Sugar industry of india 2004


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Cane sugar production is major agro-indstry in India

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Sugar industry of india 2004

  1. 1. SUGAR SITUATIONIntroduction:India is the largest consumer of sugar in the world andIndian sugar industry is the 2nd largest agro-industry locatedin the rural India. With 453 operating sugar mills in differentparts of the country, Indian sugar industry has been a focalpoint for socio-economic development in the rural areas.About 50 million sugarcane farmers and a large number ofagricultural labourers are involved in sugarcane cultivationand ancillary activities, constituting 7.5% of the ruralpopulation. Besides the industry provides employment toabout 2 million skilled/semi skilled workers and others mostlyfrom the rural areas. The industry not only generates powerfor its own requirement but surplus power for export to thegrid based on byproduct bagasse. It also produces ethanol,an eco-friendly and renewable energy for blending withpetrol. Following table gives the details of impressivecontribution of the Indian sugar industry to the nationaleconomy. 1
  2. 2. Table INATIONAL ECONOMYNo. of Working Sugar 453FactoriesCane Price Per Tonne US$ 20Cane Price paid annually US$ 3700 MillionNo. of cane farmers 50 MillionSugar Production 20.0 Million Tonnes (Raw Value)Annual Tax contribution to US $ 500 MillionexchequerEmployment including ancillary 2 Million PeopleactivitiesFuel Ethanol of 5% blend US $ 200 Million per(Value) annumCurrent export of Co-generated US $ 100 Million perpower (Value) annumGrowth in CapacityIndian sugar industry has grown horizontally with largenumber of small sized sugar plants set up throughout thecountry as opposed to the consolidation of capacity in the 2
  3. 3. rest of the important sugar producing countries, wheregreater emphasis has been laid on larger capacity of sugarplants. The average cane crushing capacity in India, Braziland Thailand is given below:Country Avg. Capacity (TCD)Thailand 10300Brazil 9200India 3500The Government of India licensed new units with an initialcapacity of 1250 TCD upto 1980s which was subsequentlyincreased to 2500 TCD. Government de-licensed the sugarsector in August 1998, thereby removing the restrictions onexpansion of existing capacity as well as on establishment ofnew units, with the only stipulation that a minimum distanceof 15 Kms would continue to be observed between anexisting sugar mill and a new mill. The number of sugar millsand the growth in capacity over decennial period 1980-81 to2000-01 and in the year 2001-02 to 2003-04 is given inTable No. II. 3
  4. 4. Table No. IIGROWTH IN AVERAGE CAPACITY OF SUGAR MILLSDecennial period No. of Units Average Capacityending Per Unit (TCD)1980-81 299 16501990-91 377 20302000-01 423 30002001-02 437 32002002-03 433 33502003-04 453 3500Cane Acreage & ProductionSugarcane occupies about 2.7% of the total cultivated areaand it is one of the most important cash crops in the country.The area under sugarcane has gradually increased over theyears mainly because of much larger diversion of land fromother crops to sugarcane by the farmers for economicreasons. The cane area has, however, declined in the year2003-04 mainly due to drought and pest attacks. 4
  5. 5. Table IIISUGARCANE AREA AND PRODUCTIONFROM 1980-81 TO 2000-01 & UPTO 2003-04Year Area under cane Cane Production (Million hectares) (Million tonnes)1980-81 2.67 1541990-91 3.69 2412000-01 4.32 2962001-02 4.41 2972002-03 4.36 2822003-04 3.99 236Unlike sugarcane, where the farmers are assured of aminimum price by way of a statutory order issued by theGovernment, in respect of all other agricultural cropsincluding food grains, the Government of India onlyannounces the minimum support prices (MSP). On the otherhand, with statutory protection, sugarcane farmers receivethe price as statutorily notified from the sugar mills evenwhen it resulted in sizable loss to the sugar undertakings. 5
