indian sugar giant: challenges and … sugar giant: challenges and opportunities abinash verma...
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INDIAN SUGAR GIANT:
CHALLENGES AND OPPORTUNITIES
ABINASH VERMA
DIRECTOR GENERAL, INDIAN SUGAR MILLS ASSOCIATION
25th
November, 2013, ISO - LONDON
Flow of Presentation……
Sugar Giant in many ways
Rangarajan Committee and Partial Control
Challenges to be overcome
Opportunities to be grabbed
Way forward for the Indian sugar sector
SUGAR GIANT IN MANY WAYS
2nd largest sugar producer
Consistently producing 25 mn tons in last 3 years, as also current SS
Largest number of cane farmers directly growing sugarcane
5 million farmers and their families grow 350 million tons of cane
Largest consumer of sugar in the world
Highest cane price paid per ton of sugarcane
695 sugar mills installed in the country
One of the largest exporters of sugar
3
CONTROL SCENARIO BEFORE APRIL 2013
Sugar sales
Levy sugar
Release mechanism
Export-import
Packing in jute bags
Cane controls
Cane pricing
Cane area reservation
Min. distance between mills
4
Rangarajan Committee recommendations on decontrol
Removal of levy sugar obligation from industry
Abolishing the regulated release mechanism for sugar sales
Export - Import policy – no quantity and time restrictions
Rationalisation of cane pricing policy
Linkage of cane price to value realised from sugar & by-products
Phasing out cane area reservation
Dispensing with “minimum distance criteria” between mills
Removal of controls on molasses & free up power sales
Removal of jute packing restrictions on sugar
5
PARTIAL DE-CONTROL SCENARIO
(POST-APRIL 2013)
Sugar sales
Levy sugar
Release mechanism
Export-import (thro’ tariff rates
only)
Packing in jute bags (only 40%)
Cane controls
Cane pricing
Cane area reservation
Min. distance between mills
6
CHALLENGES
Sugarcane pricing policy
Inflation
Production Cyclicality
Varieties of sugarcane
Life without sale quota
7
Challenges: Sugarcane Pricing (1/5)
Influenced by politics and not by economics
No relationship with revenue realisation
Results in high costs of production
Makes Indian sugar uncompetitive in the global market
Lack of margins for mills
Cane price arrears of farmers
8
Challenges: Inflationary condition
Governments are very sensitive to price increases
WPI inflation (Oct, 2013): 7%
Food inflation (Oct, 2013): 18.19%
Wholesale price index weightage:
Sugarcane : 0.63 %
Sugar : 1.73 %
Gur etc. : 0.07 %
Soft drinks & Carbonated water : 0.24 %
9
Cost of production & ex-mill sugar price (in North India)
10
High cane price increase in cost of production
outstripping pace of increase in ex-mill sugar price
2031
3225
2750
3200
3500
2288
2939
2812
3050 3150
1500
1700
1900
2100
2300
2500
2700
2900
3100
3300
3500
2008-09 2009-10 2010-11 2011-12 20012-13
Ex- Mill Vs Cost of Production
Cost of Sugar Production( INR/Qtl) Ex-Mill Rates (INR / Qtl)
Sugar Prices in this season……
2800
2900
3000
3100
3200
3300
3400
3500
Oct,2012 Nov,2012 Dec,2012 Jan,2013 Feb,2013 Mar,2013 Apr,2013 May,2013 Jun,2013 July,2013 Aug,2013 Sep,2013
Uttar Pradesh Maharashtra All India
Ex-mill Prices ( INR/Qlt) in 2012-13
Post De-control Period
11
Challenges: Cyclicality in sugar production
20.1
13.5 12.7
19.3
28.426.4
14.5
18.9
24.426.3
25.1 25.0
2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 (E)
Sugar Production (mln tons)12
Sometimes exporter : sometimes importer
13
-2
-0.2
-0.9 -1.0
-0.4-0.1
-0.6
-2.1-2.4
-4.1
0.0
0.70.6 0.40.0 0.1
1.0
0.40.1 0.0 0.1
1.0 1.1
1.8
0.30.0
1.1
1.7
5.0
0.2 0.2
2.6
3.4
0.35
-5
-4
-3
-2
-1
0
1
2
3
4
5
6
Imports(mln tons) Exports(mln tons)
Challenges: Cane varieties
Low cane yields and low sugar recoveries
Identification of suitable cane varieties
Adequate availability of varieties
Reaching the farmers
Convincing them to change varieties
Mechanisation in harvesting
14
Stagnant cane yields & Low sugar recovery
Challenges: No assured sale quota
No fixed monthly or quarterly sale quota for any mill
No assured market share
Strong competition from within the industry
Efficiencies, cost saving and sugar quality will be important parameters
for survival
A fragmented sugar industry having diverse interests
16
OPPORTUNITIES
Domestic Demand
Rationalisation of sugarcane pricing policy
Market strategies
Potential on cane side
Ethanol blending programme
Consolidation within the industry
17
Opportunities: Growing domestic demand
Per capita sugar consumption is just about 19 kilo, much
below the global per capita of 24 kilo
2/3rd of the consumption by bulk consumers, who are
themselves growing at a fast pace
India is one of the fastest growing economies and therefore,
income levels going up fast
Domestic consumption expected at 30-31 mn tons by 2020
Growth rate of about 4% per annum
18
Opportunities: Cane pricing
Linkage between cane price and revenue realisation
Will give an assured return to the millers on regular basis
Cane price arrears will get controlled
Control cyclicality in sugar production
19
Opportunities: Marketing strategies
Abolition of regulated release mechanism
No restriction on sale quantity and its timing
Growth of the domestic futures market
Integration of Indian commodity exchanges with world markets
Hedging: price and currency
Competition within the industry to grab share of the market
Timing of sale
Quality of the product
20
Opportunities: Potential in cane
One of the lowest yields in the world
Around 65 tons per hectare with large regional variations
One of the lowest sugar recoveries
Around 10% sugar recovery with large regional variations
Varietal replacement
Rejected varieties
Potential for vertical growth
Higher ratoon
21
Opportunities: Ethanol blending
Mandatory 5% ethanol blending with petrol
Demand for 1 billion litres of ethanol
All ethanol currently made from molasses only
Can be used as a major tool to balance sugar production
Additional 5% blending would require another 1 billion litres
Reduce surplus sugar production by 1.7 million tons
Improve cash flows
Improves returns on molasses as also sugar
22
The Challenges & Opportunities after decontrol
Efficiencies would become important
Consolidation in this very fragmented sector
Vast potential should attract investments
Rangarajan Committee has suggested that turnover of the
industry has potential to double in next 5 years
But, extremely important would be the rationalisation on cane
pricing policy across the country
23