INDIA: END OF THE SUGAR CYCLE?

PRESENTED BY:ABINASH VERMA, DG, ISMA

Outline of Presentation

The Indian Sugar Cycle

Factors impacting the Cycle

Do we see an end to the Cycle?

Can the Cycle be better Managed?

2012-13 and 2013-14 seasons

2

Sugar Production Cycle in last 10 years

3

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

2010-11

2011-12

2012-13 (E)

18.5 18.5

20.1

13.512.7

19.3

28.4

26.4

14.5

18.9

24.4

26.024.0

Sugar Production in million tons

The year-wise swings: Since 2000-01

Period No. of seasons

Range (mn tons)

Swing from previous high/low (mn tons)

Swing %

00-01 to 02-03

3 18.5 to 20.1

03-04 to 04-05

2 13.5 to 12.7 (-) 6.6 (-)33%

05-06 to 07-08

3 19.3 to 28.4 (+) 6.6 (+)52%

08-09 to 09-10

2 14.5 to 18.9 (-) 11.9 (-)42%

10-11 to 12-13

3 24.0 to 26.2 (+) 5.5 (+)29%

4

Production–Consumption in last ten years

5

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13(E)

Production (mln ton) Consumption(mln ton)

Cyclical sugar trade in last 20 years…….6

0.5620000000000010.4110.01 0.063

1.021

0.4190.069 0.022 0.066

0.987 1.082

1.767

0.2660.00400000000000001

1.107

1.728

4.956

0.165 0.235

2.6

3.5

-2

-0.2

-0.935-1.003

-0.404-0.124

-0.553

-2.138-2.403

-4.08

0

Import ( mln tn) Exports (mln tns)

Therefore, The Cycle is …………

Indian sugar production follows a 5 year cycle

2 to 3 year of high production; followed by

2 to 3 years of low production; and vice versa ….

Consumption growth is linear

Results in huge swings in the sugar equation

7

Outline of Presentation

The Indian Sugar Cycle

Factors impacting the Cycle

Do we see an end to the Cycle?

Can the Cycle be better Managed?

2012-13 and 2013-14 seasons

8

Sugar production dependant on …..

1. Cane production

Area under sugarcane

Weather & Rainfall

2. Cane drawal by sugar industry

Price of cane offered by sugar industry

Diversion into gur, khandsari etc.

3. Government policies

9

Fluctuations in cane area and production

Price for cane and Arrears of farmers Returns from alternative crops like wheat, paddy, cotton,

turmeric etc.

10

0

1

2

3

4

5

6

0

100

200

300

400

500

600

Cane Area (mln. ha) Cane Production (Mln.Tonnes)

Sugar Production & Sugar Price 11

1999-2000

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

2010-11

2011-12

10.00

30.00

1000

1200

1400

1600

1800

2000

2200

2400

2600

2800

3000

3200

Sugar Production( mln tn)

Price Trend

Cane Price Arrears (as on 30th June in Rs. crore)

12

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

7451031

1800

3182

1286

209 215

4185

1955

231

752

1216

4600

The Indian Sugar Cycle

Decline in sugar prices

Lower Profitability/

losses

High Cane price arrears

Decline in area under cane

Lower sugarcane productionLower Sugar

ProductionHigh sugar prices

Improved Profitability

Good, timely cane price payments

High Sugarcane Production

High Sugar Production

Although 93% of India’s cane crop is irrigated, performance of the 4 month (Jun-Sept) monsoon season has a significant impact on crop output

This affects yield as well as sucrose formation impacting sugar recovery

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 20090

5

10

15

20

25

30

35

40

Indian variability of Monsoons

Excess/Normal Deficient/Scanty

Nu

mb

er

of

sub

div

isio

ns

Cane Yield

15

70.9

68.667.4

63.6

59.4

64.866.9

69 68.9

64.5

70 70.168.5

Yield (ton/...

