India s Sugar Policy and the World Sugar Economy FAO International Sugar Conference, Fiji, 2012.

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1 India s Sugar Policy and the World Sugar Economy FAO International Sugar Conference, Fiji, August 2012

2 Theme of the Presentation 2 India s 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

3 Indian Share in global sugar production mln tn India World (P) 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

4 Indian Share in global sugar consumption mln tn Indian Share in global sugar consumption (P) 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

5 Per Capita consumption of India vis a vis Global avg kg ( in raw value terms Per Capita consumption of India vis a vis Global avg (P) 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

6 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 of handling exports Indian Share in global sugar export Indian Share in global sugar export mln tn (P) India World

7 Cyclical sugar trade in last 20 years Import ( lk tn) Exports ( lk tns)

8 Indian Sugar Export Destinations

9 The Indian Sugar Industry 9 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 mills 527 operated in Competition for cane from jaggery manufacturers 65% of sugar consumed by bulk consumers Located in rural heartland, directly contributes to rural economic development & employment

10 10 Indian Agriculture An Out growers Model Competiti on with other crops 60 Million farmers Average land holding 0.5 ha Out growers model Pricing of sugarcane Vis-à-vis other crops Farm yield Legal issues FRP Vs SAP Plant ratoon combination Monsoon/ Irrigation Farm Credit Agroclimatic

11 The Infamous Indian Sugar Cycle 11 Production trend of last ten years ( E) Sugar Production( lakh tons)

12 The Infamous Indian Sugar Cycle 12 Production- Consumption trend of last ten years ( E) Sugar Production( lakh tons) Sugar Consumption( Internal Releases) lakh tons

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

14 Cane Price Arrears vis-à-vis Sugar Inventory Cane Arrears( Rs. Cr) Sugar Inventory (lk tn) Sugar Inventory(lk tn) Cane Arrears( Rs. Cr.)

15 Controls on Indian Sugar Sector Minimum Distance Criteria between mills Levy Sugar Obligation on mills Cane Area Reservation GOVT. POLICIES Regulated Release Mechanism Dual Cane Pricing: Federal/ Provincial Provincial Govt. controls Compulsory sugar packing in jute only Import and Export Federal Govt. controls

16 Indian sugarcane prices are the highest in the world $ / tonne Avg. sugarcane prices prices from from Oct- Mar

17 Indian sugar price amongst the lowest in the world Rs. per kg Avg. sugar prices from Oct- Mar Most of the benefits goes to bulk consumers, who consume 65% of total sugar

18 Sugar Industry: Little Control Over Its Own Fate! 18 Raw Material: Its Price 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

19 What is India s Sugar Policy? 19 Mission Statement of Department of Food and PD : Ensuring availability of sugar Objective : Development/Promotion of sugar industry

20 Legacy of control 20 Essential Commodities Act, 1955 : Both sugar and sugarcane included as Essential Commodities; Sugar (Control) Order, 1966 Sugarcane (Control) Order, 1966 Sugar and sugarcane still essential commodities in 2012

21 Political Economy of sugar 21 Sugar price determined by Federal Government Sugarcane price decided by provincial governments. Consumer v/s Farmer debates Action or policy is reactionary

22 World sugar s view of India? 22 Trust deficit Is India a reliable player? Long term sugar policy vs. Short term breathers Market or Competitor Opportunities for investment

23 Key messages 23 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

24 Thank You

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