The Indian Sugar Industry · Stock holding limit on sugar mills in Feb and Mar 2018 Announcement of...
Transcript of The Indian Sugar Industry · Stock holding limit on sugar mills in Feb and Mar 2018 Announcement of...
PRESENTATION TO
“TASK FORCE ON SUGARCANE & SUGAR INDUSTRY”
INDIAN SUGAR MILLS ASSOCIATION
21.01.2019
Flow of presentation
General overview of Indian sugarcane & sugar sector
Immediate/ short term problems and suggestions
The problem of high cane prices
Balancing sugar production through ethanol
Long term and structural policy needs
2
Indian Sugar Industry – An Overview
World’s largest
sugar producer at
31 million tonnes
p.a.
World’s largest
consumer of sugar
at 26 million
tonnes p.a.
Annual turnover ~
Rs. 1 lakh crore
About 25-30
million sugarcane
farmers
Around half a milion
workers directly
employed in sugar
mills
Around 530 sugar
mills under
operation
Per capita
consumption is low
at around 20 kilo
Around 5 million
hectares of land
under sugarcane
About Rs.85,000
crore cane price
payment annually
Consumption Pattern of Sugar in India
4
Bulk Consumers 65%
Direct Household 35%
• Two sources of sugar demand – Bulk Buyers & Direct Household
Revenue realisation from sugar & by-products
81%
13%
6%
1%
Sugar Ethanol & RS Power Others
Total estimated revenue realisation in 2018-19 SS is about Rs. 1 lac crore.
Sugar constitutes 81% Ethanol and other by products constitute 19%.
Indian production and consumption
127.0
193.0
284.0
264.0
145.0
189.0
244.0
263.0251.0
244.0
283.0
251.0
203.0
325.0
307.0
185.0185.0
199.0
219.0229.0
213.0
208.0
226.0 228.0
242.0
256.0248.0
245.0
254.0260.0
30.0
50.0
70.0
90.0
110.0
130.0
150.0
170.0
190.0
210.0
230.0
250.0
270.0
290.0
310.0
330.0
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19
(E)
Production Internal Consumption
lac tons
6
Sugar trade from & to India
7
-0.12
-0.55
-2.14-2.40
-4.08
-0.67
-0.10-0.5
-0.18
1.08
1.77
0.270.00
1.111.73
4.96
0.16 0.24
2.602.99
0.35
2.13
1.101.66
0.50
3.00
-5
-4
-3
-2
-1
0
1
2
3
4
5
6
Imports Exports
mn. tons
Immediate and short term problems of
sugar sector
8
Indian production, consumption and opening balance
127.0
193.0
284.0
264.0
145.0
189.0
244.0
263.0251.0
244.0
283.0251.0
203.0
325.0307
185.0185.0
199.0
219.0229.0 213.0
208.0
226.0 228.0242.0
256.0248.0
245.0
254.0 260.0
85
40 43
110.33 105
43.64 49.858.54 66.01
92.9874.74
90.8
77.52
38.8
107.2
30.0
50.0
70.0
90.0
110.0
130.0
150.0
170.0
190.0
210.0
230.0
250.0
270.0
290.0
310.0
330.0
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19
(E)
Production Internal Consumption Opening balance
lac tons
9
Current year 2018-19 sugar balance sheet
Opening balance
(as on 1st Oct, 2018)
107.2 lakh tons
Estimated sugar production 307.0 lakh tons
Sugar availability during the season 414.2 lakh tons
Estimated sugar consumption 260.0 lakh tons
Estimated exports 30.0 lakh tons
Closing balance
(as on 30th Sept, 2019)
124.2 lakh tons
10
2
Closing Balance at end of the sugar season
60.02
66.01
92.98
74.74
90.80
77.52
38.76
107.2
124.2
10.00
30.00
50.00
70.00
90.00
110.00
130.00
150.00
170.00
2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 (P) 2017-18 (E) 2018-19 (E)
lac tons
11
All India average ex-mill sugar price & retail prices
12
25.1925.83
26.95
29.1
31.7
3434.5 34.75 34.56
34.08
37.3 36.9736.636.4
35.6
37.1
36.8936.25 35.15
32.4
30
32.1
30.4
26.5
31
31.7
31.2
31
31.15
30.1 30
30.55
31.57
33.15
34.64
37.4
39.2339.78
40.59 40.7640.68
41.8342.57
43.48 43.3242.5
41.37
40.35
39.01
36.88
38.8 38.5838.2
20
25
30
35
40
45
50
Oct'1
5
Nov'1
5
Dec'1
5
Jan'1
6
Feb'1
6
Mar'16
Apr.
16
May'1
6
Jun'1
6
Jul'1
6
Aug'1
6
Sept'1
6
Oct'1
6
Nov'1
6
Dec'1
6
Jan'1
7
Feb'1
7
Mar'17
Apr.
17
May'1
7
Jun'1
7
Jul'1
7
Aug'1
7
Sept'1
7
Oct'1
7
Nov'1
7
Dec'1
7
Jan'1
8
Feb'1
8
Mar.
