SUGAR INDUSTRY IN INDIA: STATUS AND POLICY NEEDS INDIAN SUGAR MILLS ASSOCIATION, NEW DELHI

SUGAR INDUSTRY IN INDIA: STATUS AND POLICY NEEDS INDIAN SUGAR MILLS ASSOCIATION, NEW DELHI

Sugar Production & Consumption 2 284 283 280 lac tons 264 263 260 240 244 251 244 242 256 251 248 242 220 200 193 199 219 229 213 189 208 226 228 213 180 185 185 160 145 140 120 127 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 Sugar Produc on 2010-11 2011-12 2012-13 2013-14 Internal Consump on 2014-15 2015-16 (P) 2016-17 (E ) Production in surplus over consumption continuously for 6 years since 2010-11

Sugar trade from & to India 3 60 50 49.56 lac tons 40 30 20 10 0-10 17.67 10.82 2.66-1.24-5.53 0.04 11.07 17.28 1.65 2.35 26.00 29.92 21.27 3.48-0.98-6.76 11.01 16.56-20 -30-21.38-24.03-40 -50-40.80 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 (E ) Imports Exports Forcing India to export sugar in last 6 years, even to an unviable global market. Important to note that India still imported 7.75 lakh tons in the midst of surplus.

Average domestic sugar prices 4 Rs. per ton 7.75 lakh tons of imports in the midst of surplus in 12-13 & 13-14, got stuck in domestic market, further depressing the already low domestic sugar prices, for the next 2 years in 13-14 and 14-15. Recovery could happen only after 16 lakh tons exported with production subsidy from Govt. in 2015-16

Cane Price fixed by Government of India 5 250 255 225 200 Rs. per quintal 210 220 230 230 175 170 150 125 129.84 139.12 145 100 75 74.5 79.5 80.25 81.18 81.18 50 FRP has increased very steeply 3 times in 09-10, 12-13 and 13-14, which made FRP also unaffordable for the industry. The mistake seems to be getting repeated for 2017-18 SS FRP

Cost of production vs. Average ex-mill prices 6 Rs./quintal Cane prices increased steeply in 09-10, 12-13 & 13-14 Increasing cost of production Ex-mill sugar prices were depressed, thanks to surplus sugar, due to both high domestic production as also imports Sugar prices much lower to cost of production from 2013-14 to 2015-16 The Industry incurred massive losses

Cane price arrears accordingly reached record levels 7 Rs. Crore 18648 20099 12702 13530 8577 2011-12 2012-13 2013-14 2014-15 2015-16

Mismatch between sugar prices and cane prices 8 Currently FRP is fixed by GOI, and SAP by 5 States No link between cane and sugar prices/revenue realisation Cane price sometimes crosses even 90-100% of revenue realisation, leaving nothing for other liabilities In last 8-9 years, FRP has increased by almost 100% Sugar prices not kept pace at 20-25%; have even fallen in some years FRP has become unaffordable to sugar mills Other countries have a cane price sugar price linkage Cane price generally at 62-65% of revenue realised in those countries

FRP v/s average ex-mill price in last 5 years 9 Rs. per quintal 255 4000 225 220 230 230 3480 3500 195 2951 2727 2951 3148 210 2917 3121 3000 165 170 2492 2500 135 129.84 139.12 145 2000 1500 105 1000 75 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17( ll Jan'17) 500 FRP Ex-Mill Price

11 FRP of Sugarcane Vs MSP of Paddy & Wheat 2400 2300 2300 2200 2100 2200 2000 1800 1700 1600 1400 1200 1298 1100 1391 1120 1285 1450 1350 1250 1400 1310 1450 1360 1525 1410 1470 1000 1080 1000 1000 800 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 Paddy (Rs./qtl.) Sugarcane (Rs./ton) Wheat (Rs./qtl)

11 Rangarajan Committee recommendations Cane price should be automatically determined as per a linkage or revenue sharing formula (RSF), at: 70% of revenue from sugar & primary by-products or 75% of revenue from sugar alone Farmers to be guaranteed a minimum FRP as 1 st instalment If RSF is above FRP, a 2 nd instalment paid at end of the season

