Sie sind auf Seite 1von 10

Sugar Industry

Introduction:
About 20% of the world's supply of sugar is derived from sugar beet, the vast majority of which is
produced in industrialized countries (France and USA are the top producers; Source: FAOSTAT), while
the remaining 80% is derived from sugarcane, mainly produced in developing countries (Brazil, India,
EU and China are the top producers; Source: FAOSTAT) and under tropical climates. Beet sugar is
harvested in the autumn and early winter by digging them out of the ground. Sugar beet is a
rotational crop which requires nearly 4 times the land area of the equivalent cane crop. Sugar cane is
a sub-tropical and tropical crop that prefers lots of sun and lots of water - provided that its roots are
not waterlogged. Sugarcane crop typically takes about 12 to 18 months to reach maturity and is
harvested by chopping down the stems but leaving the roots so that it re-grows in time for the next
crop. First harvest after the cane gets harvested is called plant cane while the growth of the plant
cane that gets left behind is called ratoon cane. The plantation of sugarcane usually starts in the
beginning of June and the crushing season begins in October. Generally, the costs of producing sugar
from sugar cane are lower than those in respect of processing sugar beets. Sugar cane is a hardy crop
which can stand climatic extremities without a significant decline in crop yield or sugar recovery.
Sugar cane crop can withstand temparature range of between 3.5 degree celsius to 45 degree celsius
and rainfall range of between 3 mm and 263 mm. However, sugarcane crop in India is largely
monsoon-dependent, which cannot be entirely relied upon.

On an interesting note, when Sugar was first discovered by the West, it was heavily taxed by the
Government and at one point it cost US$100 per kilo at today's prices and it was very much a luxury
to the extent that sugar was called "white gold". Sugar has played an important part in the world
history and it can be linked to colonization and slavery.

Brazil (38.6 million ton production in 2008-09), India and European Union are the top three producers
of sugar and together account for some 40% of the annual production. The top ten producers account
for around 75% of global production. Most sugar is consumed within the country of production and
only approximately 30% is traded internationally. The five largest exporters in 2008/09, Brazil (23.7
million ton exports in 2008-09), Thailand, Australia, South African Development Community countries
and Guatemala, are expected to supply approximately 85% of all world free market exports.

Global sugar consumption growth increases by about 2% per annum and in 2008/09 is forecast to
reach 158 million tons. Global sugar production in 2008/09 is forecasted at 151 million tons which,
compared to the previous season, will represent an 8% production decrease, the largest annual
reduction on record. Significant production declines have occurred amongst leading sugar producers,
including India and the EU. (Source: Illovo Sugar.)

Large sugar exporters typically generate higher margins from domestic sales as compared with
exports. Government interventions and regulations help maintain high domestic prices which is a key
feature of the global sugar trade.

Indian Sugar Industry:


In India, sugar is an essential item of mass consumption and the cheapest source of energy, supplying
around 10 percent of the daily calorie intake. Although India is the second largest producer of sugar
(16.3 million ton production in 2008-09), it ranks 15th in export rankings (.23 million ton exports in
2008-09) as India is the largest consumer of sugar in the world. It is interesting to note that India
ranks 6th in per capita consumption with Brazil being the highest per capita consumer of sugar at 57.6
Kg per capita. About 60% of the crop in India is grown in sub-tropical region (Uttar Pradesh) while
40% of the crop is grown in tropical region (Tamil Nadu, Karnataka, Maharashtra, Madhya Pradesh).
Maharasthra and Uttar Pradesh together produce about 60% of the sugarcane grown in India with
both states producing almost equal amounts. On average, crop yields are better in the sub-tropical
region due to less variability in the mean monthly temperatures. India's sugarcane yield is estimated
at 65,000 kgs per hectare, higher than the global average of around 63,000 kgs per hectare.