  6. 6. Apart from fixation of statutory minimum price for sugarcane,the industry is also required to share 50% of the extrarealisation on free sale sugar over the levy price with thecane farmers. Delay in making the cane price payment over15 days also attracts 15% penal interest. For the season2003-04, the average sugarcane price paid being Rs.950/-per tonne, is much higher than the cane prices, paid in themajor sugar producing and exporting countries, where it islinked to sugar sales realisation and is also disbursed in 2 to3 installments.Tempted by such securitisation of price, farmers preferred toincrease area under cane causing spurt in cane acreage andsugarcane production significantly. From a level of 154million tonnes in 1980-81, the cane production increased to241 million tonnes in 1990-91 and further to 296 milliontonnes in 2000-01. Since then it has been hovering around300 million tonnes until last year. In the season 2003-04,however, sugarcane production declined to 236 milliontonnes mainly due to drought.Cane UtilisationNot only cane acreage and cane production has beenincreasing, even drawal of cane by the sugar industry has 6
  7. 7. also been increasing over the years. For, in India sugarcaneis utilised by sugar mills as well as by traditional users likegur and khandsari producers. In early 1980s, the proportionof cane drawn by the sugar industry was hovering around35% which went upto to 50% in 1990s and to as high as69% in the year 2002-03. In the year 2003-04, percentagedrawal of cane, however, declined a bit due to more intensecompetition from the alternate sweeteners gur andkhandsari. The table No. IV gives data on cane productionand cane utilization for different purposes.Consumption TrendsApart from white sugar, India also consumes alternatesweeteners - jaggery and khandsari, which are placed atabout 9 million tonnes per annum. Taking into account all the3 sweeteners i.e. white sugar, jaggery and khandsari, on aper capita basis, Indian consumption stands at a reasonablyhigh figure. This would be evident from data of per capitaconsumption of sugar in various countries given in the TableNo.V.The consumption of white sugar in India is generally urbanbased, in rural areas the alternate sweeteners gur andkhandsari are consumed predominately. The consumption of 7
  8. 8. sugar in urban areas in some of the states of Indian unionwith higher GDP and income levels, matches favourably withvarious developed countries as given in Table No.VI.Table No. IV % Cane utilisation forYear White sugar Gur and Seed, feed and khandsari chewing1980-81 33.4 54.8 11.81990-91 50.7 37.4 11.82000-01 59.7 28.8 11.52001-02 57.4 31.5 11.12002-03 68.9 20.1 11.02003-04 56.1 32.5 11.4 8
  9. 9. Table No.VPER CAPITA CONSUMPTION OF SUGAR IN VARIOUSCOUNTRIES(Kilogram, Raw value)Country 2000 2001 2002 2003Australia 63.5 55.2 55.8 54.9Brazil 57.5 57.7 60.2 58.0E.U. 37.5 36.0 38.4 37.2U.S.A. 32.6 31.5 32.4 30.3Thailand 29.1 31.0 31.2 32.6Japan 19.0 18.4 19.1 18.9World Average 20.7 21.0 21.7 22.1INDIA |Sugar| 16.5 17.5 17.5 18.0INDIA |Cane based 10.0 9.0 9.0 9.0Alternate Sweeteners|Source: ISO Year Book 9
  10. 10. Table No.VIPER CAPITA CONSUMPTION OF SUGAR IN URBANINDIAStates Kgs. per annumPunjab 71.5Haryana 68.5Maharashtra 40.9Gujarat 40.9Kerala 41.5Uttar Pradesh 35.2Tamil Nadu 29.1Karnataka 23.3 All 31.5IndiaCogenerationCogeneration of power by sugar mills in India began adecade back in the year 1993-94 with the Ministry of Non-conventional Energy Sources (MNES) formulating itsguidelines for fixation of the rate of power supplied by sugarmills to the Electricity Boards. With a small beginning by 8 10
