Sugar Outlook For India - Indian Sugar

Sugar Outlookfor India:Sugar Production andTradeTarun SawhneyPresident - ISMA1

AGENDADemand & SupplyIndian Sugar Sector:Post De-regulationSugar Situation inComing Years2

Indian Sugar Industry – An OverviewWorld’s largestconsumer of sugarat 25-26 milliontonnes p.a.World’s 2nd largestsugar producer at25-28 milliontonnes p.a.Around 530 sugarmills underoperationAround 5 millionhectares of landunder sugarcaneAbout Rs. 65,000crore cane pricepayment annuallyAnnual output Rs. 80,000 croreAround 5 lakh workersdirectly employed insugar millsAbout 50 millionSugarcane farmersPer capitaconsumption is lowat around 20 kilo3

Demand & SupplyIndian sugar production &consumptionIndia off & on an Exporter orImporterMonth-wise domestic salesConsumption pattern ofsugar in IndiaCarry forward sugar stocks4

Demand & SupplyIndian Sugar Production & n Tonnes 28.424.022.020.018.016.014.012.010.02005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16Production Internal Consumption2019-20Expon. (Internal Consumption)Even though the real consumption is increasing y-o-y due to various factorsThere has been fluctuations in consumption as it is derived from production and change in inventory,not on real consumption dataA growth of 3% y-o-y in consumption will result in reaching the country’s peakproduction in 4 years time5

Demand & SupplyIndia off & on an Exporter or Importer26.004.965.004.002.60Million 2.00-3.00-2.14-2.40-4.00-4.08-5.002001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14Imports 2014-15 2015-16(E )ExportsClimatic factors and sugarcane pricing policy results in uneven sugarcane production making Indiaan inconsistent exporter or importerBeing the largest consumer and inconsistent exporter or importer, India is one of the key influencersin international sugar price movement6

Demand & SupplyMonth-wise Domestic Sales32826Lac Tonnes2422201816141210Oct.Nov.Dec.Jan.Feb.2013-14 Mar.2014-15AprMayJuneJulyAugSep2015-16Common Perception – Demand is high during festive season Oct – NovIn reality, domestic sales is highest between Dec – Mar due to: Institutional buyers purchase sugar in preparation for the summer season Sugar mills sell more sugar in order to clear cane payments7

Demand & Supply4Consumption Pattern of Sugar in India Two major sources of sugar demand – Bulk Buyers & Direct Household Supply is linked to domestic sugar production, imports and exports Contrary to the public perception, the price impact on inflation and monthly household budget isminimal as bulk of sugar is consumed indirectlySugar DemandDirectHousehold40%BulkConsumers60%8

Demand & Supply4Consumption Pattern of Sugar in India All India per capita Direct Household Consumption of sugar is estimated at 804 gms/ month As the % consumption of sugar in monthly household is only 2-3%, an increase of sugar price ofRs. 5/kg in a month, will have only an impact of 0.5% on the overall food budget of any householdMonthly/capita expense on Food (Rs.) : All India 2011-12ItemRuralUrban% of total food- Rural% of total food- UrbanCereals & Pulses1962292620Milk, egg etc1832802425Vegetables, fruits etc.1362121819Edible oil537076Sugar212532Salt & spices556976Beverages etc1132361521Total Food7561121100100Source: NSSO report9

Demand & SupplyCarry Forward Sugar Stocks5109.39.1987.56.6Million Tonnes76547.56Normative requirement 6million tonnesNormative requirement 4.5 million tonnes32102010-11 2011-122012-132013-142014-152015-162010-12 (Pre-control period) – As the consumption and sales data was not available on time withthe Government 6 million tonnes of stocks were maintained 2012-13 onwards (Post decontrol period) – As the supplies are controlled by marketforces/demand, stocks are maintained at normal levels of 4.5 million tonnesEvery 1 million tonnes of sugar blocks Rs. 3000-3200 crore working capital10