Four factors determine sugar production in India:


• Area under sugarcane production (Max. acreage of 4.43 million hectare)

• Sugarcane yield per hectare (Max. yield of 71.3 tonnes per hectare)

• The production of sugarcane that is crushed by sugar factories in relation to the total
sugarcane produced (Max drawl percentage = 69%)

• Recovery of sugar (Max recovery = 10.48%)

When all the above parameters are concurrently at the peak, India's sugar production will aggregate
to 22.85 million tonnes (multiply all the max figures). India's consumption of sugar is expected to
increase from 18.3 Kg per capita to a level of 23/24 kg per capita by 2010 and total demand to be of
the order of 24.3 million tonnes. To achieve this level of production, sugarcane needs to be cultivated
on an area of about 5.5 million hectares with an average yield of 65 tonnes per hectare but the
increase in area of cultivation may not be possible due to other competing crops. India has amongst
the lowest sugar prices in the world and if the farmers are not compensated adequately for their
sugarcane produce they may not switch to sugarcane.

Of the total sugar sold in the free market (non-levy), around 61% is accounted for by the industrial
and small business segments, also referred to as indirect consumption. Household segment accounts
for the rest 39%. Low income household account for 25% of the total non-levy market.

Ugly Sugar Politics in India:


Sugar is last of the industries still waiting to be liberalized. As opposed to other countries where sugar
prices are influenced by economic considerations, in India they are influenced by political
considerations. The industry is still subject to the monthly release mechanism for sugar sales that is
determined and declared by Government of India. The Indian sugar industry provides a mandatory
10% of its sugar to the Public Distribution System (PDS) for supply to those below the poverty line. It
is called levy market. Price at which sugar producers need to sell to the governments for PDS is
generally lower than market price. Rules, taxes, and regulations concerning ethanol movement are so
cumbersome that the transportation of ethanol and molasses across the state border is more difficult
than bringing it from overseas. The pricing of sugar cane is often influenced / determined by political
aspirations that have no bearing to sugar prices.

Government also intervenes in the allocation of land designated for cane growing. In the state of Uttar
Pradesh, there are two kind of areas allotted by the Cane Commissioner of Uttar Pradesh to each
sugar mill. The first is termed ‘Reserve Area’ which is allotted to a sugar mill on an annual basis. If the
requirement of a particular sugar mill is in excess of the sugarcane available in the Reserve Area, the
Cane Commissioner of Uttar Pradesh, may, on application, assign another area from the reserve area
of a nearby sugar mill, which is not able to crush the sugarcane produced in its reserve area. This
second area is termed ‘Assigned Area’. The reserve area and the assigned area are together termed
the ‘Cane Area’. Sugar companies do not own any sugarcane cultivation land themselves the
companies are bound by Indian law to purchase a farmers produce. However, farmer is not
contractually bound to only produce sugarcane and the farmer can produce other profitable crops.
India needs more sugarcane as well as large investments in augmenting crushing capacity. This
presupposes that the farmer gets adequate remuneration for his cane produce and millers make
decent margins so that they are able to modernize and invest in production assets. On the other hand,
cane price is a highly sensitive and highly political subject all across India. Hence, sugarcane prices
are increased every year in every state in India. Even though the Government of India (GOI) every
year declares a Statutory Minimum Price (SMP) in lieu of Minimum Support Price (MSP) that is
declared for all other food grains and essential commodities, several state governments declare a
much higher price for cane, called the State Advised Price (SAP) due to political compulsions. Cane
prices increase every year by the Central government and even more by each of the state
governments. Sugar price, on the other hand, do not increase in the same proportion every year.
Consequently, margins are squeezed and the millers are not able to make enough money, not even to
recover their conversion costs (i.e. total cost of converting cane to sugar) let alone reinvest in the
business. For eg. if Cane price is Rs.100, than given a 10% recovery, cane actually costs Rs.1000
(conversion cost) without adding the actual production cost. In order to recover the cost of production,
final sugar price should be higher than the sum of conversion and production cost. In may parts of
India, the sugar industry - a lot of it state-owned and fragmented with small capacities - is in deep
financial trouble. This snowballs into crisis on the farmer. When factories are cash strapped, they take
delivery of cane but postpone payments to farmers forcing them into a debt trap with very little
incentive to grow sugarcane. Farmers may sell the sugarcane to manufacturers of other sugarcane
products like Jaggery (unrefined concentrated sugar) or Khandsari (brown sugar). To ease the pain on
the farmers, almighty government again steps in and creates buffer stocks for the country so that
sugar companies can sell the stock to the government buffer and get paid by the government to pay
back to the farmers. What a mess!! It can also play out very differently. Khandsari prices are linked to
market and if there is overproduction of sugarcane, leading to drop in sugar prices, farmers stop
selling to Khandsari producers and sell sugarcane to sugar producers who are obliged to pay regulated
prices for cane. This switch would further compound the problem of sugar surplus.