  11. 11. sugar mills generating 50 MW power, today, 48 units haveset up their power plants generating 680 MW power.According to information currently available, an equalnumber or say 50 sugar mills are in the process of putting uppower plants to produce yet another 700 MW, taking thetotal generation to about 1400 MW against an assessed fullindustry potential of 3500 MW. The State-wise breakup ofinstalled cogeneration capacity is given in Table No.VII.Though, there have been problems mainly related toacceptance and continuation of the power rates as per theMNES guidelines as also with regard to actual paymentagainst power supply to the Electricity Boards. Yet as wouldbe evident, there has been appreciable growth and this trendis likely to continue in future as well because of growingdemand for power in the country. 11
  12. 12. Table No. VIISTATEWISE ANNUAL INSTALLED COGENERATIONCAPACITYState Installed Capacity MW Number of UnitsAndhra 10 130PradeshKarnataka 11 160Tamil Nadu 14 255Uttar 9 100PradeshPunjab 1 10Maharashtra 3 25Total 48 680Fuel EthanolEncouraged by the success of the pilot projects in the year2000-01, the Minister for Petroleum and Natural Gasannounced in Indian Parliament in December 2001, theGovernments decision to implement the mixed fuel 12
  13. 13. programme with ethanol in three phases. Theimplementation of first phase (5% blend) was further sub-divided into two parts, it has been taken up first in 9 Statesand 4 Union Territories with effect from 1st October, 2003,where sugarcane crop is being extensively grown. In thesecond part, the rest of the country is to be covered. Underthis programme the requirement of fuel ethanol worked outto roughly 350 million litres to go upto 500 million litres whenthe entire country is covered. The Government have alsoindicated the second and third phases of the ethanolprogramme. In the second phase, the objective is toincrease the blending of ethanol to 10% with petrol. Apartfrom ethanol, work had also begun on blending ethanol withdiesel.Enough capacity has been created for production of ethanolwithin a short period. Mostly, distilleries attached with sugarmills have taken up this programme. Out of 295 distilleries,as many as 118 distilleries are attached with sugar mills, ofthem 70 have added new ethanol plant with productioncapacity of over 700 million litres sufficient to meet 5% blendfor the entire country. The state wise position is given inTable No. VIII. 13
  14. 14. Table No. VIIIThe state wise installed Ethanol production capacityState/UT Requirement of Oil Availability in Marketing Cos. the State & UTUttar Pradesh 51 190Punjab 32 NilHaryana & 24 NilChandigarhMaharashtra 70 350Gujrat, Daman Diu & 40 30Dadra & Nagar HaveliGoa 5 NilAndhra Pradesh 40 30Karnataka 35 58Tamil Nadu & 48 52PondicherryTotal 345 710Besides 128 million litre capacity is under implementation inUP and about 200 mln. litre capacity is under various stages 14
  15. 15. of implementation in Maharashtra and other states makingthe total capacity to over 1000 million litres sufficient to meetthe requirement at 10% ethanol blend under the secondphase. Following table gives the details of Ethanolproduction at 90% utilisation of molasses for distillation from2001-02 to 2003-04 and estimates upto 2006-07.SEASONAL ETHANOL PRODUCTION AT 90 %UTILISATION OF MOLASSES FOR DISTILLATIONYear Million litres2001-2002 16202002-2003 17552003-04 12152004-05* 11402005-06* 16002006-07* 18 70*ProjectedHowever, the pricing of ethanol is an important issue whichneeds further consideration particularly in view of the steepdecline in sugarcane and sugar production in the year 2003-04 and 2004-05, thereby affecting the output of byproductmolasses, which is being used for production of fuel ethanol 15
