1SUGAR SITUATIONIntroduction:India is the largest consumer of sugar in the world and Indian sugarindustry is the 2ndlargest agro-industry located in the rural India. With453 operating sugar mills in different parts of the country, Indiansugar industry has been a focal point for socio-economicdevelopment in the rural areas. About 50 million sugarcane farmersand a large number of agricultural labourers are involved insugarcane cultivation and ancillary activities, constituting 7.5% of therural population. Besides the industry provides employment to about2 million skilled/semi skilled workers and others mostly from the ruralareas. The industry not only generates power for its own requirementbut surplus power for export to the grid based on byproduct bagasse.It also produces ethanol, an eco-friendly and renewable energy forblending with petrol. Following table gives the details of impressivecontribution of the Indian sugar industry to the national economy.Growth in CapacityIndian sugar industry has grown horizontally with large number ofsmall sized sugar plants set up throughout the country as opposed tothe consolidation of capacity in the rest of the important sugarproducing countries, where greater emphasis has been laid on largercapacity of sugar plants.
2Table INATIONAL ECONOMYNo. of Working Sugar Factories 453Cane Price Per Tonne US$ 20Cane Price paid annually US$ 3700 MillionNo. of cane farmers 50 MillionSugar Production 20.0 Million Tonnes (RawValue)Annual Tax contribution toexchequerUS $ 500 MillionEmployment including ancillaryactivities2 Million PeopleFuel Ethanol of 5% blend (Value) US $ 200 Million per annumCurrent export of Co-generatedpower (Value)US $ 100 Million per annumThe average cane crushing capacity in India, Brazil and Thailand isgiven below:Country Avg. Capacity (TCD)Thailand 10300Brazil 9200India 3500
3The Government of India licensed new units with an initial capacity of1250 TCD upto 1980s which was subsequently increased to 2500TCD. Government de-licensed the sugar sector in August 1998,thereby removing the restrictions on expansion of existing capacity aswell as on establishment of new units, with the only stipulation that aminimum distance of 15 Kms would continue to be observed betweenan existing sugar mill and a new mill. The number of sugar mills andthe growth in capacity over decennial period 1980-81 to 2000-01 andin the year 2001-02 to 2003-04 is given in Table No. II.Table No. IIGROWTH IN AVERAGE CAPACITY OF SUGAR MILLSDecennial period ending No. of Units Average Capacity PerUnit (TCD)1980-81 299 16501990-91 377 20302000-01 423 30002001-02 437 32002002-03 433 33502003-04 453 3500
4Cane Acreage & ProductionSugarcane occupies about 2.7% of the total cultivated area and it isone of the most important cash crops in the country. The area undersugarcane has gradually increased over the years mainly because ofmuch larger diversion of land from other crops to sugarcane by thefarmers for economic reasons. The cane area has, however,declined in the year 2003-04 mainly due to drought and pest attacks.Table IIISUGARCANE AREA AND PRODUCTIONFROM 1980-81 TO 2000-01 & UPTO 2003-04Year Area under cane(Million hectares)Cane Production(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 a minimum priceby way of a statutory order issued by the Government, in respect ofall other agricultural crops including food grains, the Government ofIndia only announces the minimum support prices (MSP). On theother hand, with statutory protection, sugarcane farmers receive the
5price as statutorily notified from the sugar mills even when it resultedin sizable loss to the sugar undertakings.Apart from fixation of statutory minimum price for sugarcane, theindustry is also required to share 50% of the extra realisation on freesale sugar over the levy price with the cane farmers. Delay in makingthe cane price payment over 15 days also attracts 15% penalinterest. For the season 2003-04, the average sugarcane price paidbeing Rs.950/- per tonne, is much higher than the cane prices, paid inthe major sugar producing and exporting countries, where it is linkedto sugar sales realisation and is also disbursed in 2 to 3 installments.Tempted by such securitisation of price, farmers preferred to increasearea under cane causing spurt in