Since farmers are not sure about the payment of money from the millers that is due to them, it has an
impact on farming practices too. The uncertainty about prices and revenue means many farmers will
switch between cane and other produce more frequently than other countries. Remember that cane
crop need not be harvested completely and part of it is left behind (ratoon) for the next season. Cane
in Brazil is in the ground for 6 years (and sometimes longer) and switching is minimal. In contrast,
Indian farmers get at the most one more cut after the initial cut before switching to another crop.
Frequent switching also lowers recovery rates and consequently India has the lowest recovery rate
(percentage of sugarcane that gets converted to sugar) amongst major sugar producers. Brazil’s
recovery rate are 13-14% while Indian producers can recover at best 10-12%.

Sugar is the second largest agro processing industry in India after textiles. It has a high weightage of
around 3.6% in the Wholesale Price Index (WPI) which is another reason Government is hesitant to
loosen its grip over the industry. Financially unviable state funded millers are run without any strategy
for revival. This affects the industry as a whole and forces even the efficient players to consider
increasing investments very gradually. Consolidation in the industry and selling loss making and the
government subsidized sugar mills by divestment is one solution. Prices of sugar and sugarcane have
to move in tandem with each other also so that millers can control their cost. The government comes
up with patch up solutions to ease high cost of the industry like creating a 5 million tonne buffer stock
to help reduce carrying costs and ease the working capital requirements of sugar mills, subsidy on
sugat exports, eliminating purchase tax on sugarcane. Even as these incentives help mills tide over a
short-term cash crunch, they do not represent a long term solution.

India is also not very competitve in the international sugar market. Indian port infrastructure needs to
be overhauled so that it can handle the traffic. Increasingly, importing countries are setting up their
own refineries to process raw sugar, where India's competitivenes is rather limited (India's
competitiveness is higher in white sugar market).

Indian government heavily discourages import of white sugar and slaps 60% duty on the import.
There is grain to grain import policy which allows import of raw sugar, process it and than re-export it.
It does not affect the domestic balance sheet since the imported raw sugar does not enter the market.
Government had previously also announced ton-for-ton schemes which basically meant that the
amount that was imported can be re-exported within certain number of years. It did affect the
domestic balance sheet in the year sugar was imported.

It has been observed that sugar prices tend to remain stable whenever inventories in the system are
around 25-35% of annual consumption, they increase when inventories fall below 25% and fall when
inventories increase to over 35%. This relation was reinforced during 1999-2000 to 2003-04 when
inventory build-up took place and sugar prices declined to the cyclical lows.
Other factors affecting sugar industry
European Union (EU) Reforms:

Reform of the EU Sugar Regime has been completed via a process of structural reform which has seen
the reduction of EU export subsidies and the lowering of domestic farm support for European beet
farmers. Annual domestic sugar production in the EU has reduced by nearly six million tons as a result
of these measures which were also accompanied by a restructuring grant to affected EU producers.
The price payable to suppliers of sugar into the EU was also reduced as part of the reform. The net
result of the reform will be to move the European sugar market from surplus into deficit. Such a move
is beneficial for the Indian sugar producers who can step in to export sugar to the markets previously
supplied by the EU.