Indian Sugar Sector:Post De-regulationChanged Govt. policies sinceApril, 2013Cane Price fixed byGovernment of IndiaAll India Average ex-millsugar pricesIndia’s Retail price v/s otherkey countriesCane price comparison tomajor exporting countriesGlobal Per Capita consumptionof SugarCurrent situation in Indiansugar sector11

Indian Sugar Sector Post De-regulation1Changed Govt. policies since April, 2013OutputDecontrolledControls on sugar sales withdrawn in April, 2013 Full freedom to sugar mills to sell as per need and market conditions Sugar sales and sugar prices are therefore, market determined Recently, GoI imposed stock holding limits on mills for two months Control on imports and exports through duty But sugarcane price and quantity still controlledWhich is not market determined, but politically fixed Mismatch between cane price and sugar priceCane area reservation and minimum distance between factories remainInput stillcontrolledby theGovernmentPartial decontrol leading to unrealised potential of the sector12

Indian Sugar Sector Post De-regulationCane Price fixed by Government of India22500230023002300220021002100Rs. per tonne19001700170015001450139113001298SMP till 2008-091100FRP from 42014-152015-162016-17FRP9% increasefrom 2004-05 to 2008-0979% increasefrom 2008-09 to 2011-1259% increasefrom 2011-12 to 2015-1613

Indian Sugar Sector Post De-regulationAll India Average Ex-Mill Sugar Price340003410350032493000Rs. Per 00012231246500030% increasefrom 2004-05 to 2008-0942% increasefrom 2008-09 to 2011-125% increasefrom 2011-12 to 2015-1614

Indian Sugar Sector Post De-regulation4India’s Retail price v/s other key countries ia960870680Thailand673606658India573474560India has the lowest retail price of sugar in comparison to otherkey sugar consuming countries15

Indian Sugar Sector Post De-regulation5Cane price comparison to major countriesCane price paid as per RSF in 3 exporting countries and India having fixed FRPCane price paid (Rs. per 12-1317342013-14IndiaFRPAverage 7914421683258010.65%India has highest cane price with lowest retail price of sugar16

Indian Sugar Sector Post De-regulation6Global Per Capita consumption of ianEUSouth AfricaUSASri LankaTurkeyPakistanIndiaWorld .7019.8023.00India has lowest per capita consumption of sugar as compared to world averagePotential to grow due to increased per capita income17

Indian Sugar Sector Post De-regulation7 Current situation in Indian sugar sectorSugarcane has become the most remunerative crop Leading to surplus sugarcane and surplus sugarCost of production of sugar in India is high Making Indian sugar uncompetitive Making Indian exports unviableFRP for SS 2016-17 fixed at Rs. 2300/tonneSugar mills under huge financial stress due to 4 years oflossesEx-mill sugar price realization should be atleastRs. 3600/qtl. to pay above FRPTotal estimated debt ofthe industry Rs. 50,000croreCane price arrears in March atAll India level (Rs. Crore)20099186481353012702857743152010-11More than Rs. 10,000crore p.a. of interestburden on the industry2011-122012-132013-142014-152015-16Capital investment in thesugar sector possible onlywhen industry makes profiton a continuous basisEven at current sugar prices, large no. of sugar mills still make marginal profits only18

Sugar Situation inComing YearsSituation in SS 2016-17SS 2017-18 to be bumper/surplusPolicy suggestions19

Sugar Situation in Coming Years1Situation in SS 2016-17Production nextyear 2016-17 SSestimated to bearound 23.3 mntonnesOpening balance of7.5 mn. tonnes on1st Oct.’160103050204With drought inWestern part ofIndia, acreage hasfallenThough less thandomestic consumptionof 25.6 mn tonnes,healthy OB of 7.5 mntonnes will have enoughsugarAbove avg. rainfallin 2016 to improveyield and sugarrecovery to someextentAdequate inventory is available – No import required20

