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SUGAR SITUATION

Introduction:

India is the largest consumer of sugar in the world and Indian sugar

industry is the 2nd largest agro-industry located in the rural India. With

453 operating sugar mills in different parts of the country, Indian

sugar industry has been a focal point for socio-economic

development in the rural areas. About 50 million sugarcane farmers

and a large number of agricultural labourers are involved in

sugarcane cultivation and ancillary activities, constituting 7.5% of the

rural population. Besides the industry provides employment to about

2 million skilled/semi skilled workers and others mostly from the rural

areas. The industry not only generates power for its own requirement

but surplus power for export to the grid based on byproduct bagasse.

It also produces ethanol, an eco-friendly and renewable energy for

blending with petrol. Following table gives the details of impressive

contribution of the Indian sugar industry to the national economy.

Growth in Capacity

Indian sugar industry has grown horizontally with large number of

small sized sugar plants set up throughout the country as opposed to

the consolidation of capacity in the rest of the important sugar

producing countries, where greater emphasis has been laid on larger

capacity of sugar plants.

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Table I

NATIONAL ECONOMY

No. of Working Sugar Factories 453

Cane Price Per Tonne US$ 20

Cane Price paid annually US$ 3700 Million

No. of cane farmers 50 Million

Sugar Production 20.0 Million Tonnes (Raw

Value)

Annual Tax contribution to

exchequer

US $ 500 Million

Employment including ancillary

activities

2 Million People

Fuel Ethanol of 5% blend (Value) US $ 200 Million per annum

Current export of Co-generated

power (Value)

US $ 100 Million per annum

The average cane crushing capacity in India, Brazil and Thailand is

given below:

Country Avg. Capacity (TCD)

Thailand 10300

Brazil 9200

India 3500

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The Government of India licensed new units with an initial capacity of

1250 TCD upto 1980s which was subsequently increased to 2500

TCD. Government de-licensed the sugar sector in August 1998,

thereby removing the restrictions on expansion of existing capacity as

well as on establishment of new units, with the only stipulation that a

minimum distance of 15 Kms would continue to be observed between

an existing sugar mill and a new mill. The number of sugar mills and

the growth in capacity over decennial period 1980-81 to 2000-01 and

in the year 2001-02 to 2003-04 is given in Table No. II.

Table No. II

GROWTH IN AVERAGE CAPACITY OF SUGAR MILLS

Decennial period ending No. of Units Average Capacity Per

Unit (TCD)

1980-81 299 1650

1990-91 377 2030

2000-01 423 3000

2001-02 437 3200

2002-03 433 3350

2003-04 453 3500

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Cane Acreage & Production

Sugarcane occupies about 2.7% of the total cultivated area and it is

one of the most important cash crops in the country. The area under

sugarcane has gradually increased over the years mainly because of

much larger diversion of land from other crops to sugarcane by the

farmers for economic reasons. The cane area has, however,

declined in the year 2003-04 mainly due to drought and pest attacks.

Table III

SUGARCANE AREA AND PRODUCTION

FROM 1980-81 TO 2000-01 & UPTO 2003-04

Year Area under cane

(Million hectares)

Cane Production

(Million tonnes)

1980-81 2.67 154

1990-91 3.69 241

2000-01 4.32 296

2001-02 4.41 297

2002-03 4.36 282

2003-04 3.99 236

Unlike sugarcane, where the farmers are assured of a minimum price

by way of a statutory order issued by the Government, in respect of

all other agricultural crops including food grains, the Government of

India only announces the minimum support prices (MSP). On the

other hand, with statutory protection, sugarcane farmers receive the

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price as statutorily notified from the sugar mills even when it resulted

in sizable loss to the sugar undertakings.

Apart from fixation of statutory minimum price for sugarcane, the

industry is also required to share 50% of the extra realisation on free

sale sugar over the levy price with the cane farmers. Delay in making

the cane price payment over 15 days also attracts 15% penal

interest. For the season 2003-04, the average sugarcane price paid

being Rs.950/- per tonne, is much higher than the cane prices, paid in

the major sugar producing and exporting countries, where it is linked

to sugar sales realisation and is also disbursed in 2 to 3 installments.

Tempted by such securitisation of price, farmers preferred to increase

area under cane causing spurt in cane acreage and sugarcane

production significantly. From a level of 154 million tonnes in 1980-

81, the cane production increased to 241 million tonnes in 1990-91

and further to 296 million tonnes in 2000-01. Since then it has been

hovering around 300 million tonnes until last year. In the season

2003-04, however, sugarcane production declined to 236 million

tonnes mainly due to drought.