Implementing RR Committee recommendations 12 GOI allowed States to decide on the recommendations Maharashtra and Karnataka adopted RSF Working well for last 2 years or so U.P., Punjab, Haryana, Uttarakhand & Tamil Nadu continue to fix SAP unilaterally, at much higher levels CACP in last 3 years, has continuously recommended that Liability of mills be restricted at Revenue Sharing Formula And yet guarantee farmers to get at least FRP Hence, in years of low sugar prices, gap between FRP and RSF be filled from a Price Stabilisation Fund (PSF) created by Government

Price Stabilisation Fund (PSF): ISMA s suggestions 13 Source of funds: Cess on sugar Instead of cess going to SDF, can use it for PSF or SDF can be exclusively used for cane price shortfall Cess can be levied when ex-mill sugar prices are depressed Consumers will still pay retail price less than or equal to normal years Will also ensure a more stable retail price Win win for all stakeholders, including Government Re.1 per kilo cess will give Govt. Rs.2500 crore annually Equivalent to Rs.10 per quintal of cane price The payment from PSF can be made directly to farmers

Sugar mills need time to recover 14 Losses incurred during last 3-4 years Mills had to borrow money to fund losses, including to pay cane price of farmers Debt burden jumped from Rs.12,000 cr in 2007-08 to Rs.50,000 crore now The Rs.10,000 crore of Soft/SEFASU loans given (with interest subvention by Government) is due for repayment now Industry unable to service all debt burden simultaneously Companies becoming sick or becoming NPA accounts

Debt Restructuring 15 S4A scheme of RBI allows restructuring of debt For major industries with debt over Rs.500 crore and above Allows coversion of upto 50% debt into various instruments including non-convertible debentures etc. Request to get S4A scheme extended to sugar industry too Only modification required is reduction of threshold limit to Rs.100 crore since most sugar companies are in small/medium level This will give time to sugar industry to recover its losses and get back on its feet

Fuel grade ethanol 16 At 10% blending with petrol, 280 crore litres of ethanol reqd. Last year requirement was 266 crore litres Supplies were 111 crore litres @4.3% blending Against 280 crore litres reqt., 2 Rounds of EOI has given 78 crore litres of contracts for 2016-17 (Dec - Nov)

Policy changes and supplies 16 Fixed Price Policy Changed to market driven price policy Exemption from Central Excise Duty Changed to fixed price policy. Price not linked to crude oil/petrol price 1110.0 Excise waiver withdrawn. Procurement Price reduced 413.9 382.2 674.1 779.3 300.6 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 Policy Change Quantity Contracted (Million Litres)

Positive policies on ethanol & withdrawal later 18 There has been a flip-flop on ethanol policies and pricing Dec 2014 Cabinet decision is an important milestone Modi Govt. decided on a fixed pricing policy for ethanol Linked ethanol price to sugar price and delinked from crude oil price In July 2015, another positive decision taken to exempt ethanol from central excise duty of 12.5% However, these two positive decisions were suddenly reversed Ethanol prices reduced by Rs.2-3 per litre Excise duty waiver withdrawn in middle of contract period Has resulted in much lower ethanol offers for 2016-17 period

Ethanol supply constraints 19 Feedstock availability B-heavy molasses can be diverted from sugar to ethanol to give enough for even 15% blending, but require encouraging prices Ethanol production capacity Only 130 out of 530 mills have ethanol capacities Ethanol movement Taxes & duties by States and insistence of excise permits incorrect Reiterated by GOI by amending IDR Act in 2015 Stable policies, pricing and incentives required To attract investments as also ensure more feedstock for the purpose

Policy requests for ethanol 20 Restore excise duty waiver on ethanol and pass on benefit to sugar companies/ethanol manufacturers Ethanol price should be fixed not only to cover its producing cost, but should also give credit to Ethanol s property to control pollution and improve air quality Also that it improves returns of farmers And that it reduces net oil import bill

21 GST for sugar industry: Industry s requests On sugar, currently taxes & duties are around 2.5% GST on sugar should therefore, be at the lowest rate of 5% On sugarcane, no central tax or duty To ensure returns of farmers don t get affected, sugarcane be exempted Current excise duty on ethanol is 12.5% But considering its several benefits, including reducing air pollution, tax on ethanol should be minimal: GST on ethanol at lowest rate of 5% Cess on sugar currently at Rs.124 per quintal Cess be used for cane payment/ PSF; if not, should be subsumed

