INDIAN SUGAR GIANT:

CHALLENGES AND OPPORTUNITIES

ABINASH VERMA

DIRECTOR GENERAL, INDIAN SUGAR MILLS ASSOCIATION

25th

November, 2013, ISO - LONDON

Flow of Presentation……

Sugar Giant in many ways

Rangarajan Committee and Partial Control

Challenges to be overcome

Opportunities to be grabbed

Way forward for the Indian sugar sector

SUGAR GIANT IN MANY WAYS

2nd largest sugar producer

Consistently producing 25 mn tons in last 3 years, as also current SS

Largest number of cane farmers directly growing sugarcane

5 million farmers and their families grow 350 million tons of cane

Largest consumer of sugar in the world

Highest cane price paid per ton of sugarcane

695 sugar mills installed in the country

One of the largest exporters of sugar

3

CONTROL SCENARIO BEFORE APRIL 2013

Sugar sales

Levy sugar

Release mechanism

Export-import

Packing in jute bags

Cane controls

Cane pricing

Cane area reservation

Min. distance between mills

4

Rangarajan Committee recommendations on decontrol

Removal of levy sugar obligation from industry

Abolishing the regulated release mechanism for sugar sales

Export - Import policy – no quantity and time restrictions

Rationalisation of cane pricing policy

Linkage of cane price to value realised from sugar & by-products

Phasing out cane area reservation

Dispensing with “minimum distance criteria” between mills

Removal of controls on molasses & free up power sales

Removal of jute packing restrictions on sugar

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PARTIAL DE-CONTROL SCENARIO

(POST-APRIL 2013)

Sugar sales

Levy sugar

Release mechanism

Export-import (thro’ tariff rates

only)

Packing in jute bags (only 40%)

Cane controls

Cane pricing

Cane area reservation

Min. distance between mills

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CHALLENGES

Sugarcane pricing policy

Inflation

Production Cyclicality

Varieties of sugarcane

Life without sale quota

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Challenges: Sugarcane Pricing (1/5)

Influenced by politics and not by economics

No relationship with revenue realisation

Results in high costs of production

Makes Indian sugar uncompetitive in the global market

Lack of margins for mills

Cane price arrears of farmers

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Challenges: Inflationary condition

Governments are very sensitive to price increases

WPI inflation (Oct, 2013): 7%

Food inflation (Oct, 2013): 18.19%

Wholesale price index weightage:

Sugarcane : 0.63 %

Sugar : 1.73 %

Gur etc. : 0.07 %

Soft drinks & Carbonated water : 0.24 %

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Cost of production & ex-mill sugar price (in North India)

10

High cane price increase in cost of production

outstripping pace of increase in ex-mill sugar price

2031

3225

2750

3200

3500

2288

2939

2812

3050 3150

1500

1700

1900

2100

2300

2500

2700

2900

3100

3300

3500

2008-09 2009-10 2010-11 2011-12 20012-13

Ex- Mill Vs Cost of Production

Cost of Sugar Production( INR/Qtl) Ex-Mill Rates (INR / Qtl)

Sugar Prices in this season……

2800

2900

3000

3100

3200

3300

3400

3500

Oct,2012 Nov,2012 Dec,2012 Jan,2013 Feb,2013 Mar,2013 Apr,2013 May,2013 Jun,2013 July,2013 Aug,2013 Sep,2013

Uttar Pradesh Maharashtra All India

Ex-mill Prices ( INR/Qlt) in 2012-13

Post De-control Period

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Challenges: Cyclicality in sugar production

20.1

13.5 12.7

19.3

28.426.4

14.5

18.9

24.426.3

25.1 25.0

2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 (E)

Sugar Production (mln tons)12

Sometimes exporter : sometimes importer

13

-2

-0.2

-0.9 -1.0

-0.4-0.1

-0.6

-2.1-2.4

-4.1

0.0

0.70.6 0.40.0 0.1

1.0

0.40.1 0.0 0.1

1.0 1.1

1.8

0.30.0

1.1

1.7

5.0

0.2 0.2

2.6

3.4

0.35

-5

-4

-3

-2

-1

0

1

2

3

4

5

6

Imports(mln tons) Exports(mln tons)

Challenges: Cane varieties

Low cane yields and low sugar recoveries

Identification of suitable cane varieties

Adequate availability of varieties

Reaching the farmers

Convincing them to change varieties

Mechanisation in harvesting

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Stagnant cane yields & Low sugar recovery

Challenges: No assured sale quota

No fixed monthly or quarterly sale quota for any mill

No assured market share

Strong competition from within the industry

Efficiencies, cost saving and sugar quality will be important parameters

for survival

A fragmented sugar industry having diverse interests

16

OPPORTUNITIES

Domestic Demand

Rationalisation of sugarcane pricing policy

Market strategies

Potential on cane side

Ethanol blending programme

Consolidation within the industry

17

Opportunities: Growing domestic demand

Per capita sugar consumption is just about 19 kilo, much

below the global per capita of 24 kilo

2/3rd of the consumption by bulk consumers, who are

themselves growing at a fast pace

India is one of the fastest growing economies and therefore,

income levels going up fast

Domestic consumption expected at 30-31 mn tons by 2020

Growth rate of about 4% per annum

18

Opportunities: Cane pricing

Linkage between cane price and revenue realisation

Will give an assured return to the millers on regular basis

Cane price arrears will get controlled

Control cyclicality in sugar production

19

Opportunities: Marketing strategies

Abolition of regulated release mechanism

No restriction on sale quantity and its timing

Growth of the domestic futures market

Integration of Indian commodity exchanges with world markets

Hedging: price and currency

Competition within the industry to grab share of the market

Timing of sale

Quality of the product

20

Opportunities: Potential in cane

One of the lowest yields in the world

Around 65 tons per hectare with large regional variations

One of the lowest sugar recoveries

Around 10% sugar recovery with large regional variations

Varietal replacement

Rejected varieties

Potential for vertical growth

Higher ratoon

21

Opportunities: Ethanol blending

Mandatory 5% ethanol blending with petrol

Demand for 1 billion litres of ethanol

All ethanol currently made from molasses only

Can be used as a major tool to balance sugar production

Additional 5% blending would require another 1 billion litres

Reduce surplus sugar production by 1.7 million tons

Improve cash flows

Improves returns on molasses as also sugar

22

The Challenges & Opportunities after decontrol

Efficiencies would become important

Consolidation in this very fragmented sector

Vast potential should attract investments

Rangarajan Committee has suggested that turnover of the

industry has potential to double in next 5 years

But, extremely important would be the rationalisation on cane

pricing policy across the country

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Thank you

dgisma@indiansugar.com

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