  16. 16. in India. Moreover, the recent budget proposal for the year2005-06 to hike the excise duty on molasses from Rs.500/-to Rs. 1000/-per tonne is a matter of serious concern andneeds immediate reconsideration by the Government.Fortunately, the use of ethanol as a blend fuel adopted bymost of the countries producing / exporting sugar is ahealthy development, which provide flexibility for the sugarindustry in those countries to absorb cane supplies forproduction of ethanol, thereby balancing the sugar economyand also ensuring the reasonable price structure for sugar.Such corrections in the future will ensure a healthy growth ofthe sugar industry.India in the World MarketIndian approach towards export of sugar is vastly differentand market friendly. India has been exporting sugaroccasionally in periods of sugar surpluses. Whereas, mostother countries dump their excess sugar in the Internationalmarket despite easy accessibility to funds carrying low rateof interest, the Indian sugar industry has observedconsiderable constraint by limiting its exports. In the last fiveyears it exported 4.07 million tonnes sugar. India had anaverage exportable surplus of 6.23 million tonnes during the 16
  17. 17. last 5 years. As against this, on an average, the sugarexported was only 0.81 million tonnes or 7.69% of the totalexportable surplus as would be evident from the data givenin Table No. IX.Table No. IXExportable surplus, sugar stock & actual exports Closing Exportable Actual % export Stock surplus ExportYear of surplus (Million (Million (Million stocks Tonnes) Tonnes) Tonnes)1999-00 9.38 5.38 0.07 1.302000-01 10.4 6.4 1.2 18.752001-02 11.3 7.3 1.1 15.062002-03 11.6 7.6 1.5 19.732003-04 8.5 4.5 0.2 4.44Average 10.23 6.23 0.81 7.69Sugar exports, in a limited manner, were mostly confined tothe neighbouring countries. If India were to liquidate its hugestocks in the international market, the world sugar priceswould have nose-dived effecting all exporting nations.Disciplined Indian approach towards exports deserves 17
  18. 18. consideration so as to bring about order in the world sugarmarket, rather than resorting to subsidized exports.Current SceneIndian sugar sector having a large stake in the world sugareconomy, like on several occasions in the past, once againfound itself at cross roads. From an era of large production,high surpluses and virtually unmanageable stocks, India hasturned into an importer of sugar, albeit of raw sugar, to meetthe gap between supply and demand thereof, following twoconsecutive years of exceptionally low sugar output.Reasons for this are not far to seek. Severe droughtconditions in Southern and Western India, in particular,coupled with attack of pests and diseases, took heavy toll ofsugarcane crop during the year 2003-04 and the currentyear 2004-05, with sugar output plummeting from over 20million tonnes to 14 million tonnes in 2003-04 and to 12.5million tonnes in 2004-05. Notwithstanding such a steepdecline in production, large opening stock of sugar onceconsidered as unbearable burden came in handy to reducethe real deficit to around two million tonnes, which has beenmet with raw sugar imports of equivalent quantity. 18
  19. 19. Table XSUPPLY AND DEMAND POSITION OF SUGARFOR THE SEASON 2003-04 AND ESTIMATES FOR 2004-05 & 2005-06(Figures in million tonnes) 2003-04 2004-05 2005-06Opening stock 11.6 8.5 4.5Production 14.0 12.5 17.5Imports 0.55 2.0 1.5Total availability 26.15 23.0 23.5Off-take for1. Internalconsumption 17.45 18.5 19.02. Export 0.2 - -Total 17.65 18.5 19.0Closing stocks 8.5 4.5 4.5As would be evident from the above table, after meetingadequately the projected demand for sugar, the carryforward stocks at the end of sugar year 2004-05 would standat a reasonable figure of 4.5 million tonnes, equal to broadly 19
  20. 20. three months consumption requirement for the initial periodof 2005-06 sugar year.However, for the first time, the new Government with itsfarmer and rural area centric approach, evolved a policy forimport of raw sugar that has not only helped the sugareconomy, but has also helped to crossover the period ofaberrations in a manner that has protected all the threemajor stake holders - sugarcane farmers, sugar industry aswell as the consumers.Import of raw sugar, in fact, began in the previous season2003-04 itself - initially under DFRC license against whitesugar exported out of the country, followed by fairly sizeableimports under the "Advance Licensing Scheme" (ALS) of theCommerce Ministry. No doubt, to facilitate import of rawsugar, Government of India at the initiative of Ministry ofAgriculture and Food, relaxed certain stipulations by de-linking grain to grain matching of raw sugar import with whitesugar export for fulfillment of export obligation. Further amuch longer period of 36 months has been allowed to fulfillthe export obligation as against the normal period of 24months. 20