cane acreage and sugarcaneproduction significantly. From a level of 154 million tonnes in 1980-81, the cane production increased to 241 million tonnes in 1990-91and further to 296 million tonnes in 2000-01. Since then it has beenhovering around 300 million tonnes until last year. In the season2003-04, however, sugarcane production declined to 236 milliontonnes mainly due to drought.Cane UtilisationNot only cane acreage and cane production has been increasing,even drawal of cane by the sugar industry has also been increasingover the years. For, in India sugarcane is utilised by sugar mills aswell as by traditional users like gur and khandsari producers. In early1980s, the proportion of cane drawn by the sugar industry was
6hovering around 35% which went upto to 50% in 1990s and to ashigh as 69% 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 and khandsari. Thetable No. IV gives data on cane production and cane utilization fordifferent purposes.Consumption TrendsApart from white sugar, India also consumes alternate sweeteners -jaggery and khandsari, which are placed at about 9 million tonnes perannum. Taking into account all the 3 sweeteners i.e. white sugar,jaggery and khandsari, on a per capita basis, Indian consumptionstands at a reasonably high figure. This would be evident from data ofper capita consumption of sugar in various countries given in theTable No.V.The consumption of white sugar in India is generally urban based, inrural areas the alternate sweeteners gur and khandsari areconsumed predominately. The consumption of sugar in urban areasin some of the states of Indian union with higher GDP and incomelevels, matches favourably with various developed countries as givenin Table No.VI.
8Source: ISO Year BookTable No.VIPER CAPITA CONSUMPTION OF SUGAR IN URBAN INDIAStates Kgs. per annumPunjab 71.5Haryana 68.5Maharashtra 40.9Gujarat 40.9Kerala 41.5Uttar Pradesh 35.2Tamil Nadu 29.1Karnataka 23.3AllIndia31.5CogenerationCogeneration of power by sugar mills in India began a decade backin the year 1993-94 with the Ministry of Non-conventional EnergySources (MNES) formulating its guidelines for fixation of the rate ofpower supplied by sugar mills to the Electricity Boards. With a small
9beginning by 8 sugar mills generating 50 MW power, today, 48 unitshave set up their power plants generating 680 MW power.According to information currently available, an equal number or say50 sugar mills are in the process of putting up power plants toproduce yet another 700 MW, taking the total generation to about1400 MW against an assessed full industry potential of 3500 MW.The State-wise breakup of installed cogeneration capacity is given inTable No.VII.Table No. VIISTATEWISE ANNUAL INSTALLED COGENERATION CAPACITYStateNumber of UnitsInstalled Capacity MWAndhra Pradesh 10 130Karnataka 11 160Tamil Nadu 14 255Uttar Pradesh 9 100Punjab 1 10Maharashtra 3 25Total 48 680
10Fuel EthanolEncouraged by the success of the pilot projects in the year 2000-01,the Minister for Petroleum and Natural Gas announced in IndianParliament in December 2001, the Governments decision toimplement the mixed fuel programme with ethanol in three phases.The implementation of first phase (5% blend) was further sub-dividedinto two parts, it has been taken up first in 9 States and 4 UnionTerritories with effect from 1stOctober, 2003, where sugarcane cropis being extensively grown. In the second part, the rest of the countryis to be covered. Under this programme the requirement of fuelethanol worked out to roughly 350 million litres to go upto 500 millionlitres when the entire country is covered. The Government have alsoindicated the second and third phases of the ethanol programme. Inthe second phase, the objective is to increase the blending of ethanolto 10% with petrol. Apart from ethanol, work had also begun onblending ethanol with diesel.Enough capacity has been created for production of ethanol within ashort period. Mostly, distilleries attached with sugar mills have takenup this programme. Out of 295 distilleries, as many as 118 distilleriesare attached with sugar mills, of them 70 have added new ethanolplant with production capacity of over 700 million litres sufficient tomeet 5% blend for the entire country. The state wise position is givenin Table No. VIII.
