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SUGAR SITUATION

Introduction:

India is the largest consumer of sugar in the world and

Indian sugar industry is the 2nd

largest agro-industry located

in the rural India. With 453 operating sugar mills in different

parts of the country, Indian sugar industry has been a focal

point for socio-economic development in the rural areas.

About 50 million sugarcane farmers and a large number of

agricultural labourers are involved in sugarcane cultivation

and ancillary activities, constituting 7.5% of the rural

population. Besides the industry provides employment to

about 2 million skilled/semi skilled workers and others mostly

from the rural areas. The industry not only generates power

for its own requirement but surplus power for export to the

grid based on byproduct bagasse. It also produces ethanol,

an eco-friendly and renewable energy for blending with

petrol. Following table gives the details of impressive

contribution of the Indian sugar industry to the national

economy.

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Table I

NATIONAL ECONOMY

No. of Working Sugar

Factories

453

Cane Price Per Tonne US$ 20

Cane Price paid annually US$ 3700 Million

No. of cane farmers 50 Million

Sugar Production 20.0 Million Tonnes (Raw

Value)

Annual Tax contribution to

exchequer

US $ 500 Million

Employment including ancillary

activities

2 Million People

Fuel Ethanol of 5% blend

(Value)

US $ 200 Million per

annum

Current export of Co-generated

power (Value)

US $ 100 Million per

annum

Growth in Capacity

Indian sugar industry has grown horizontally with large

number of small sized sugar plants set up throughout the

country as opposed to the consolidation of capacity in the

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rest of the important sugar producing countries, where

greater emphasis has been laid on larger capacity of sugar

plants. The average cane crushing capacity in India, Brazil

and Thailand is given below:

Country Avg. Capacity (TCD)

Thailand 10300

Brazil 9200

India 3500

The Government of India licensed new units with an initial

capacity of 1250 TCD upto 1980s which was subsequently

increased to 2500 TCD. Government de-licensed the sugar

sector in August 1998, thereby removing the restrictions on

expansion of existing capacity as well as on establishment of

new units, with the only stipulation that a minimum distance

of 15 Kms would continue to be observed between an

existing sugar mill and a new mill. The number of sugar mills

and the growth in capacity over decennial period 1980-81 to

2000-01 and in the year 2001-02 to 2003-04 is given in

Table No. II.

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Table No. II

GROWTH IN AVERAGE CAPACITY OF SUGAR MILLS

Decennial period

ending

No. of Units Average Capacity

Per Unit (TCD)

1980-81 299 1650

1990-91 377 2030

2000-01 423 3000

2001-02 437 3200

2002-03 433 3350

2003-04 453 3500

Cane Acreage & Production

Sugarcane occupies about 2.7% of the total cultivated area

and it is one of the most important cash crops in the country.

The area under sugarcane has gradually increased over the

years mainly because of much larger diversion of land from

other crops to sugarcane by the farmers for economic

reasons. The cane area has, however, declined in the year

2003-04 mainly due to drought and pest attacks.

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Table III

SUGARCANE AREA AND PRODUCTION

FROM 1980-81 TO 2000-01 & UPTO 2003-04

Year Area under cane

(Million hectares)

Cane Production

(Million tonnes)

1980-81 2.67 154

1990-91 3.69 241

2000-01 4.32 296

2001-02 4.41 297

2002-03 4.36 282

2003-04 3.99 236

Unlike sugarcane, where the farmers are assured of a

minimum price by way of a statutory order issued by the

Government, in respect of all other agricultural crops

including food grains, the Government of India only

announces the minimum support prices (MSP). On the other

hand, with statutory protection, sugarcane farmers receive

the price as statutorily notified from the sugar mills even

when it resulted in sizable loss to the sugar undertakings.

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Apart from fixation of statutory minimum price for sugarcane,

the industry is also required to share 50% of the extra

realisation on free sale sugar over the levy price with the

cane farmers. Delay in making the cane price payment over

15 days also attracts 15% penal interest. For the season

2003-04, the average sugarcane price paid being Rs.950/-

per tonne, is much higher than the cane prices, paid in the

major sugar producing and exporting countries, where it is

linked to sugar sales realisation and is also disbursed in 2 to

3 installments.

Tempted by such securitisation of price, farmers preferred to

increase area under cane causing spurt in cane acreage and

sugarcane production significantly. From a level of 154

million tonnes in 1980-81, the cane production increased to

241 million tonnes in 1990-91 and further to 296 million

tonnes in 2000-01. Since then it has been hovering around

300 million tonnes until last year. In the season 2003-04,

however, sugarcane production declined to 236 million

tonnes mainly due to drought.