Cane Utilisation

Not only cane acreage and cane production has been increasing,

even drawal of cane by the sugar industry has also been increasing

over the years. For, in India sugarcane is utilised by sugar mills as

well as by traditional users like gur and khandsari producers. In early

1980s, the proportion of cane drawn by the sugar industry was

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hovering around 35% which went upto to 50% in 1990s and to as

high as 69% in the year 2002-03. In the year 2003-04, percentage

drawal of cane, however, declined a bit due to more intense

competition from the alternate sweeteners gur and khandsari. The

table No. IV gives data on cane production and cane utilization for

different purposes.

Consumption Trends

Apart from white sugar, India also consumes alternate sweeteners -

jaggery and khandsari, which are placed at about 9 million tonnes per

annum. Taking into account all the 3 sweeteners i.e. white sugar,

jaggery and khandsari, on a per capita basis, Indian consumption

stands at a reasonably high figure. This would be evident from data of

per capita consumption of sugar in various countries given in the

Table No.V.

The consumption of white sugar in India is generally urban based, in

rural areas the alternate sweeteners gur and khandsari are

consumed predominately. The consumption of sugar in urban areas

in some of the states of Indian union with higher GDP and income

levels, matches favourably with various developed countries as given

in Table No.VI.

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Table No.

IV

% Cane utilisation for

Year White sugar Gur and

khandsari

Seed, feed and

chewing

1980-81 33.4 54.8 11.8

1990-91 50.7 37.4 11.8

2000-01 59.7 28.8 11.5

2001-02 57.4 31.5 11.1

2002-03 68.9 20.1 11.0

2003-04 56.1 32.5 11.4

Table No.V

PER CAPITA CONSUMPTION OF SUGAR IN VARIOUS

COUNTRIES

(Kilogram, Raw value)

Country 2000 2001 2002 2003

Australia 63.5 55.2 55.8 54.9

Brazil 57.5 57.7 60.2 58.0

E.U. 37.5 36.0 38.4 37.2

U.S.A. 32.6 31.5 32.4 30.3

Thailand 29.1 31.0 31.2 32.6

Japan 19.0 18.4 19.1 18.9

World Average 20.7 21.0 21.7 22.1

INDIA |Sugar| 16.5 17.5 17.5 18.0

INDIA |Cane based

Alternate Sweeteners|

10.0 9.0 9.0 9.0

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Source: ISO Year Book

Table No.VI

PER CAPITA CONSUMPTION OF SUGAR IN URBAN INDIA

States Kgs. per annum

Punjab 71.5

Haryana 68.5

Maharashtra 40.9

Gujarat 40.9

Kerala 41.5

Uttar Pradesh 35.2

Tamil Nadu 29.1

Karnataka 23.3

All

India

31.5

Cogeneration

Cogeneration of power by sugar mills in India began a decade back

in the year 1993-94 with the Ministry of Non-conventional Energy

Sources (MNES) formulating its guidelines for fixation of the rate of

power supplied by sugar mills to the Electricity Boards. With a small

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beginning by 8 sugar mills generating 50 MW power, today, 48 units

have set up their power plants generating 680 MW power.

According to information currently available, an equal number or say

50 sugar mills are in the process of putting up power plants to

produce yet another 700 MW, taking the total generation to about

1400 MW against an assessed full industry potential of 3500 MW.

The State-wise breakup of installed cogeneration capacity is given in

Table No.VII.

Table No. VII

STATEWISE ANNUAL INSTALLED COGENERATION CAPACITY

State Number of Units

Installed Capacity MW

Andhra Pradesh 10 130

Karnataka 11 160

Tamil Nadu 14 255

Uttar Pradesh 9 100

Punjab 1 10

Maharashtra 3 25

Total 48 680

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Fuel Ethanol

Encouraged by the success of the pilot projects in the year 2000-01,

the Minister for Petroleum and Natural Gas announced in Indian

Parliament in December 2001, the Government's decision to

implement the mixed fuel programme with ethanol in three phases.

The implementation of first phase (5% blend) was further sub-divided

into two parts, it has been taken up first in 9 States and 4 Union

Territories with effect from 1st October, 2003, where sugarcane crop

is being extensively grown. In the second part, the rest of the country

is to be covered. Under this programme the requirement of fuel

ethanol worked out to roughly 350 million litres to go upto 500 million

litres when the entire country is covered. The Government have also

indicated the second and third phases of the ethanol programme. In

the second phase, the objective is to increase the blending of ethanol

to 10% with petrol. Apart from ethanol, work had also begun on

blending ethanol with diesel.

Enough capacity has been created for production of ethanol within a

short period. Mostly, distilleries attached with sugar mills have taken

up this programme. Out of 295 distilleries, as many as 118 distilleries

are attached with sugar mills, of them 70 have added new ethanol

plant with production capacity of over 700 million litres sufficient to

meet 5% blend for the entire country. The state wise position is given

in Table No. VIII.