11Table No. VIIIThe state wise installed Ethanol production capacityState/UT Requirement of OilMarketing Cos.Availability in theState & UTUttar Pradesh 51 190Punjab 32 NilHaryana & Chandigarh 24 NilMaharashtra 70 350Gujrat, Daman Diu &Dadra & Nagar Haveli40 30Goa 5 NilAndhra Pradesh 40 30Karnataka 35 58Tamil Nadu & Pondicherry 48 52Total 345 710Besides 128 million litre capacity is under implementation in UP andabout 200 mln. litre capacity is under various stages ofimplementation in Maharashtra and other states making the totalcapacity to over 1000 million litres sufficient to meet the requirementat 10% ethanol blend under the second phase. Following table givesthe details of Ethanol production at 90% utilisation of molasses fordistillation from 2001-02 to 2003-04 and estimates upto 2006-07.
12SEASONAL ETHANOL PRODUCTION AT 90 % UTILISATION OFMOLASSES 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 which needsfurther consideration particularly in view of the steep decline insugarcane and sugar production in the year 2003-04 and 2004-05,thereby affecting the output of byproduct molasses, which is beingused for production of fuel ethanol in India. Moreover, the recentbudget proposal for the year 2005-06 to hike the excise duty onmolasses from Rs.500/- to Rs. 1000/-per tonne is a matter of seriousconcern and needs immediate reconsideration by the Government.Fortunately, the use of ethanol as a blend fuel adopted by most of thecountries producing / exporting sugar is a healthy development,which provide flexibility for the sugar industry in those countries toabsorb cane supplies for production of ethanol, thereby balancing thesugar economy and also ensuring the reasonable price structure for
13sugar. Such corrections in the future will ensure a healthy growth ofthe sugar industry.India in the World MarketIndia has been exporting sugar occasionally in periods of sugarsurpluses. Whereas, most other countries dump their excess sugar inthe International market despite easy accessibility to funds carryinglow rate of interest, the Indian sugar industry has observedconsiderable constraint by limiting its exports. In the last five years itexported 4.07 million tonnes sugar. India had an average exportablesurplus of 6.23 million tonnes during the last 5 years.Table No. IXExportable surplus, sugar stock & actual exportsYearClosingStock(MillionTonnes)Exportablesurplus(MillionTonnes)ActualExport(MillionTonnes)% export ofsurplusstocks1999-00 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 7.69
14Sugar exports, in a limited manner, were mostly confined to theneighbouring countries. If India were to liquidate its huge stocks inthe international market, the world sugar prices would have nose-dived effecting all exporting nations. Disciplined Indian approachtowards exports deserves consideration so as to bring about order inthe world sugar market, rather than resorting to subsidized exports.Current SceneIndian sugar sector having a large stake in the world sugar economy,like on several occasions in the past, once again found itself at crossroads. From an era of large production, high surpluses and virtuallyunmanageable stocks, India has turned into an importer of sugar,albeit of raw sugar, to meet the gap between supply and demandthereof, following two consecutive years of exceptionally low sugaroutput. Reasons for this are not far to seek. Severe droughtconditions in Southern and Western India, in particular, coupled withattack of pests and diseases, took heavy toll of sugarcane cropduring the year 2003-04 and the current year 2004-05, with sugaroutput plummeting from over 20 million tonnes to 14 million tonnes in2003-04 and to 12.5 million tonnes in 2004-05. Notwithstanding sucha steep decline in production, large opening stock of sugar onceconsidered as unbearable burden came in handy to reduce the realdeficit to around two million tonnes, which has been met with rawsugar imports of equivalent quantity.