Cane Utilisation

Not only cane acreage and cane production has been

increasing, even drawal of cane by the sugar industry has

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also been increasing over the years. For, in India sugarcane

is utilised by sugar mills as well as by traditional users like

gur and khandsari producers. In early 1980s, the proportion

of cane drawn by the sugar industry was hovering around

35% which went upto to 50% in 1990s and to as high as

69% in the year 2002-03. In the year 2003-04, percentage

drawal of cane, however, declined a bit due to more intense

competition from the alternate sweeteners gur and

khandsari. The table No. IV gives data on cane production

and cane utilization for different purposes.

Consumption Trends

Apart from white sugar, India also consumes alternate

sweeteners - jaggery and khandsari, which are placed at

about 9 million tonnes per annum. Taking into account all the

3 sweeteners i.e. white sugar, jaggery and khandsari, on a

per capita basis, Indian consumption stands at a reasonably

high figure. This would be evident from data of per capita

consumption of sugar in various countries given in the Table

No.V.

The consumption of white sugar in India is generally urban

based, in rural areas the alternate sweeteners gur and

khandsari are consumed predominately. The consumption of

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sugar in urban areas in some of the states of Indian union

with higher GDP and income levels, matches favourably with

various developed countries as given in Table No.VI.

Table No. IV

% Cane utilisation for

Year White sugar Gur and

khandsari

Seed, feed and

chewing

1980-81 33.4 54.8 11.8

1990-91 50.7 37.4 11.8

2000-01 59.7 28.8 11.5

2001-02 57.4 31.5 11.1

2002-03 68.9 20.1 11.0

2003-04 56.1 32.5 11.4

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Table No.V

PER CAPITA CONSUMPTION OF SUGAR IN VARIOUS

COUNTRIES

(Kilogram, Raw value)

Country 2000 2001 2002 2003

Australia 63.5 55.2 55.8 54.9

Brazil 57.5 57.7 60.2 58.0

E.U. 37.5 36.0 38.4 37.2

U.S.A. 32.6 31.5 32.4 30.3

Thailand 29.1 31.0 31.2 32.6

Japan 19.0 18.4 19.1 18.9

World Average 20.7 21.0 21.7 22.1

INDIA |Sugar| 16.5 17.5 17.5 18.0

INDIA |Cane based

Alternate Sweeteners|

10.0 9.0 9.0 9.0

Source: ISO Year Book

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Table No.VI

PER CAPITA CONSUMPTION OF SUGAR IN URBAN

INDIA

States Kgs. per annum

Punjab 71.5

Haryana 68.5

Maharashtra 40.9

Gujarat 40.9

Kerala 41.5

Uttar Pradesh 35.2

Tamil Nadu 29.1

Karnataka 23.3

All

India

31.5

Cogeneration

Cogeneration of power by sugar mills in India began a

decade back in the year 1993-94 with the Ministry of Non-

conventional Energy Sources (MNES) formulating its

guidelines for fixation of the rate of power supplied by sugar

mills to the Electricity Boards. With a small beginning by 8

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sugar mills generating 50 MW power, today, 48 units have

set up their power plants generating 680 MW power.

According to information currently available, an equal

number or say 50 sugar mills are in the process of putting up

power plants to produce yet another 700 MW, taking the

total generation to about 1400 MW against an assessed full

industry potential of 3500 MW. The State-wise breakup of

installed cogeneration capacity is given in Table No.VII.

Though, there have been problems mainly related to

acceptance and continuation of the power rates as per the

MNES guidelines as also with regard to actual payment

against power supply to the Electricity Boards. Yet as would

be evident, there has been appreciable growth and this trend

is likely to continue in future as well because of growing

demand for power in the country.

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Table No. VII

STATEWISE ANNUAL INSTALLED COGENERATION

CAPACITY

State Number of Units

Installed Capacity MW

Andhra

Pradesh

10 130

Karnataka 11 160

Tamil Nadu 14 255

Uttar

Pradesh

9 100

Punjab 1 10

Maharashtra 3 25

Total 48 680

Fuel Ethanol

Encouraged by the success of the pilot projects in the year

2000-01, the Minister for Petroleum and Natural Gas

announced in Indian Parliament in December 2001, the

Government's decision to implement the mixed fuel

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programme with ethanol in three phases. The

implementation of first phase (5% blend) was further sub-

divided into two parts, it has been taken up first in 9 States

and 4 Union Territories with effect from 1st October, 2003,

where sugarcane crop is being extensively grown. In the

second part, the rest of the country is to be covered. Under

this programme the requirement of fuel ethanol worked out

to roughly 350 million litres to go upto 500 million litres when

the entire country is covered. The Government have also

indicated the second and third phases of the ethanol

programme. In the second phase, the objective is to

increase the blending of ethanol to 10% with petrol. Apart

from ethanol, work had also begun on blending ethanol with

diesel.