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Table No. VIII

The state wise installed Ethanol production capacity

State/UT Requirement of Oil

Marketing Cos.

Availability in the

State & UT

Uttar Pradesh 51 190

Punjab 32 Nil

Haryana & Chandigarh 24 Nil

Maharashtra 70 350

Gujrat, Daman Diu &

Dadra & Nagar Haveli

40 30

Goa 5 Nil

Andhra Pradesh 40 30

Karnataka 35 58

Tamil Nadu & Pondicherry 48 52

Total 345 710

Besides 128 million litre capacity is under implementation in UP and

about 200 mln. litre capacity is under various stages of

implementation in Maharashtra and other states making the total

capacity to over 1000 million litres sufficient to meet the requirement

at 10% ethanol blend under the second phase. Following table gives

the details of Ethanol production at 90% utilisation of molasses for

distillation from 2001-02 to 2003-04 and estimates upto 2006-07.

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SEASONAL ETHANOL PRODUCTION AT 90 % UTILISATION OF

MOLASSES FOR DISTILLATION

Year Million litres

2001-2002 1620

2002-2003 1755

2003-04 1215

2004-05* 1140

2005-06* 1600

2006-07* 18 70

*Projected

However, the pricing of ethanol is an important issue which needs

further consideration particularly in view of the steep decline in

sugarcane and sugar production in the year 2003-04 and 2004-05,

thereby affecting the output of byproduct molasses, which is being

used for production of fuel ethanol in India. Moreover, the recent

budget proposal for the year 2005-06 to hike the excise duty on

molasses from Rs.500/- to Rs. 1000/-per tonne is a matter of serious

concern and needs immediate reconsideration by the Government.

Fortunately, the use of ethanol as a blend fuel adopted by most of the

countries producing / exporting sugar is a healthy development,

which provide flexibility for the sugar industry in those countries to

absorb cane supplies for production of ethanol, thereby balancing the

sugar economy and also ensuring the reasonable price structure for

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sugar. Such corrections in the future will ensure a healthy growth of

the sugar industry.

India in the World Market

India has been exporting sugar occasionally in periods of sugar

surpluses. Whereas, most other countries dump their excess sugar in

the International market despite easy accessibility to funds carrying

low rate of interest, the Indian sugar industry has observed

considerable constraint by limiting its exports. In the last five years it

exported 4.07 million tonnes sugar. India had an average exportable

surplus of 6.23 million tonnes during the last 5 years.

Table No. IX

Exportable surplus, sugar stock & actual exports

Year

Closing

Stock

(Million

Tonnes)

Exportable

surplus

(Million

Tonnes)

Actual

Export

(Million

Tonnes)

% export of

surplus

stocks

1999-00 9.38 5.38 0.07 1.30

2000-01 10.4 6.4 1.2 18.75

2001-02 11.3 7.3 1.1 15.06

2002-03 11.6 7.6 1.5 19.73

2003-04 8.5 4.5 0.2 4.44

Average 10.23 6.23 0.81 7.69

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Sugar exports, in a limited manner, were mostly confined to the

neighbouring countries. If India were to liquidate its huge stocks in

the international market, the world sugar prices would have nose-

dived effecting all exporting nations. Disciplined Indian approach

towards exports deserves consideration so as to bring about order in

the world sugar market, rather than resorting to subsidized exports.

Current Scene

Indian sugar sector having a large stake in the world sugar economy,

like on several occasions in the past, once again found itself at cross

roads. From an era of large production, high surpluses and virtually

unmanageable stocks, India has turned into an importer of sugar,

albeit of raw sugar, to meet the gap between supply and demand

thereof, following two consecutive years of exceptionally low sugar

output. Reasons for this are not far to seek. Severe drought

conditions in Southern and Western India, in particular, coupled with

attack of pests and diseases, took heavy toll of sugarcane crop

during the year 2003-04 and the current year 2004-05, with sugar

output plummeting from over 20 million tonnes to 14 million tonnes in

2003-04 and to 12.5 million tonnes in 2004-05. Notwithstanding such

a steep decline in production, large opening stock of sugar once

considered as unbearable burden came in handy to reduce the real

deficit to around two million tonnes, which has been met with raw

sugar imports of equivalent quantity.