China consumption and production:

China's demand growth at over 4% per annum is more than twice the global demand growth. China is
now the world's fourth largest sugar producer and the world's fifth largest consumer. China's rising
consumption stems from its food flourishing industry which now has an annual growth rate between
10 and 12%. China is going to be a perennial importer of sugar given its limited planting area.

Ethanol:

Ethanol is being promoted as an alternative to oil. It is commercially viable, cleaner fuel but it's
efficiency is questionable. Ethanol promotion is primarily driven by Brazil which happens to be the
largest consumer of ethanol. Incidentally, Brazil produces ethanol directly from the sugarcane unlike
many other countries which produce ethanol from molasses (a by-product after extraction of sugar
from sugarcane). Almost 60% of Brazilian cane crop is diverted to production of ethanol. New facilities
that were being built in Brazil produced only ethanol and not sugar. A substantial part of ethanol
production in Brazil is used domestically and over 90% of new cars in Brazil are flexi fuel cars, which
can run with regular gasoline as well has gasoline blended with high percentage of ethanol (up to
100% actually). Changes to emission norms under Kyoto protocol, increased fiscal incentives from
several governments, US bill mandating ethanol use in gasoline, high oil prices are several other
factors influencing ethanol production and diverting cane from sugar to ethanol production. In October
2007, Government of India (GOI) has mandated 5% ethanol blending. India requires an estimated
550 million litres of ethanol. GOI has also permitted companies to produce ethanol directly from
sugarcane juice. This will provide companies flexibility to alter the product mix between sugar and
ethanol depending on the relative demand and realisation.

Operational aspects of sugar producers:

• Optimal utilisation of by-products improves performance. Integrated sugar mills which produce
Bagasse, Alcohol and Power perform better than those which only produce sugar and sell
Bagasse due to higher value addition and partial mitigation of a down turn in sugar business.

• The end product, sugar is produced only between November and May but it must be sold
throughout the year. Inventory management at a low cost is crucial to success as the industry
dynamics require companies to hold a vast quantity of finished goods (sugar). Raw material
accounts for upto 70% of the total cost.

• Industry is highly working capital intensive. Sugar operations are seasonal in nature. Crushing
operations happen on an average around 125 days starting October whereas sales of sugar
happens throughout the year. Company's incur fixed cost when crushing comes to an end. All
things being equal, sugar companies will have a higher profits due to lower sugar production,
high domestic demand, higher sugar exports, lower cane prices.
Notes:

• North Indian sugar manufacturers do not import raw sugar, refine it and sell because of high
transportation cost from the post to the mills. South Indian companies have better access to
ports. In general recoveries are higher in Western UP than Central UP which in turn is higher
than Eastern UP.

• Two-thirds of sugarcane is water. When there is a dry spell, there is lesser water in the cane
which leads to higher sucrose content and therefore a higher recovery due to early maturity of
the cane.

• Electricity Bill 2003 was passed in the Indian parliament to enhance opportunties in India's
power sector. It proposed that 10% of the power generated in India would need to be derived
through renewable energy sources. It provided soft loan at an interest of 4% per annum from
the Sugar Development Fund to encourage co-generation of power from bagasse-fired boilers.

• As a step towards deregulation, National Commodity and Derivative Exchange (NCDEX)


allowed futures trading in sugar in 2004 as a means of assisting manufacturers to make
advance sales as a hedge against a probable decline in sugar prices.

• If the government allows import of raw sugar after the mills have shut down, it becomes very
expensive to process raw sugar by firing boilers with leftover bagasse or any other fuel.
Therefore, only refiners perform actual tolling.
Appendix:

Das könnte Ihnen auch gefallen