'18
Apr.
18
May'1
8
Jun'1
8
July
'18
Aug'1
8
Sept'1
8
Oct'1
8
Nov'1
8
Dec'1
8
Jan'1
9
Rs. /kilo
Cane arrears will reach historic levels in Mar 2019
8577
12702
1864820099
13530
9526
1978019000
??
5000
7000
9000
11000
13000
15000
17000
19000
21000
23000
25000
27000
29000
31000
33000
35000
2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 (As on 31st Dec.)
2018-19 (As on 31st Mar)
Rs. in crore13
• In April 2018 cane price arrears reached Rs. 22,000 crore
• Will reach alarming levels by April, 2019
Problems mainly because of very high
cane price & the mismatch with sugar price
14
FRP for sugarcane has increased very fast
Rs. per quintal
130139
145
170
210220
230 230
255
275
0
50
100
150
200
250
300
2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19
FRP
FRP
15
FRP has doubled in last 9 years
But ex-mill sugar prices have hardly moved up….
129.84
139.12145
170
210
220
230 230
255
275
2951
2727
2951
3148
2917
2492
3121
3620
3120
3040
2000
2200
2400
2600
2800
3000
3200
3400
3600
3800
100
120
140
160
180
200
220
240
260
280
300
2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19(till Jan.)
FRP Avg. ex-mill price
16
17
1298
13911450
1700
2100
2200
2300 2300
2550
2750
1000 10001080
12501310
13601410
14701550
1750
1100 1120
12851350
14001450
1525
1625
1735
800
1000
1200
1400
1600
1800
2000
2200
2400
2600
2800
3000
2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19
Sugarcane (Rs./ton) Paddy (Rs./qtl.) Wheat (Rs./qtl)
Revenue from sugarcane substantially higher than
competing crops
Sugarcane the most attractive crop
1. Sturdy crop: Can withstand weather fluctuations better than
others
2. Better remuneration: Farmers get 50-60% higher returns from
sugarcane as compared to any competing crop
3. Assured buyer: Each farmer is attached to a sugar mill. The mill
can’t close till it crushes all sugarcane grown in its area.
4. Assured price: Farmer gets full cane price fixed by Central or
State Govt. even if late, which is not the case for other crops
5. No middlemen: Cane bought directly and payment made directly
into bank accounts of farmers
18
Amongst large producers, India pays the highest cane price
27.4525.11 24.06
42.3
10
15
20
25
30
35
40
45
50
Thailand Brazil Australia India
USD/ton of cane in 2017-18 season
Note: Prices include cost of harvesting & transportation
Source: Australia – Queensland Sugar Ltd.
Thailand – Office of Cane and Sugar Board
Brazil - CONSECANA
India – Average FRP at all India average recovery of 10.77%
19
Indian cost of sugar production is very high
20
554535
333.74345.35
250
280
310
340
370
400
430
460
490
520
550
580
2016-17 2017-18
CoPIndiav/sBrazil
India Brazil
USD/ton
Indian sugar has become uncompetitive
21
3277
3100
3300
3750
3580 3600
2405
2002
2707 2732
2324
18511800
2300
2800
3300
3800
4300
2013-14 2014-15 2015-16 2016-17 2017-18 2018-19
CoP in India v/s Global prices (white)
Cop(India) Global price (White sugar)
Rs/qtl
Hence, it has become almost impossible
to export surplus sugar without Govt.
help
22
Solutions: Immediate and short term
23
Steps taken by Govt. in last one year
Increase in import duty from 50% to 100%
Removal of the 20% export duty
Stock holding limit on sugar mills in Feb and Mar 2018
Announcement of DFIA scheme and export quotas without subsidy
Production subsidy on cane as part of FRP in 2017-18
Max. monthly sugar sale quota for each mill fixed by Govt. since June ‘18
Min. ex-mill sugar sale price fixed by Govt. at Rs.29/- kg since June ‘18
Buffer stock subsidy for 30 lakh tons
Production subsidy, transport subsidy and 50 lakh tons export quotas
24.
Yet record cane price arrears & sugar inventories
The policies and incentives given by Govt. is not enough
Clearly means that something more needed to solve problem of
A) Fast accumulating cane price arrears to alarming levels (reported to
have already crossed Rs.19,000 crore by end Dec 2018)
B) High sugar inventory expected at end of this season at unprecedented
record high levels of over 124 lakh tons
Any policy should attempt to solve both the above
problems simultaneously
25
Sugar Production and ex-mill prices
127
193
284
264
145
189
244
263
251244
283
251
203
325
307
14201577
1205 1247
2022
2951
2727
29513148
2917
2492
3121
3620
3200
3000
1000
1500
2000
2500
3000
3500
4000
120
140
160
180
200
220
240
260
280
300
320
Sugar Production Ex-mill sugar prices (Rs./qtl)
lac tons
26
• Sugar prices are inversely related to sugar production and stocks
1. To address the problem of cane price arrears
Cash flows of sugar mills needs improvement
Can be done by either/and:
Giving soft loans at zero interest rates
Increasing revenue realisation of sugar mills from sugar
Soft loans will not solve current problem
Even if announced now, loan will get disbursed in at least 3-4 months
Max. arrears with sugar mills having distressed balance sheets, who won’t get loan
Only way is to increase minimum sugar price to Rs.35-36/- kilo
To cover the cost of production, including interest, maintenance costs etc.
