sugar industry

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agri-business sector analysis

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Sugar industry:

Sugar industry Presented by: A. Raj Shravanthi

Introduction:

Introduction Sugarcane is produced in 115 countries and is extracted from either sugarcane or sugarbeet . 70% of world sugar is extracted from sugarcane. Brazil, India, China , Thailand and Australia are the largest sugarcane producers. Sugar season in India starts from october and ends in september . Sugar production follows a cyclical pattern: it comprises of 3 surplus years and 2 years of deficit.

Sugarcane constituents:

Sugarcane constituents

Sugarcane usage:

Sugarcane usage

Value chain:

Value chain

Global Production and Consumption Scenario:

Global Production and Consumption Scenario

Indian Scenario:

Indian Scenario Sugarcane is produced in 19 states. Largest producers are: UP(30%), Maharashtra (27%), Tamilnadu & karnataka (10%), AP & Gujarat (6%) Recovery achieved by west and south Indian states is higher than that achieved by north Indian States. Sugarcane mills in India fall under 3 categories Public (6%) Private (41%) Cooperative (53%)

Sugar crop Calendar in India:

Sugar crop Calendar in India Sugarcane crop in Maharashtra is classified under three categories depending on the season in which they are sown: Adsali (18 month crop); Pre-monsoon (15 month crop); Suru (12 month crop). Out of these three varieties adsali is the dominant crop and constitutes around 75% of total sugarcane crop in Maharashtra. Sugarcane crop in Uttar Pradesh has a maturity period of 8 to 10 month. Sugar marketing year in India starts from October and extends till September. Major crushing period is November to April.

Consumption amongst sugar buyers in India:

Consumption amongst sugar buyers in India A major portion of the Sugar produced is consumed by Sweet meat industry. Only 22% of the total sugar production is used for household purposes; whereas the remaining 78% is used by various industries.

Sugarcane pricing:

Sugarcane pricing The Central Government fixes the Fair and Remunerative Price (FRP) for sugarcane. Some of the State Governments announce State Advised Prices (SAPs) for sugarcane, generally higher than the FRP.

Monthly release mechanism:

Monthly release mechanism Government controls the release of sugar from mills in market every month by the quota mechanism. Mills' have to sell10% of the quota to government for PDS (Public Distribution system) known as Levy Quota and the rest of the quota is allowed to be sold at market price, known as Non Levy Quota/free sale quota.

Foreign Trade Policy:

Foreign Trade Policy Exports & Imports are government controlled. Recovery Sugar recovery rate from Sugarcane ranges between 9% to 12% .

Related Products:

Related Products Ethanol is an environment friendly automotive tool and is obtained from molasses distillation. Government of India has mandated 5 per cent blending of ethanol with petrol in India and plans to increase the ethanol blending ratio to 20% by 2017 There exists a co‐movement between sugar and crude oil prices because of the strong link between ethanol and sugar production in Brazil (38% of world exports and 19.5% of production) At the world level currently, it is estimated that about 15 percent of sugar crops are converted into ethanol rather than sugar.

Stock holding and Turnover Limits:

Stock holding and Turnover Limits Stock holding limit is the maximum amount of sugar that can be stocked by a trader. Presently stock holding limit is 500 MT per license.

Current regulations in sugar sector:

Current regulations in sugar sector In1998- licensing requirement for new sugar mills was abolished. This caused the installed capacity in the sugar sector to grow at 7% annually (1998-99 to 2011-12) 3.3% annually (1990-91 to 1997-98. ) There was Structural transformation in the sugar industry. 1997-98: sugar cooperatives dominated 2011-12: private sector contributed the largest share of total installed capacity.

PowerPoint Presentation:

The principal aspects regulated in the sugar sector, the issues that arise due to such regulations are as follows: Cane reservation area and bonding Minimum distance criterion Price of sugarcane Levy sugar obligations Regulated release of non-levy sugar Trade policy for sugar Regulations relating to by products Other issues

Cane reservation area and bonding ::

Cane reservation area and bonding : Mill is obligated to purchase from cane farmers within the cane reservation area & farmers are bound to sell to the mill. This ensures a minimum supply of cane to a mill, while committing the mill to procure at a minimum price. However, this arrangement reduces the bargaining power of the farmer. He is forced to sell to a mill even if there are cane arrears Mills lose flexibility in augmenting cane supplies, especially when there is a shortfall in sugarcane production in the cane reservation area.

Minimum distance criterion:

Minimum distance criterion Under the Sugarcane Control Order, the central government has prescribed a minimum radial distance of 15 km between any two sugar mills. This regulation is expected to ensure a minimum availability of cane for all mills. However, this criterion often causes distortion in the market. The virtual monopoly over a large area can give the mills power over farmers, especially where landholdings are smaller.

Price of sugarcane :

Price of sugarcane The central government fixes a minimum price, the Fair and Remunerative Price (FRP) that is paid by mills to farmers. States can also intervene in sugarcane pricing with a State Advised Price (SAP) to strengthen farmers interests. Typically, SAP is higher than FRP.

Levy sugar obligation :

Levy sugar obligation Every sugar mill mandatorily surrenders 10% of its production to the central government at a price lower than the market price – this is known as levy sugar. This enables the central government to get access to low cost sugar stocks for distribution through PDS. At present prices, the centre saves about Rs 3,000 crore on account of this policy, the burden of which is borne by the sugar sector. A price lower than the open market price implies lower returns for mills, which eventually impacts cane payments to farmers.

Regulated release of non-levy sugar :

Regulated release of non-levy sugar The central government allows the release of non-levy sugar into the market on a periodic basis. Currently, release orders are on a quarterly basis. Thus, sugar produced over the four-to-six month sugar season is sold throughout the year by distributing the release of stock evenly across the year.

Trade policy for sugar :

Trade policy for sugar The government has set controls on both exports and imports. These controls are imposed after taking into account the domestic availability, demand and price of sugarcane. A number of cascading import controls and export permits are used to achieve this. As a result, India‟s trade in the world trade of sugar is small. Even though India contributes 17% to global sugar production (second largest producer in the world), its share in exports is only 4%.

Regulations relating to by-products :

Regulations relating to by-products Certain restrictions have been placed on by-products of sugarcane such as molasses and bagasse . State governments fix quotas for different end uses of molasses and restrict their movement, particularly across state boundaries. Some states have also imposed restrictions on the mills that can sell power generated from bagasse to users other than the local power utility.

Other issues :

Other issues The Jute Packaging Materials (Compulsory use in Packing Commodities) Act, 1987 (JPMA) mandates that sugar be packed only in jute bags. The sugar industry estimates that this leads to an increase in cost by about 40 paise per kg of sugar besides adversely impacting quality.

References::

References: NCDEX Sugar report (2012) “Report of the committee on the regulation of sugar sector in India” by PRS legislative research (2012) “India’s Sugar Industry: Analysing Domestic Demand and Recent Trends” by Ministry of Agil & Indian institute of foreign trade (2011)

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