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Table X

SUPPLY AND DEMAND POSITION OF SUGAR

FOR THE SEASON 2003-04 AND ESTIMATES FOR 2004-05 &

2005-06

(Figures in million tonnes)

2003-04 2004-05 2005-06

Opening stock 11.6 8.5 4.5

Production 14.0 12.5 17.5

Imports 0.55 2.0 1.5

Total availability 26.15 23.0 23.5

Off-take for

1. Internal

consumption 17.45 18.5 19.0

2. Export 0.2 - -

Total 17.65 18.5 19.0

Closing stocks 8.5 4.5 4.5

As would be evident from the above table, after meeting adequately

the projected demand for sugar, the carry forward stocks at the end

of sugar year 2004-05 would stand at a reasonable figure of 4.5

million tonnes, equal to broadly three months' consumption

requirement for the initial period of 2005-06 sugar year.

However, for the first time, the new Government with its farmer and

rural area centric approach, evolved a policy for import of raw sugar

that has not only helped the sugar economy, but has also helped to

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crossover the period of aberrations in a manner that has protected all

the three major stake holders - sugarcane farmers, sugar industry as

well as the consumers.

Import of raw sugar, in fact, began in the previous season 2003-04

itself - initially under DFRC license against white sugar exported out

of the country, followed by fairly sizeable imports under the "Advance

Licensing Scheme" (ALS) of the Commerce Ministry. No doubt, to

facilitate import of raw sugar, Government of India at the initiative of

Ministry of Agriculture and Food, relaxed certain stipulations by de-

linking grain to grain matching of raw sugar import with white sugar

export for fulfillment of export obligation. Further a much longer

period of 36 months has been allowed to fulfill the export obligation

as against the normal period of 24 months.

Under the impetus of this scheme, sugar factories in Southern India,

Northern India as well as Western India imported significant

quantities of raw sugar to increase availability of sugar for domestic

consumption during the sugar year 2004-05. Thus, availability of

additional sugar supply was fairly wide spread, although in Southern

India with higher imports, larger additional supplies of white sugar

became available. However, this did not cause any regional

imbalance considering the larger deficiency in supply in the Southern

and Western India.

In the table No. XI, the estimates for import of raw sugar regionwise

for the years 2003-04 to 2004-05 has been given.

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Table XI

REGION-WISE RAW SUGAR IMPORT

(Figures in Lakh Tonnes)

2003-04(Oct.-

Sep.)

2004-05 (Oct. 2004

to 10th Mar.2005)

Addl. Qty.

expected by

30th Sept. 2005*

Karnataka 0.49 3.79 1.60

Tamil Nadu 3.65 2.78 1.30

Andhra Pradesh 0.89 1.84 0.60

Uttar Pradesh 0.50 4.82 1.80

Maharashtra - 0.57 0.80

Bihar - 0.07 -

Total 5.53 13.87 6.10

*Projected

Future outlook

With reports of far more satisfactory sugarcane plantations, sugar

production for the season 2005-06 is likely to show a quantum jump

to about 17.5 million tonnes. Even so, fairly significant quantity of raw

sugar import will continue in the coming year provided the price of

raw sugar in the international market continues at reasonable levels.

Import of raw sugar under 'Advance Licensing Scheme' limits the

sugar industry alone to process the same to fulfill the export

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obligation. Thus, imports more or less correspond with the actual

additional requirement of sugar to meet the projected deficit in supply.

In the past, inadequate availability of sugar arising out of decline in

production was supplemented by way of additional supplies through

import of white sugar from the world market. It is for the first time that

the Government have instituted the new policy of facilitating import of

raw sugar thereby placing greater reliance on the ability of the sugar

industry to process raw sugar and make additional supplies of

refined white sugar available for consumption in the domestic market.

Sugar industry on its part has also responded to the needs of the

situation and discharged satisfactorily its consequential obligation.

The success of the new policy clearly underlines that in future too

whenever any such occasion arises, emphasis would be laid on raw

sugar import rather opening up white sugar imports. Thus, a new

demand driven policy has taken shape in the large interest of all

concerned within the sugar sector.

On the other hand, sugar has a long established international market

with sizeable volumes of over 45 million tonnes being traded each

year. Asian continent, Far East and the Middle East region importing

around 15 million tonnes of sugar annually, provides an excellent

means of increasing our exports, specially in view of the steep

increase in the ocean freight in the recent past. Moreover, India has a

great potential to increase sugarcane and sugar production as the

sugarcane crop merely occupies about 3% of our cultivable area.

What is needed is a fresh outlook i.e. sugarcane pricing policy based

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on sugar prices and a trade policy akin to the one followed by other

regular sugar exporting countries. Larger production and higher sugar

exports on a regular basis may provide incidental added value to the

sugar sector and enable setting up of large sugar complexes -

producing clean energy i.e. ethanol and power beside sugar, thereby

ensuring adequate and timely payment of sugarcane price to the

millions of sugarcane farmers.