Sugar valuation will increase by Rs.6-7 per kilo, giving addl. Rs.20,000
crore to sugar mills from the current stocks and further production
27
To reduce sugar stocks
Impactful diversion of surplus sugar into ethanol will become
successful in next 2-3 years
More ethanol production capacities required for that success
Currently, only way is by exports
Export quotas and incentives not proving enough to incentivise or force
mills to export their quota
There is thus need to find ways to ensure mills fulfil their
export quotas
Which can happen if there is some penalty for non-performing mills
28
Ethanol policies: an attempt to balance
sugar production
29
Surplus sugar to ethanol
OMCs currently targeting 10% ethanol blending with petrol
In 2017-18 (Dec-Nov), around 4.5% blending achieved
For 2018-19, 10% blending requires 330 crore litres
Contracts entered into for 260 crore litres (almost 8% blend levels)
Includes 50 crore litres from cane juice/ B-molasses (first time ever)
India currently has over 70 lakh tons of surplus sugar
Instead of making more sugar, enormous scope to divert surplus cane
30
What are/were the constraints in moving forward?
Ethanol production capacity
Around 300 crore litres, incl. 30 crore litres from grain based
Inter-State movement
State Governments reluctant to give up control
Storage capacities
Both at the distilleries as also at Oil depots
Reluctance on the part of automobile manufacturers
Challenge, if any, on old vehicles
31
Recent steps by Govt. of India
New Bio-fuel Policy in 2018
Allows sugar mills/distilleries to make ethanol from cane juice, B-
molasses, foodgrains, potato etc.
Procurement price of ethanol being fixed by Govt. since 2014
Price increased significantly for 2018-19
Premium prices for ethanol made from cane juice/B-molasses/grains
Relevant Act amended to make ethanol movement smoother
States being convinced/ pursued to withdraw the controls
Standards fixed for 20% ethanol blended gasoline in India
Subsidised loans by Govt. for new/ expansion of capacities
32
Need to implement 20% blending levels
Govt. has already fixed ethanol blend standards at 20%
With ethanol production capacities being set up at a great
pace, we expect creation of another 200 crore litres in 2 years
This would mean possibility of 450-500 crore litres of ethanol
production by 2020-21
Equivalent to over 15% blend levels
Which will only continue to increase
Hence, immediate need to get all stakeholders to move to 20%
blend levels, starting with UP and Maharashtra in 2019-20
33
Long term policy directions
34
India a structural surplus sugar producer & exporter
12.7
19.3
28.4
26.4
14.5
18.9
24.4
26.3
25.124.4
28.3
25.1
20.3
32.5
30.7
18.5 18.5
19.9
21.9
22.921.3
20.8
22.6 22.8
24.2
25.624.8
24.6
25.426.0
10.0
14.0
18.0
22.0
26.0
30.0
34.0
Sugar Production Internal Consumption
Million tons
35.
Rationalisation of cane pricing policy
International laws/practice across sugar producing nations:
Cane price automatically gets determined as per formula as a
percentage of revenue from sugar and/or by-products
It varies in the range of 60-66%
Brazil, Thailand, Australia, EU, Mauritius, Kenya, Tanzania etc.
If India has to export sugar, it needs to be competitive and
adopt similar systems/ practice
Expert Committee had recommended a formula
Adopted in Maharashtra and Karnataka, though not properly
implemented
36
The linkage formula …..
Revenue sharing formula (RSF) for India
Based on historical data in India and international practices:
Cane price at 70% of revenue from sugar and primary by-products or at
75% of revenue from sugar alone (giving 5% weightage to by-products)
CACP, for last 4 years, also recommended for RSF, as follows
FRP will be the minimum price the farmers will get
Cane price payable by mills will be as per RSF
If it is below FRP, gap to be filled up through a Fund created by Govt.
But Govt. has only been accepting the FRP, but ignoring
the second part of the recommendation on RSF and Fund
37
CACP’s recommendations for the Fund
Contribution into the Fund:
To set MSP of sugar for consumers at certain level.
When it falls below MSP, certain amount of cess can be
collected from consumers.
During high sugar prices, part of surplus generated under
RSF can be retained and deposited in PSF.
A committee should be constituted for creating and
managing PSF.
38
Concluding …….
Implement RSF with FRP and a Fund
Create a Cane Farmers Welfare Fund (CFWF)
To fund the gap between what industry can pay and FRP fixed by Govt.
By restricting cane price liability of millers to their paying capacity,
Indian sugar will become competitive world wide
Payment of cane price in two instalments
Stop State Govts. from fixing SAP for sugarcane, above FRP
Make them liable to pay the difference between SAP and FRP
Continue to encourage diversion of surplus sugar to ethanol
Fixed pricing policy should be linked to FRP
39.
Thank you