Cane diversion for alternate sweeteners

1980

-81

1981

-82

1982

-83

1983

-84

1984

-85

1985

-86

1986

-87

1987

-88

1988

-89

1989

-90

1990

-91

1991

-92

1992

-93

1993

-94

1994

-95

1995

-96

1996

-97

1997

-98

1998

-99

1999

-200

0

2000

-01

2001

-02

2002

-03

2003

-04

2004

-05

2005

-06

2006

-07

2007

-08

2008

-09

-

50

100

150

200

250

300

350

400

Cane for Seed For Jaggery Cane for sugar

mm

t

Substantial variation in yearly drawals - Higher drawals in low production years and lower in high production years

Cane drawal by sugar industry

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 20010-11

20011-12

59.7%60.7%

67.6%

56.7%

52.6%

67.1%

78.6%

71.8%

50.9%

63.5%

72.0%71.7%

Policy Contribution to the Cyclicality

Regulated Release Mechanism

Control on sugar prices & Blockage of working capital

Levy Sugar Obligation on mills

Carry forward of levy sugar, blockage of capital

Export-Import of Sugar

Timing and quantity permissions

Cane Price

Unreasonably high and no linkage with sugar price

18

Cane Price Arrears vis-à-vis Sugar Inventory

19

Cane price arrears directly related to sugar inventory which industry forced to carry Industry has no control on cash flow which are need to pay cane price to farmers

during crushing season.

October NovemberDecember January February March April May June0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

0

20

40

60

80

100

120

140

160

180

2002011-12

Sugar Inventory (lk tn) Cane Arrears( Rs. Cr.)

Outline of Presentation

The Indian Sugar Cycle

Factors impacting the Cycle

Do we see an end to the Cycle?

Can the Cycle be better Managed?

2012-13 and 2013-14 seasons

20

Production–Consumption in last ten years

21

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13(E)

Production (mln ton) Consumption(mln ton)

Production–Consumption in last ten years

22

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13(E)

Production (mln ton) Consumption(mln ton)

Policy front …….

Permissions in last 2 years for exporting the surplus

Timing and Quantities

Market for Indian sugar

Cash Flow needs better met

Quarterly release mechanism

Levy sugar: Conversions and ‘Carry forward’ rule

Sugar price vis-à-vis cost of production

Government and public awareness and acceptance

23

Sugar Production & Sugar Price 24

1999-2000

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

2010-11

2011-12

10.00

30.00

1000

1200

1400

1600

1800

2000

2200

2400

2600

2800

3000

3200

Sugar Production( mln tn)

Price Trend

Cane Price Arrears

High Cane Price Arrears are usually followed by fall in Cane

Acreage and fall in sugar production

It is not expected to happen in 2012-13

25

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

7451031

1800

3182

1286

209 215

4185

1955

231

752

1216

4600

Diversion of cane and area

Price of competing crops

Returns to farmers from wheat, paddy, cotton, turmeric etc.

Cane drawal for gur, jaggery, khandsari etc.

Price offered by alternate sweetener manufacturers

26

Outline of Presentation

The Indian Sugar Cycle

Factors impacting the Cycle

Do we see an end to the Cycle?

Can the Cycle be better Managed?

2012-13 and 2013-14 seasons

27

Management of the Surplus: suggestions

Freedom from Government controls

Cane price – sugar price linkage

Freer trade policy

Diversion of surplus cane into ethanol

Diversion to alternate sweeteners

28

Outline of Presentation

The Indian Sugar Cycle

Factors impacting the Cycle

Do we see an end to the Cycle?

Can the Cycle be better Managed?

2012-13 and 2013-14 seasons

29

Sugar Production Cycle in last 10 years

30

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

2010-11

2011-12

2012-13 (E)

18.5 18.5

20.1

13.512.7

19.3

28.4

26.4

14.5

18.9

24.4

26.024.0

Sugar Production in million tons

2012-13 and 2013-14: Will the Cycle come back?

2012-13:

Very good cane price in 2011-12

Cane area higher by 4% over previous 2 seasons

Doubts regarding rainfall in Maharashtra and Karnataka

Rains have picked up in last 2 weeks

Highest ever cane area in Uttar Pradesh

Estimated sugar production of 24.0 million tons

31

2012-13 and 2013-14: Will the Cycle come back?

2013-14:

Price for competing crops vis-a-vis cane price

Cane price arrears in 2012-13?

Sugar prices covering cost of production

Surplus sugar in 2012-13 not as large as in previous years

With some late rainfall and the outcome of retreating monsoon,

reservoirs in Maharashtra and Karnataka may have more water

18 month crop in Maharashtra showing signs of picking up

However, still very early to estimate, but indications as of now do not

indicate a swing in cane area or fall in sugar production

32

Thank You