Sugar has been produced in the Indian subcontinent since ancient times and then it spread to other parts of the world. Sugarcane is a native of tropical Indian subcontinent and Southeast Asia. In India, sugarcane is planted thrice a year in October, March and July depending on part of the country. Most of the sugar production in India takes at local Cooperative Sugar mills. After gaining Independence, India made serious plans for overall industrial development of sugar industry.
Indian sugar mills association has estimated around 24 million tones sugar production in 2012-13 seasons. Indian sugar industry is highly fragmented with organized and unorganized players. The unorganized players mainly produce Gur and Khandari, the less refined forms of sugar. The government had a controlling grip over the industry, which has slowly yet steadily given way to liberalization. The production sugarcane is cyclical in nature. Hence the sugar production is also cyclical as it depends on the sugarcane production in the country.
At present, the government controls the sugar industry right from fixing the support price of sugarcane and allocating the monthly quota for mills to sale in the open market. The government levies a fee of Rs.240 per ton of sugar produced by mills to raise a Sugarcane Development Fund (SDF), which is used to support research, extension, and technological improvement in the sugar sector. The SDF is also often used to support sugar buffer stocks operations, provide a transport subsidy for sugar exports, and provide an interest subsidy on loans for the installation of power generation and ethanol production plants.
Moreover, currently, sugar mills are obliged to sell 10 per cent of their produce at a regulated price for the government’s public distribution system. Currently, the average open-market price of sugar is Rs 36,000 a tonne, while the government pays only Rs 19,050 a tonne to the mills for levy sugar. This does not even cover the cost of sugarcane, the raw material, above which mills have to incur processing costs, interest cost and wages Moreover; cane price has been going up sharply year-on-year, while there has been no corresponding increase in levy price. While imposing a levy obligation, the government also follows a hawkish strategy towards open market sugar prices. Every time prices go beyond a certain level, the government intervenes with additional sale quota. Under release mechanism, it is the government that decides the quantity each mill can sell every month.
So, on the one hand the central and state governments increase sugarcane price every year, on the other the Centre does it bit to keep sugar prices under check even though several studies have pointed that more than 60 per cent of sugar is consumed by bulk buyers like beverage manufacturers, pharma industry and confectioners.
Not just the price of sugar, but the price of sugar-cane is also regulated by the government through Statutory Minimum Price (SMP) which mill owners pay to the farmers. Thus, neither the price of sugar cane nor the price of sugar is determined by market forces leaving a very little elbow space for the industrialists. Since SMP determines the level of income of sugar-cane farmers, too low price of sugar cane may risk the lives of farmers, but somehow government may determine the price of sugarcane on the lines of minimum support price where if the market price of a crop falls below a certain level, government will buy any amount of crop at MSP. Though it may provide additional fiscal burden on the government but it may be instrumental in reforming the sugar industry.
India is located close to major sugar deficient markets. The Indian Ocean countries of Indonesia Bangladesh, Sri Lanka, Pakistan, Saudi Arabia, UAE and some East African countries are sugar deficient and import sugar regularly. India has a natural freight advantage to these countries due to its geographical proximity. Historically, India has exported sugar to the identified deficient countries. In case of surplus domestic production, India can expect to export to these geographies. At present, these countries import primarily from Brazil, Thailand, EU and Australia. Thailand, Australia and South Africa are present in only a few of the target countries, while Brazil and EU supply sugar to most of these deficient markets. These geographies would be the key competitors for India in the future.
At the current cost of production and world raw sugar prices, the Indian exports of raw sugar looks unavailable. However, the reduced cost of production and a sustainable cane price can improve India’s competitiveness for global trade. To be able to export to the target markets, India would need to improve its cost structure through productivity and efficiency improvements in the long term. In addition, to export raw sugar, mills would need to make the necessary investments.
Currently, India only produces plantation white sugar. Considering that export demand for raw sugar and refined sugar will increase going forward, India would need to develop the capability to produce these varieties in order to leverage the export opportunity.
Eduindex News 