Enough capacity has been created for production of ethanol

within a short period. Mostly, distilleries attached with sugar

mills have taken up this programme. Out of 295 distilleries,

as many as 118 distilleries are attached with sugar mills, of

them 70 have added new ethanol plant with production

capacity of over 700 million litres sufficient to meet 5% blend

for the entire country. The state wise position is given in

Table No. VIII.

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Table No. VIII

The state wise installed Ethanol production capacity

State/UT Requirement of Oil

Marketing Cos.

Availability in

the State & UT

Uttar Pradesh 51 190

Punjab 32 Nil

Haryana &

Chandigarh

24 Nil

Maharashtra 70 350

Gujrat, Daman Diu &

Dadra & Nagar Haveli

40 30

Goa 5 Nil

Andhra Pradesh 40 30

Karnataka 35 58

Tamil Nadu &

Pondicherry

48 52

Total 345 710

Besides 128 million litre capacity is under implementation in

UP and about 200 mln. litre capacity is under various stages

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of implementation in Maharashtra and other states making

the total capacity to over 1000 million litres sufficient to meet

the requirement at 10% ethanol blend under the second

phase. Following table gives the details of Ethanol

production at 90% utilisation of molasses for distillation from

2001-02 to 2003-04 and estimates upto 2006-07.

SEASONAL ETHANOL PRODUCTION AT 90 %

UTILISATION OF MOLASSES FOR DISTILLATION

Year Million litres

2001-2002 1620

2002-2003 1755

2003-04 1215

2004-05* 1140

2005-06* 1600

2006-07* 18 70

*Projected

However, the pricing of ethanol is an important issue which

needs further consideration particularly in view of the steep

decline in sugarcane and sugar production in the year 2003-

04 and 2004-05, thereby affecting the output of byproduct

molasses, which is being used for production of fuel ethanol

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in India. Moreover, the recent budget proposal for the year

2005-06 to hike the excise duty on molasses from Rs.500/-

to Rs. 1000/-per tonne is a matter of serious concern and

needs immediate reconsideration by the Government.

Fortunately, the use of ethanol as a blend fuel adopted by

most of the countries producing / exporting sugar is a

healthy development, which provide flexibility for the sugar

industry in those countries to absorb cane supplies for

production of ethanol, thereby balancing the sugar economy

and also ensuring the reasonable price structure for sugar.

Such corrections in the future will ensure a healthy growth of

the sugar industry.

India in the World Market

Indian approach towards export of sugar is vastly different

and market friendly. India has been exporting sugar

occasionally in periods of sugar surpluses. Whereas, most

other countries dump their excess sugar in the International

market despite easy accessibility to funds carrying low rate

of interest, the Indian sugar industry has observed

considerable constraint by limiting its exports. In the last five

years it exported 4.07 million tonnes sugar. India had an

average exportable surplus of 6.23 million tonnes during the

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last 5 years. As against this, on an average, the sugar

exported was only 0.81 million tonnes or 7.69% of the total

exportable surplus as would be evident from the data given

in Table No. IX.

Table No. IX

Exportable surplus, sugar stock & actual exports

Year

Closing

Stock

(Million

Tonnes)

Exportable

surplus

(Million

Tonnes)

Actual

Export

(Million

Tonnes)

% export

of surplus

stocks

1999-00 9.38 5.38 0.07 1.30

2000-01 10.4 6.4 1.2 18.75

2001-02 11.3 7.3 1.1 15.06

2002-03 11.6 7.6 1.5 19.73

2003-04 8.5 4.5 0.2 4.44

Average 10.23 6.23 0.81 7.69

Sugar exports, in a limited manner, were mostly confined to

the neighbouring countries. If India were to liquidate its huge

stocks in the international market, the world sugar prices

would have nose-dived effecting all exporting nations.

Disciplined Indian approach towards exports deserves

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consideration so as to bring about order in the world sugar

market, rather than resorting to subsidized exports.

Current Scene

Indian sugar sector having a large stake in the world sugar

economy, like on several occasions in the past, once again

found itself at cross roads. From an era of large production,

high surpluses and virtually unmanageable stocks, India has

turned into an importer of sugar, albeit of raw sugar, to meet

the gap between supply and demand thereof, following two

consecutive years of exceptionally low sugar output.

Reasons for this are not far to seek. Severe drought

conditions in Southern and Western India, in particular,

coupled with attack of pests and diseases, took heavy toll of

sugarcane crop during the year 2003-04 and the current

year 2004-05, with sugar output plummeting from over 20

million tonnes to 14 million tonnes in 2003-04 and to 12.5

million tonnes in 2004-05. Notwithstanding such a steep

decline in production, large opening stock of sugar once

considered as unbearable burden came in handy to reduce

the real deficit to around two million tonnes, which has been

met with raw sugar imports of equivalent quantity.