Sugar Situation in Coming Years2SS 2017-18 to be bumper/surplus Cane area across the country will be much better, due to: Better monsoon and water availability in reservoirs Possibility of higher and timely cane price payments because of strongcompetition amongst millers in SS 2016-17 Better yields and recovery Due to more area under 15 and 18 month crops Better care of crop including irrigation, by farmers No other crop giving equivalent returns In fact, despite arrears, farmers are still growing ‘surplus’ sugarcane Now with better and timely payments, they will increase area further Experts feel return of bumper/surplus cane crop in SS 2017-18 OB estimated at 5.2 mn. tonnes for 2017-18 but supply from new season will beenough to meet the shortfall in Q1 of SS 2017-1821

Sugar Situation in Coming Years3Policy suggestionsSingle Sugarcane Priceformula across the countryFunded byCessunder SDFDirectBenefitTransfer toFarmers(DBT)Sugarcanepricelinkagewith sugarand firstlevel of byproductsStable & viable SugarIndustryFarmersSugarIndustrySteady supply ofSugar leading tostable sugar pricesBenefit toConsumersWin-Win for Farmers, Sugar Industry and Consumers22

Sugar Situation in Coming Years3Policy suggestionsSingle Sugarcane Price formula across the country In 2015-16 report, CACP recommended that under the Revenue Sharing Formula (RSF), the TotalRevenue Pot (TRP) generated from the cane-sugar value chain, which is the value of sugar andits first stage by-products, be shared between the farmers and the millers in the ratio of theirrelative costs in producing cane at farm level and converting that cane into sugar and its byproducts at factory level Based on the Commission’s in-depth study undertaken earlier, this ratio works out to 75:25 at10.31 recovery rate However, arrangement under RSF needs to be aligned with FRP to protect the farmers in theevent of any downward movement in prices of sugarcane. The FRP would serve as the floor pricewhich the farmers would receive even when sugar prices fall to a level which leads to prices lowerthan FRP In-line with the recent Sugarcane Acts of Karnataka & Maharashtra23

Sugar Situation in Coming Years3Policy suggestionsSingle Sugarcane Price formula across the country It is recommended that if price determined on a revenue sharing formula is less than FRP, thedifference be financed by the Cess Fund under SDF The Central government has already passed the Sugar Cess (Amendment) Bill to allow enhancementin the ceiling of the sugar cess from the current Rs 0.25 to Rs 2/kg The proceeds from which will be used to facilitate liquidation of cane payment dues to farmers This will help in creating a Sugar Reserve (SR) which can be used for making cane payments tofarmers when sugar realisation is lower than FRP The funds from SR to the farmers can be transferred directly through Direct Benefit Transfer route(DBT) The DBT route has been successfully implemented during 2014-15 season by UP Government fordistribution of cane arrears to millions of farmers’ accounts directly and Central Government subsidy ofRs. 45/ tonne would also be transferred through this route The cess can be levied in a graded manner depending on sugar prices so that it will not have anyimpact on the consumer A cess of Rs. 4/ kg can create a SR of Rs. 10,000 crore without impacting consumers24

Sugar Situation in Coming Years3Policy suggestionsFarmers Stable Returns Consistent cashflow Cane development Adopt latestagricultural practicesIndustry Reasonable Returns forconversion Long term policy &visibility of cane cost Mills get funds Ability to invest in newcapacity/ improveoperations &efficienciesConsumers Stable Pricing Ability to hedge/forecast prices NCDEX to get depth Resets in price possible Reduce volatility in pricingAdvantage - Government Long term pricing formula Limited volatility in prices – can control sugarcane and sugar prices linked with inflation No cost to ex-chequerONE PRICE FORMULA FOR THE COUNTRY25

Thank You26

Indian Sugar Industry - An Overview World's 2nd largest sugar producer at 25-28 million tonnes p.a. World's largest consumer of sugar at 25-26 million tonnes p.a. Annual output Rs. 80,000 crore About 50 million Sugarcane farmers Around 5 lakh workers directly employed in sugar mills Around 530 sugar mills under operation Per capita