INDIA: END OF THE SUGAR CYCLE?

PRESENTED BY: ABINASH VERMA, DG, ISMA

Outline of Presentation
2

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

Sugar Production Cycle in last 10 years

3

28.4 26.4 24.4 26.0 24.0

20.1

18.5 18.5

19.3

18.9

13.5

14.5

12.7

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) Sugar Production in million tons

The year-wise swings: Since 2000-01

4

Period

No. of seasons

Range (mn tons)

Swing from previous high/low (mn tons)

Swing %

00-01 to 02-03 03-04 to 04-05 05-06 to 07-08 08-09 to 09-10 10-11 to 12-13

3 2 3 2 3

18.5 to 20.1 13.5 to 12.7 19.3 to 28.4 14.5 to 18.9 24.0 to 26.2 (-) 6.6 (+) 6.6 (-) 11.9 (+) 5.5 (-)33% (+)52% (-)42% (+)29%

ProductionConsumption in last ten years

5

Production (mln ton)

Consumption(mln ton)

Cyclical sugar trade in last 20 years.

6
4.956

Import ( mln tn)

Exports (mln tns)

2.6 1.767 1.728

3.5

1.021 0.562 0.411 0.01 0.063 -0.2 -0.935 -1.003 -2 0.419 0.069 0.022 0.066 -0.404

0.987 1.082 0.266 -0.124 -0.553 0.004

1.107
0.165 0.235

-2.138

-2.403

-4.08

Therefore, The Cycle is

7

Indian sugar production follows a 5 year cycle

2 2

to 3 year of high production; followed by to 3 years of low production; and vice versa .

Consumption growth is linear Results in huge swings in the sugar equation

Outline of Presentation
8

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

Sugar production dependant on ..

9

1.

Cane production
Area

under sugarcane & Rainfall

Weather
2.

Cane drawal by sugar industry

Price

of cane offered by sugar industry

Diversion
3.

into gur, khandsari etc.

Government policies

Fluctuations in cane area and production

10

6.00 5.00 4.00 3.00 2.00 1.00 0.00

600.0 500.0 400.0 300.0 200.0

Cane Area (mln. ha)

Cane Production (Mln.Tonnes)

100.0 0.0

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

Sugar Production & Sugar Price Price Trend

11

Sugar Production( mln tn)

30.00 3200 3000 2800 2600 2400 2200 2000 1800 1600 1400 1200 10.00 1000

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

12

4600 4185

3182

1800 1286 1031 745 209

1999-00 2000-01 2001-02 2002-03 2003-04 2004-05

1955

1216 752 215

2006-07 2007-08

231
2008-09 2009-10 2010-11 2011-12

2005-06

The Indian Sugar Cycle

High Sugar Production High Sugarcane Production Decline in sugar prices Lower Profitability/

losses

Good, timely cane price payments

High Cane price arrears

Decline in area under cane Improved Profitability High sugar prices Lower Sugar Production

Lower sugarcane production

Indian variability of Monsoons

40 35

Number of subdivisions

30

25

20

15

10

0 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Excess/Normal

Deficient/Scanty

Although 93% of Indias 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

Cane Yield
15

70.9
68.6 69 68.9 67.4 63.6 59.4 64.8

70 70.1 68.5 64.5

66.9

Yield (ton/ha)

Cane diversion for alternate sweeteners

400 350 300 250 mmt 200 150 100 50 -

Cane for Seed

For Jaggery

Cane for sugar

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

Cane drawal by sugar industry

78.6%

71.8%

72.0% 71.7%

67.6%

67.1%
63.5%

59.7%

60.7% 56.7% 52.6% 50.9%

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 20010-1120011-12

Policy Contribution to the Cyclicality

18

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

Cane Price Arrears vis--vis Sugar Inventory

19

2011-12
10000 9000 8000 200 180 160

7000
6000 5000 4000 3000 2000 1000 0 October November December January February March April May June

140
120 100 80 60 40 20 0

Sugar Inventory (lk tn)

Cane Arrears( Rs. Cr.)

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.

Outline of Presentation
20

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

ProductionConsumption in last ten years

21

Production (mln ton)

Consumption(mln ton)

ProductionConsumption in last ten years

22

2000-01

2001-02

2002-03

2003-04

Production (mln ton)

2004-05 2005-06

2006-07

2007-08

Consumption(mln ton)
2008-09 2009-10

2010-11

2011-12 2012-13(E)

Policy front .
23

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--vis cost of production

Government and public awareness and acceptance

Sugar Production & Sugar Price Price Trend

24

Sugar Production( mln tn)

30.00 3200 3000 2800 2600 2400 2200 2000 1800 1600 1400 1200 10.00 1000

Cane Price Arrears

25

4600 4185 3182

1800 1031 745 209

1999-00 2000-01 2001-02 2002-03 2003-04 2004-05

1955
1286 752 215
2005-06 2006-07 2007-08

1216
231
2008-09 2009-10 2010-11 2011-12

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

Diversion of cane and area

26

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

Outline of Presentation
27

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

Management of the Surplus: suggestions

28

Freedom from Government controls

Cane price sugar price linkage Freer trade policy Diversion of surplus cane into ethanol Diversion to alternate sweeteners

Outline of Presentation
29

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

Sugar Production Cycle in last 10 years

30

28.4 26.4 24.4 26.0 24.0

20.1

18.5 18.5

19.3

18.9

13.5

14.5

12.7

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) Sugar Production in million tons

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

31

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

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

32

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

Thank You