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Table X

SUPPLY AND DEMAND POSITION OF SUGAR

FOR THE SEASON 2003-04 AND ESTIMATES FOR 2004-

05 & 2005-06

(Figures in million tonnes)

2003-04 2004-05 2005-06

Opening stock 11.6 8.5 4.5

Production 14.0 12.5 17.5

Imports 0.55 2.0 1.5

Total availability 26.15 23.0 23.5

Off-take for

1. Internal

consumption 17.45 18.5 19.0

2. Export 0.2 - -

Total 17.65 18.5 19.0

Closing stocks 8.5 4.5 4.5

As would be evident from the above table, after meeting

adequately the projected demand for sugar, the carry

forward stocks at the end of sugar year 2004-05 would stand

at a reasonable figure of 4.5 million tonnes, equal to broadly

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three months' consumption requirement for the initial period

of 2005-06 sugar year.

However, for the first time, the new Government with its

farmer and rural area centric approach, evolved a policy for

import of raw sugar that has not only helped the sugar

economy, but has also helped to crossover the period of

aberrations in a manner that has protected all the three

major stake holders - sugarcane farmers, sugar industry as

well as the consumers.

Import of raw sugar, in fact, began in the previous season

2003-04 itself - initially under DFRC license against white

sugar exported out of the country, followed by fairly sizeable

imports under the "Advance Licensing Scheme" (ALS) of the

Commerce Ministry. No doubt, to facilitate import of raw

sugar, Government of India at the initiative of Ministry of

Agriculture and Food, relaxed certain stipulations by de-

linking grain to grain matching of raw sugar import with white

sugar export for fulfillment of export obligation. Further a

much longer period of 36 months has been allowed to fulfill

the export obligation as against the normal period of 24

months.

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Under the impetus of this scheme, sugar factories in

Southern India, Northern India as well as Western India

imported significant quantities of raw sugar to increase

availability of sugar for domestic consumption during the

sugar year 2004-05. Thus, availability of additional sugar

supply was fairly wide spread, although in Southern India

with higher imports, larger additional supplies of white sugar

became available. However, this did not cause any regional

imbalance considering the larger deficiency in supply in the

Southern and Western India.

In the table No. XI, the estimates for import of raw sugar

regionwise for the years 2003-04 to 2004-05 has been given.

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Table XI

REGION-WISE RAW SUGAR IMPORT

(Figures in Lakh Tonnes)

2003-

04(Oct.-

Sep.)

2004-05 (Oct.

2004 to 10th

Mar.2005)

Addl. Qty.

expected by

30th

Sept.

2005*

Karnataka 0.49 3.79 1.60

Tamil Nadu 3.65 2.78 1.30

Andhra

Pradesh

0.89 1.84 0.60

Uttar Pradesh 0.50 4.82 1.80

Maharashtra - 0.57 0.80

Bihar - 0.07 -

Total 5.53 13.87 6.10

*Projected

Future outlook

With reports of far more satisfactory sugarcane plantations,

sugar production for the season 2005-06 is likely to show a

quantum jump to about 17.5 million tonnes. Even so, fairly

significant quantity of raw sugar import will continue in the

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coming year provided the price of raw sugar in the

international market continues at reasonable levels. Import

of raw sugar under 'Advance Licensing Scheme' limits the

sugar industry alone to process the same to fulfill the export

obligation. Thus, imports more or less correspond with the

actual additional requirement of sugar to meet the projected

deficit in supply.

In the past, inadequate availability of sugar arising out of

decline in production was supplemented by way of additional

supplies through import of white sugar from the world

market. It is for the first time that the Government have

instituted the new policy of facilitating import of raw sugar

thereby placing greater reliance on the ability of the sugar

industry to process raw sugar and make additional supplies

of refined white sugar available for consumption in the

domestic market.

Sugar industry on its part has also responded to the needs

of the situation and discharged satisfactorily its

consequential obligation. The success of the new policy

clearly underlines that in future too whenever any such

occasion arises, emphasis would be laid on raw sugar import

rather opening up white sugar imports. Thus, a new demand

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driven policy has taken shape in the large interest of all

concerned within the sugar sector.

On the other hand, sugar has a long established

international market with sizeable volumes of over 45 million

tonnes being traded each year. Asian continent, Far East

and the Middle East region importing around 15 million

tonnes of sugar annually, provides an excellent means of

increasing our exports, specially in view of the steep

increase in the ocean freight in the recent past. Moreover,

India has a great potential to increase sugarcane and sugar

production 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 trade

policy akin to the one followed by other regular sugar

exporting countries. Larger production and higher sugar

exports on a regular basis may provide incidental added

value to the sugar sector and enable setting up of large

sugar complexes - producing clean energy i.e. ethanol and

power beside sugar, thereby ensuring adequate and timely

payment of sugarcane price to the millions of sugarcane

farmers.

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