Indias Sugar Policy and the World Sugar Economy FAO International Sugar Conference, Fiji, 2012.

August 2012

Theme of the Presentation

2

Indias place in world sugar Structural features of the sugar economy in India Evolution of Government policy regarding sugar Political Economy of sugar in India Key messages

Indian Share in global sugar production

3

200 180 160 140 120 100 80 60 40 20 0 1963 1970 India 1980 1990 World 2000 2010 2011-12(P)
51.89 2.57 71.14 84.5 18.51 24.30 26.2

mln tn
5.14 3.73

12.04

156.67 130 110.6

173.83

In last five decades Indian Sugar production share has gone up from 5% to >15% in global sugar production.

Indian share is >20% in cane sugar production of globe

Indian Share in global sugar consumption

4

200 180 160 140 120 100 80 60 40 20

54.34 2.32 88.1 70.84 16.20

Indian Share in global sugar consumption

20.76

22

mln tn
4.97 4.02

10.71

164.76 127.3 107.87

167.35

0
1963

1970

India

1980

1990

World

2000

2010

2011-12(P)

In last five decades Indian Sugar consumption share has gone up from 5% to >13% in global sugar production.

Indian share is >20% in cane sugar consumption of globe

Per Capita consumption of India vis a vis Global avg.

5

50 45 40 35 30 25 20 15 10 5 0 1963 1970 India 1980 1990 World 2000 2010 2011-12(P)

17.3 19.9 20.2 20.5 20.8 24.2 24.8 4.9

Per Capita consumption of India vis a vis Global avg.

kg ( in raw value
terms
13.3 5.8 7.5 16.5

19.3

20.2

Consumption in India is growing more ( CAGR ) as compare to Global avg. More disposable income, better life style and growth in GDP supports more consumption in India

Indian Share in global sugar export

6

80

Indian Share in global sugar export

70 60

0.98 2.60

3.5

50 40 30
0.39

mln tn
74.7 0.06 0.43 0.22 68.96 53.538

20 10 0

16.86

21.8

26.8

28.4

1963

1970

India

1980

1990

World

2000

2010

2011-12(P)

Whenever country produces surplus, have 5-6% in export availability in global sugar exports Have done exports of about 5 mln tons in one season, so capable of handling exports

Cyclical sugar trade in last 20 years.

7
49.6

35.0 26.0 17.7 10.2 5.6 0 4.1 0 0.1 0.6 -2 -9.35 -10.03 -20 -21.38 0 4.2 0 0.7 0.2 0.7 -4.04 9.9 0 10.8 0 -1.24 -5.53 2.7 0.0 17.3

11.1
0 0 0

1.7

2.4

-24.03

-40.8

Import ( lk tn)

Exports ( lk tns)

Indian Sugar Export Destinations

The Indian Sugar Industry

9

2nd largest producer of sugar in the world

5 million hectares & 60 million cane farmers and dependants.

Rs.80,000 crore (approx.US$ 16 billion) industry. Cane payment of Rs.55,000 crore (approx. US$ 10 billion) are directly paid to farmers without middlemen.

Large number of sugar mills 527 operated in 2011-12

Competition for cane from jaggery manufacturers 65% of sugar consumed by bulk consumers

Located in rural heartland, directly contributes to rural economic

development & employment

10

Indian Agriculture An Out growers Model

Competiti on with other crops

Average land holding 0.5 ha

Legal issues Pricing of sugarcane Vis--vis other crops FRP Vs SAP

Out growers model 60 Million farmers Farm yield

Plant ratoon combination

Monsoon/ Irrigation

Farm Credit

Agroclimatic

The Infamous Indian Sugar Cycle

11

Production trend of last ten years

283.61 263.56 243.94 260.00

201.40 192.67 185.27 189.12

145.38 135.46 126.91

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

2010-11 2011-12( E)

Sugar Production( lakh tons)

The Infamous Indian Sugar Cycle

12

Production- Consumption trend of last ten years

283.61 263.56 243.94 229.12 260.00

219.00
213.28 201.40 185.27 167.81 183.84 185.00 192.67 185.00 199.00 189.12 207.69

220.00

172.85

145.38 135.46 126.91

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

2010-11 2011-12( E)

Sugar Production( lakh tons) Sugar Consumption( Internal Releases) lakh tons

Cane Price Arrears (as on 31st March in Rs. crore)

13

8918

5188 4315 2817 1191

1999-00

3047 2076 876 972

2006-07 2007-08

2321 1225

2723

1668

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2008-09 2009-10

2010-11

2011-12

Cane Price Arrears vis--vis Sugar Inventory

14

2010-11
5000 4500 4000 120 3500 7000 100 80 60 40 6000 5000 4000 3000 2000 1000 0 0 160 140

2011-12
10000
9000 8000

200
180 160 140 120 100 80 60 40 20 0

3000
2500 2000 1500

1000
500 0 20

Cane Arrears( Rs. Cr)

Sugar Inventory(lk tn)

Sugar Inventory (lk tn) Cane Arrears( Rs. Cr.)

Controls on Indian Sugar Sector

Minimum Distance Criteria between mills

Levy Sugar Obligation on mills

GOVT.
Cane Area Reservation

POLICIES

Regulated Release Mechanism

Dual Cane Pricing: Federal/ Provincial Compulsory sugar packing in jute only

Import and Export

Provincial Govt. controls

Federal Govt. controls

Indian sugarcane prices are the highest in the world

16

50 45 40 35 30 25 20

$ / tonne

Avg. prices from OctMar2011-2012 2011-2012 Avg.sugarcane sugar prices from OctMar

15
10 5 0

Indian sugar price amongst the lowest in the world

17

90
Rs. per kg 80 70 60 50 40 30 20 10 0

Avg. sugar prices from Oct- Mar 2011-2012

Most of the benefits goes to bulk consumers, who consume 65% of total sugar

Sugar Industry: Little Control Over Its Own Fate!

18

Raw Material: Its Price and Availability

Sales: Volume as well as Levy Obligation

: Stock Limits on Traders, Bulk Consumers etc. : Sugar Inventory

Selling Price of Sugar: Below cost of production Packaging Material of Sugar: Price and Quality Export-Import of Sugar: Quantity and Policy Restrictions Cash Flow Planning: Payment to Farmers and Lenders

What is Indias Sugar Policy ?

19

Mission Statement of Department of Food and PD : Ensuring availability of

sugar

Objective : Development/Promotion of

sugar industry

Legacy of control
20

Essential Commodities Act, 1955 : Both sugar and sugarcane included as Essential Commodities;

Sugar (Control) Order, 1966 Sugarcane (Control) Order, 1966

Sugar and sugarcane still essential commodities in 2012

Political Economy of sugar

21

Sugar

price

determined

by

Federal

Government

Sugarcane

price

decided

by

provincial

governments.

Consumer v/s Farmer debates Action or policy is reactionary

World sugars view of India ?

22

Trust deficit Is India a reliable player ? Long term sugar policy vs. Short term breathers

Market or Competitor

Opportunities for investment

Key messages
23

Politics will override economics Deregulation ? India only relevant as a consumer !

Good sugarcane prices may sustain levels to meet domestic

consumption

Exports only when production is surplus

Thank You