The sugar industry's has significant social and economic impact for the nation as well. The sugar industry is a green industry and is largely self-sufficient in energy needs through utilisation of bagasse for generating electricity and steam. In fact, the sugar industry generates surplus exportable energy through cogeneration and contributes to reducing the energy deficit India is currently facing.
Primary source of alcohol
The sugar industry is also the primary source of raw material for the alcohol industry in India. The annual economic contribution of the sugar industry to the exchequer through principal indirect taxes amounts to more than Rs. 2800 crore.
 Sugarcane is primarily grown in nine states of India: Andhra Pradesh, Bihar, Gujarat, Haryana, Karnataka, Maharashtra, Punjab, Tamil Nadu and Uttar Pradesh. More than 50 million farmers and their families are dependent on sugarcane for their livelihood. The sugar industry caters to an estimated 12 per cent of rural population in these nine states through direct and indirect employment. Effectively, each farmer contributes to the production of 2.9 MT of sugar every year.
Also, the share of sugar production by private mills has been increasing. At present, sugar production from the private mills accounts for more than 54 per cent of the total production while the share of production from the cooperative mills has come down to 43 per cent from 57 per cent in 2001.This is due to the fact that the number of operational private mills has been steadily increasing since 2001, while the number of cooperative mills has remained stagnant. Also, the states of Maharashtra, Karnataka and Tamil Nadu, which have a high concentration of cooperative mills, were affected by pest attacks in 2003-04 apart from the drought that affected almost all cane producing states.
International scenario…
The world sugar trade accounts for around 36 per cent of the global sugar production. India is a marginal player in the world sugar trade market. The average volume of preferential trade is around 10 million MT of sugar annually. Brazil and EU dominate the world sugar trade. Australia and Thailand are other major sugar exporting countries.
Need to deregulate…
Globally, in most of the key geographies like Brazil and Thailand, regulations have a significant influence on the sugar sector. Perishable nature of cane, small farm land holdings and the need to influence domestic prices all have been the drivers for regulations.
S H Venkatramani, President CC, Bajaj Sugars, told IE, "in India, too, sugar is highly regulated. Since 1993, the regulatory environment has considerably eased, but sugar still continues to be an essential Commodity under the Essential Commodity Act."
There are regulations across the entire value chain-land demarcation, sugarcane price, sugarcane procurement, sugar production and sale of sugar by mills in domestic and international markets.
The Madras School of Economics (MSE) has also raised the need to reassess the weightage of sugar in the wholesale price index (WPI). As per MSE, the share of expenditure within a basket of consumption and investment goods can be used as an indicator for assessing the suitability of WPI weights. While the current weight for sugar and gur is 3.68 per cent, MSE suggests that the appropriate weight for sugar should be 2.02 per cent as per the current basis of WPI calculation that excludes services.
MSE further suggests that services should be included in the WPI calculation, and in that case the appropriate weight for sugar would be 1.04 per cent.
Per capita consumption of low income segments is nearly half that of high income segments. Even for low-income households, a 10 percent increase in sugar price results in less than 1 per cent increase in the monthly food expense.
The per capita sugar consumption increases with rise in income. At the lowest income levels, the average household sugar consumption is at 2.2 kg per month, while at the highest income levels the average household sugar consumption is at 5.11 kg per month.
The impact of sugar price variation is minimal on the monthly household expense, in case of direct consumption. At the lowest income level, a 10 per cent increase in sugar price increases the household expense by approximately Rs. 4 per month. At the highest income level, a 10 per cent increase in sugar price increases the household expense by approximately Rs. 10 per month. This translates to less than 1 per cent increase in the monthly food expense for any segment.
Sugar is regulated at the Central and state levels. Hence, it is also subject to conflicts that arise from diverse perspectives at the two governance levels. Some of these conflicts relate to announcement of the Statutory Minimum Price (SMP) and State Advised Price (SAP), incentive schemes, molasses control and cogeneration (MNESAct). For establishing a level playing field and for removal of regulatory distortions, such conflicts need to be resolved, says Venkatramani.
For the key sugar regulations, modifications have been suggested. The suggested modifications are broadly in line with the Mahajan committee recommendations.
A range by-products
Ethanol (E5, E10, E20 denote various grades of ethanol defined by their quality and end use).
In 2017, based on molasses availability, E5 is clearly feasible. E10, too, is achievable, but would need to be supported by ethanol production through B molasses or through direct conversion from cane juice. E 20, on the other hand, would also need a stable blending policy and consensus between oil companies, auto majors and sugar industry.
From a distillery capacity perspective, in 2017, additional 96 million litres would be needed for E5 and for the projected increase in industrial and potable 15 alcohols, while 965 million litres would be required in case of E10. The regulatory environment will need to facilitate the transition to higher blending programme through necessary changes that would be made to the Sugarcane Control Order. Higher levels of blending will also need mills having the flexibility to shift from sugar to ethanol, based on market dynamics.
Carbon trading opportunity
 By 2017, there is a total exportable power potential of approximately 9700 MW. This can fulfil almost 6 per cent of the additional power requirement of 128 GW by 2017. The sector can also generate 48 million carbon16 credits through cogeneration, say industry sources.
Presently, bagasse-based exportable power is 847 MW, but this could increase to approximately 9700 MW by 2017.The bagasse-based cogeneration is currently less than 0.6 per cent of the installed capacity, but can fulfil 6 per cent of the additional future requirement. There is a significant untapped cogen potential. This can help to partially bridge the energy gap that India faces.
There is a certain sense of dichotomy built into the industry which needs to be looked at.
 Because as the sector grows in stature and continues to play a key role in the economy, it is expected to face some significant challenges. There is lack of alignment between sugarcane and sugar prices. As a result, it leads to cane payment arrears.
The arrears typically result in the eventual need for government support packages, while the pronounced cyclicality destabilizes the sector revenues, claim sugar industry sources.
The average sugarcane yields have also, at best, stagnated and the average recovery is amongst the lowest in comparison with key sugar producing nations. Large sugar inventory exposure and sugar price volatility also results in high sugar price risk for the sector. In the past ten years, on an average basis, even the large listed sugar firms have struggled to generate return on invested capital (ROIC) over and above their cost of capital. This is primarily due to high mandated fixed cane prices and volatile sugar prices.
Industry at challenging times
 The Indian sugar industry is at the cross roads today, where it can leverage opportunities created by global shifts in sugar
trade as well as the emergence of sugarcane as a source of renewable energy, through ethanol and cogeneration.
While some of these opportunities have been well-researched in the past, there was a need to assess the potential for India and to develop a comprehensive and actionable roadmap that would enable the Indian industry to take its rightful place as a food and energy producer for one of the world's leading economies. |