15Table 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 meeting adequatelythe projected demand for sugar, the carry forward stocks at the endof sugar year 2004-05 would stand at a reasonable figure of 4.5million tonnes, equal to broadly three months consumptionrequirement for the initial period of 2005-06 sugar year.However, for the first time, the new Government with its farmer andrural area centric approach, evolved a policy for import of raw sugarthat has not only helped the sugar economy, but has also helped to
16crossover the period of aberrations in a manner that has protected allthe three major stake holders - sugarcane farmers, sugar industry aswell as the consumers.Import of raw sugar, in fact, began in the previous season 2003-04itself - initially under DFRC license against white sugar exported outof the country, followed by fairly sizeable imports under the "AdvanceLicensing Scheme" (ALS) of the Commerce Ministry. No doubt, tofacilitate import of raw sugar, Government of India at the initiative ofMinistry of Agriculture and Food, relaxed certain stipulations by de-linking grain to grain matching of raw sugar import with white sugarexport for fulfillment of export obligation. Further a much longerperiod of 36 months has been allowed to fulfill the export obligationas against the normal period of 24 months.Under the impetus of this scheme, sugar factories in Southern India,Northern India as well as Western India imported significantquantities of raw sugar to increase availability of sugar for domesticconsumption during the sugar year 2004-05. Thus, availability ofadditional sugar supply was fairly wide spread, although in SouthernIndia with higher imports, larger additional supplies of white sugarbecame available. However, this did not cause any regionalimbalance considering the larger deficiency in supply in the Southernand Western India.In the table No. XI, the estimates for import of raw sugar regionwisefor the years 2003-04 to 2004-05 has been given.
17Table XIREGION-WISE RAW SUGAR IMPORT(Figures in Lakh Tonnes)2003-04(Oct.-Sep.)2004-05 (Oct. 2004to 10th Mar.2005)Addl. Qty.expected by30thSept. 2005*Karnataka 0.49 3.79 1.60Tamil Nadu 3.65 2.78 1.30Andhra Pradesh 0.89 1.84 0.60Uttar 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, sugarproduction for the season 2005-06 is likely to show a quantum jumpto about 17.5 million tonnes. Even so, fairly significant quantity of rawsugar import will continue in the coming year provided the price ofraw sugar in the international market continues at reasonable levels.Import of raw sugar under Advance Licensing Scheme limits thesugar industry alone to process the same to fulfill the export
18obligation. Thus, imports more or less correspond with the actualadditional requirement of sugar to meet the projected deficit in supply.In the past, inadequate availability of sugar arising out of decline inproduction was supplemented by way of additional supplies throughimport of white sugar from the world market. It is for the first time thatthe Government have instituted the new policy of facilitating import ofraw sugar thereby placing greater reliance on the ability of the sugarindustry to process raw sugar and make additional supplies ofrefined white sugar available for consumption in the domestic market.Sugar industry on its part has also responded to the needs of thesituation and discharged satisfactorily its consequential obligation.The success of the new policy clearly underlines that in future toowhenever any such occasion arises, emphasis would be laid on rawsugar import rather opening up white sugar imports. Thus, a newdemand driven policy has taken shape in the large interest of allconcerned within the sugar sector.On the other hand, sugar has a long established international marketwith sizeable volumes of over 45 million tonnes being traded eachyear. Asian continent, Far East and the Middle East region importingaround 15 million tonnes of sugar annually, provides an excellentmeans of increasing our exports, specially in view of the steepincrease in the ocean freight in the recent past. Moreover, India has agreat potential to increase sugarcane and sugar production as thesugarcane crop merely occupies about 3% of our cultivable area.What is needed is a fresh outlook i.e. sugarcane pricing policy based
19on sugar prices and a trade policy akin to the one followed by otherregular sugar exporting countries. Larger production and higher sugarexports on a regular basis may provide incidental added value to thesugar sector and enable setting up of large sugar complexes -producing clean energy i.e. ethanol and power beside sugar, therebyensuring adequate and timely payment of sugarcane price to themillions of sugarcane farmers.