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Indias Sugar Policy and theWorld Sugar EconomyFAO International SugarConference,Fiji, 2012.August 2012

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Theme of the Presentation

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

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Indian Share in global sugar production

3

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

51.8971.14

84.5

110.6130

156.67173.83

2.57

3.73

5.14

12.04

18.51

24.30

26.2

0

20

40

60

80

100

120

140

160

180

200

1963 1970 1980 1990 2000 2010 2011-12(P)

mln tn

India World

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Indian Share in global sugar consumption

4

54.3470.84

88.1107.87

127.3

164.76 167.35

2.32

4.02

4.97

10.71

16.20

20.76 22

0

20

40

60

80

100

120

140

160

180

200

1963 1970 1980 1990 2000 2010 2011-12(P)

mln tn

Indian Share in global sugar consumption

India World

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

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Per Capita consumption of India vis a vis Global avg.

5

17.319.9 20.2 20.5 20.8

24.2 24.8

4.9

5.87.5

13.3

16.5

19.320.2

0

5

10

15

20

25

30

35

40

45

50

1963 1970 1980 1990 2000 2010 2011-12(P)

kg ( in raw valueterms

Per Capita consumption of India vis a vis Global avg.

India World

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

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Indian Share in global sugar export

6

16.8621.8

26.8 28.4

74.768.96

53.538

0.43

0.39

0.060.22

0.98

2.60

3.5

0

10

20

30

40

50

60

70

80

1963 1970 1980 1990 2000 2010 2011-12(P)

mln tn

Indian Share in global sugar export

India World

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 ofhandlin ex orts

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Cyclical sugar trade in last 20 years.

7

0 0

-20

-2

0 0

-9.35 -10.03

-4.04

0 0

-1.24-5.53

-21.38

0 0 0

-24.03

-40.8

05.6 4.1

0.1 0.6

10.2

4.20.7 0.2 0.7

9.9 10.8

17.7

2.70.0

11.1

17.3

49.6

1.7 2.4

26.0

35.0

Import ( lk tn) Exports ( lk tns)

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Indian Sugar Export Destinations

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The Indian Sugar Industry

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 mills527 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

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FRPVs

SAP

Agro-climatic

Legalissues

FarmCredit

Plant ratooncombination

10

Outgrowersmodel

Averageland

holding0.5 ha Pricing of

sugarcaneVis--vis

other crops

Farmyield

Monsoon/Irrigation

60 Millionfarmers

Competition with

othercrops

Indian AgricultureAn Out growers

Model

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The Infamous Indian Sugar Cycle

11

185.27

201.40

135.46

126.91

192.67

283.61

263.56

145.38

189.12

243.94

260.00

2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12( E)

Production trend of last ten years

Sugar Production( lakh tons)

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The Infamous Indian Sugar Cycle

12

185.27

201.40

135.46

126.91

192.67

283.61

263.56

145.38

189.12

243.94

260.00

167.81

183.84

172.85

185.00 185.00

199.00

219.00

229.12

213.28207.69

220.00

2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12( E)

Production- Consumption trend of last ten years

Sugar Production( lakh tons)

Sugar Consumption( Internal Releases) lakh tons

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

13

11911668

2817 3047

2076

876 972

2321

5188

1225

2723

4315

8918

1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12

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Cane Price Arrears vis--vis Sugar Inventory

14

0

20

40

60

80

100

120

140

160

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

2010-11

Cane Arrears( Rs. Cr)

Sugar Inventory(lk tn)

0

20

40

60

80

100

120

140

160

180

200

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

2011-12

Sugar Inventory (lk tn)

Cane Arrears( Rs. Cr.)

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Controls on Indian Sugar Sector

Minimum

Distance Criteria

between mills

Levy Sugar

Obligation on

mills

Import andExport

Dual Cane Pricing:

Federal/ Provincial

Regulated

Release

Mechanism

Cane Area

Reservation

GOVT.POLICIES

Compulsory

sugar packing

in jute only

Federal Govt. controlsProvincial Govt.controls

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Indian sugarcane prices are the highest in the world

16

Avg. sugar prices from Oct- Mar 2011-2012

0

5

10

15

20

25

30

35

40

45

50Avg. sugarcane prices from Oct- Mar 2011-2012$ / tonne

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Indian sugar price amongst the lowest in the world

17

0

10

20

30

40

50

60

70

80

90

Rs. per kg Avg. sugar prices from Oct- Mar 2011-2012

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

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Sugar Industry: Little Control Over Its Own Fate!

Raw Material: ItsPrice 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

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What is Indias Sugar Policy ?

Mission Statement of Department of

Food and PD : Ensuring availability of

sugar

Objective : Development/Promotion ofsugar industry

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Legacy of control

Essential Commodities Act, 1955 : Both sugar and

sugarcane included as Essential Commodities;

Sugar (Control) Order, 1966

Sugarcane (Control) Order, 1966

Sugar and sugarcane still essentialcommodities in 2012

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Political Economy of sugar

Sugar price determined by Federal

Government

Sugarcane price decided by provincial

governments.

Consumer v/s Farmer debates

Action or policy is reactionary

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World sugars view of India ?

Trust deficitIs India a reliable player ?

Long term sugar policy vs. Short term

breathers

Market or Competitor

Opportunities for investment

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Key messages

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

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Thank You