (LONGER TERM)
Government Fixed pricing of ethanol is a very good decision
been taken by the Govt. Decision to exempt the excise duty on ethanol is a
welcome move
16
SOLUTIONS (LONGER TERM)– CONTD.
Consumers Per capita consumption of sugar in India is 20
kg/year. An increase of Rs 4-5 /Kg will have negligible impact on the household food budget.
Comparison of Sugar Price change to other commodities price change
Year Sugar Wheat Barley Chana
2010-11 -9.7% -3.6% 28.36% 17.50%
2011-12 10.2% +7.2% 1.1% 55.01%
2012-13 5.8% +25.9% 3.1% -8.64%
2013-14 -6.3% -6.2% 2.6% -19.59%
2014-15 -23.7% +9.9% 4.1% 21.22%
Total Price change in last
5 years
-25% +25% +42.9% +62.2%
Source : http://www.ncdex.com & http://agmarkweb.dacnet.nic.in/SA_Month_PriMar.aspx
17
SOLUTIONS (LONGER TERM)– CONTD.
Manufacturer Time to educate the general public about the
issues being faced by the Industry. H&T advances. Look towards diverting B-Heavy molasses to
ethanol production. Going for cogeneration of power and distillery. Emphasis on quality of sugar. Care for the Environment.
18
LOOKING AHEAD – INDIAN SUGAR CYCLE
Source: Google
19
LOOKING AHEAD – CONTD.
Looking Ahead
Expecting to see favorable policies & support, We expect the Indian sugar industry to bounce back in the coming years.
Once everybody understands the fundamentals of the situation, only then, India’s sugar balance sheet will lighten up and industry would look to rebuild it’s next cycle.
The need of the hour is to understand and remove this problem phase that impacts the farmers, Industry & Consumers in whole.
20
THANK YOU !