  21. 21. Under the impetus of this scheme, sugar factories inSouthern India, Northern India as well as Western Indiaimported significant quantities of raw sugar to increaseavailability of sugar for domestic consumption during thesugar year 2004-05. Thus, availability of additional sugarsupply was fairly wide spread, although in Southern Indiawith higher imports, larger additional supplies of white sugarbecame available. However, this did not cause any regionalimbalance considering the larger deficiency in supply in theSouthern and Western India.In the table No. XI, the estimates for import of raw sugarregionwise for the years 2003-04 to 2004-05 has been given. 21
  22. 22. Table XIREGION-WISE RAW SUGAR IMPORT(Figures in Lakh Tonnes) Addl. Qty. 2003- 2004-05 (Oct. expected by 04(Oct.- 2004 to 10th 30th Sept. Sep.) Mar.2005) 2005*Karnataka 0.49 3.79 1.60Tamil Nadu 3.65 2.78 1.30Andhra 0.89 1.84 0.60PradeshUttar Pradesh 0.50 4.82 1.80Maharashtra - 0.57 0.80Bihar - 0.07 -Total 5.53 13.87 6.10*ProjectedFuture outlookWith reports of far more satisfactory sugarcane plantations,sugar production for the season 2005-06 is likely to show aquantum jump to about 17.5 million tonnes. Even so, fairlysignificant quantity of raw sugar import will continue in the 22
  23. 23. coming year provided the price of raw sugar in theinternational market continues at reasonable levels. Importof raw sugar under Advance Licensing Scheme limits thesugar industry alone to process the same to fulfill the exportobligation. Thus, imports more or less correspond with theactual additional requirement of sugar to meet the projecteddeficit in supply.In the past, inadequate availability of sugar arising out ofdecline in production was supplemented by way of additionalsupplies through import of white sugar from the worldmarket. It is for the first time that the Government haveinstituted the new policy of facilitating import of raw sugarthereby placing greater reliance on the ability of the sugarindustry to process raw sugar and make additional suppliesof refined white sugar available for consumption in thedomestic market.Sugar industry on its part has also responded to the needsof the situation and discharged satisfactorily itsconsequential obligation. The success of the new policyclearly underlines that in future too whenever any suchoccasion arises, emphasis would be laid on raw sugar importrather opening up white sugar imports. Thus, a new demand 23
  24. 24. driven policy has taken shape in the large interest of allconcerned within the sugar sector.On the other hand, sugar has a long establishedinternational market with sizeable volumes of over 45 milliontonnes being traded each year. Asian continent, Far Eastand the Middle East region importing around 15 milliontonnes of sugar annually, provides an excellent means ofincreasing our exports, specially in view of the steepincrease in the ocean freight in the recent past. Moreover,India has a great potential to increase sugarcane and sugarproduction as the sugarcane crop merely occupies about 3%of our cultivable area. What is needed is a fresh outlook i.e.sugarcane pricing policy based on sugar prices and a tradepolicy akin to the one followed by other regular sugarexporting countries. Larger production and higher sugarexports on a regular basis may provide incidental addedvalue to the sugar sector and enable setting up of largesugar complexes - producing clean energy i.e. ethanol andpower beside sugar, thereby ensuring adequate and timelypayment of sugarcane price to the millions of sugarcanefarmers. 24
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