22 Current year 2016-17 sugar balance sheet Opening balance (as on 1 st Oct, 2016) Estimated sugar production 77.5 lakh tons 213 lakh tons Sugar availability during the season 290.5 lakh tons Estimated sugar consumption 242 lakh tons Closing balance (as on 30 th Sept, 2017) 48.5 lakh tons

23 Domestic requirement/ sugar sales Sugar despatches in Oct-Dec 2016 lower by 5.5 lakh tons than the sales last year Oct-Dec 2015 Field reports suggest sugar sales in Jan. 17 slow, and therefore will be lower to the 25 lakh sold in Jan 16 Last sugar season 2015-16, 248.5 lakh tons was sold Beverages, sweet makers etc. reporting lower sales/ growth Considering, 5.5 + less sales in Jan 17 + similar sales in balance 8 months, sugar desptaches in 16-17 at 242 lakh tons

What is a good opening stock of sugar on 1 st Oct?? 24 Traditional norm was 3 months sales i.e. for Oct-Dec months Oct-Dec 2016 it was 65.3 lakh tons, Oct-Dec 2017 was 59.8 lakh tons But that was under regulated release mechanism When there was a lag of at least 45 days between production and sale Production reported after month got over, & ROs issued for next month Nov. production was therefore available for sale only in January With no release mechanism, no lag b/w production & sale Sugar produced in Nov. is now available for sale in Nov itself In current season, 28 lakh tons produced in Oct-Nov New sugar is available in market from Nov. itself in full swing

Surplus sugar production expected next season 25 Good initial sowing reports, good rainfall & water availability Indicate surplus sugar production in 2017-18 Sugar production to be in full swing from end of Oct 17 30 lakh tons of new sugar expected in market in Oct-Nov 17 Sales in Oct-Nov in past has been 37-40 lakh tons Whereas OB on 1 st Oct 17, expected at 48.5 lakh tons (equivalent to 2.5 months consumption requirement)

26 ISMA will suggest on imports, if & when need arises No need for any sugar import or change in import duty now Final production nos. for 16-17 will be available by March-April Enough time of 4-5 months to decide on imports to supplement OB Imports would be required only if production and consumption numbers are significantly different to estimates Unrestricted and unnecessary imports will burden industry and farmers for several years as seen in past ISMA will be in constant touch with Government to To decide to import as & when the need arises, As also to decide on quantity and methodology of imports

Cost of production higher in current year 2016-17 27 Higher SAP for cane in North India Increased by States by 10-15% Drought in West and South India Lower production and sugar recovery means higher per unit cost As compared to cost of sugar of Rs.33 per kilo last year, the costs are therefore, higher at Rs.37.5 per kilo currently At these costs, retail sugar prices would also be higher Otherwise, cane price and bank loan repayments will fall in arrears Plus, FRP for next year proposed to be increased by 10% Will increase costs by another 10% next year

All India average ex-mill price of sugar vis-à-vis Cost of Production of sugar 3800 3600 CoP Rs. 3750/qtl. 3600 3400 CoP Rs. 3300/qtl 3450 3475 3456 3400 3200 CoP Rs. 3100/qtl 3170 3400 3000 3081 3067 2800 2950 2790 2910 2600 2618 2583 2400 2460 2405 2433 2200 2157 2000 All India Ex-Mill Prices

Concluding. 29 1. Cane price be determined as a Revenue Sharing Formula If it is below FRP, the gap be filled up from a Fund like PSF, Which in turn could be funded through a sugar cess 2. Debt of sugar industry be restructured under S4A By modifying threshold limit to Rs.100 crore 3. Ethanol price and excise duty waiver be restored States be convinced against State duties and excise permit requirement Can be started from BJP ruled States: Maharashtra, Haryana, Gujarat 4. GST: sugar & ethanol at 5%, cane exempted, Cess for PSF

Concluding.. 30 5. Adequate sugar availability in current 2016-17 season With healthy carry forward of 48.5 lakh tons for next season Enough for 2.5 months consumption requirement New season s sugar would be available in full swing by end Oct 17 No need of any imports or reduction in import duty 6. Cost of production of sugar is higher this year Retail prices would therefore be higher to last year by 10-15% Need to accept that costs will be higher next year by another 10% due to an increase in FRP for 2017-18 Hence sugar prices this year and next year will be higher

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