SUGAR INDUSTRY IN INDIA: STATUS AND POLICY NEEDS · 2017-01-27 · Mismatch between sugar prices...
Transcript of SUGAR INDUSTRY IN INDIA: STATUS AND POLICY NEEDS · 2017-01-27 · Mismatch between sugar prices...
SUGAR INDUSTRY IN INDIA:
STATUS AND POLICY NEEDS
INDIAN SUGAR MILLS ASSOCIATION, NEW DELHI
Sugar Production & Consumption
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127
193
284
264
145
189
244
263
251244
283
251
213
185 185
199
219
229
213208
226 228
242
256248
242
120
140
160
180
200
220
240
260
280
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
2015-16(
P)
2016-17(
E)
SugarProduc on InternalConsump on
lactons
Production in surplus over consumption continuously for 6 years since 2010-11
Sugar trade from & to India
-1.24-5.53
-21.38-24.03
-40.80
-6.76
-0.98
10.82
17.67
2.660.04
11.07
17.28
49.56
1.65 2.35
26.0029.92
3.48
21.27
11.01
16.56
-50
-40
-30
-20
-10
0
10
20
30
40
50
60
2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16(E )
Imports Exports
lac tons
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Forcing India to export sugar in last 6 years, even to an unviable global market.
Important to note that India still imported 7.75 lakh tons in the midst of surplus.
Average domestic sugar prices
4Rs. per ton
7.75 lakh tons of imports in the midst of surplus in 12-13 & 13-14, got stuck in domestic
market, further depressing the already low domestic sugar prices, for the next 2 years in
13-14 and 14-15.
Recovery could happen only after 16 lakh tons exported with production subsidy from
Govt. in 2015-16
74.579.5 80.25 81.18 81.18
129.84
139.12145
170
210
220
230 230
255
50
75
100
125
150
175
200
225
250
FRP
5
Rs. per quintal
Cane Price fixed by Government of India
FRP has increased very steeply 3 times in 09-10, 12-13 and 13-14, which made FRP
also unaffordable for the industry.
The mistake seems to be getting repeated for 2017-18 SS
Cost of production vs. Average ex-mill prices
6Rs./quintal
• Cane prices increased steeply in 09-10, 12-13 & 13-14
• Increasing cost of production
• Ex-mill sugar prices were depressed, thanks to surplus sugar, due to both high
domestic production as also imports
• Sugar prices much lower to cost of production from 2013-14 to 2015-16
• The Industry incurred massive losses
Cane price arrears accordingly reached record levels
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8577
12702
1864820099
13530
2011-12 2012-13 2013-14 2014-15 2015-16
Rs. Crore
Mismatch between sugar prices and cane prices
Currently FRP is fixed by GOI, and SAP by 5 States
No link between cane and sugar prices/revenue realisation
Cane price sometimes crosses even 90-100% of revenue realisation,
leaving nothing for other liabilities
In last 8-9 years, FRP has increased by almost 100%
Sugar prices not kept pace at 20-25%; have even fallen in
some years
FRP has become unaffordable to sugar mills
Other countries have a cane price – sugar price linkage
Cane price generally at 62 - 65% of revenue realised in those countries
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FRP v/s average ex-mill price in last 5 years
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129.84
139.12 145
170
210
220
230 230
2951
2727
2951
3148
2917
2492
3121
3480
500
1000
1500
2000
2500
3000
3500
4000
75
105
135
165
195
225
255
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15 2015-1
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2016-17( llJan'1
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FRP Ex-MillPrice
Rs. per quintal
FRP of Sugarcane Vs MSP of Paddy & Wheat
1000 1000
1080
1250
13101360
1410
14701298
1391
1450
1700
2100
2200
2300 2300
1100 1120
1285
13501400
1450
1525
800
1000
1200
1400
1600
1800
2000
2200
2400
2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17
Paddy (Rs./qtl.) Sugarcane (Rs./ton) Wheat (Rs./qtl)
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Rangarajan Committee recommendations
Cane price should be automatically determined as per a
linkage or revenue sharing formula (RSF), at:
70% of revenue from sugar & primary by-products or
75% of revenue from sugar alone
Farmers to be guaranteed a minimum FRP as 1st instalment
If RSF is above FRP, a 2nd instalment paid at end of the season
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Implementing RR Committee recommendations
GOI allowed States to decide on the recommendations
Maharashtra and Karnataka adopted RSF
Working well for last 2 years or so
U.P., Punjab, Haryana, Uttarakhand & Tamil Nadu continue to
fix SAP unilaterally, at much higher levels
CACP in last 3 years, has continuously recommended that
Liability of mills be restricted at Revenue Sharing Formula
And yet guarantee farmers to get at least FRP
Hence, in years of low sugar prices, gap between FRP and RSF be filled
from a Price Stabilisation Fund (PSF) created by Government
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Price Stabilisation Fund (PSF): ISMA’s suggestions
Source of funds: Cess on sugar
Instead of cess going to SDF, can use it for PSF
or SDF can be exclusively used for cane price shortfall
Cess can be levied when ex-mill sugar prices are depressed
Consumers will still pay retail price less than or equal to normal years
Will also ensure a more stable retail price
Win win for all stakeholders, including Government
Re.1 per kilo cess will give Govt. Rs.2500 crore annually
Equivalent to Rs.10 per quintal of cane price
The payment from PSF can be made directly to farmers
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Sugar mills need time to recover
Losses incurred during last 3-4 years
Mills had to borrow money to fund losses, including to pay cane price
of farmers
Debt burden jumped from Rs.12,000 cr in 2007-08 to
Rs.50,000 crore now
The Rs.10,000 crore of Soft/SEFASU loans given (with
interest subvention by Government) is due for repayment now
Industry unable to service all debt burden simultaneously
Companies becoming sick or becoming NPA accounts
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Debt Restructuring
S4A scheme of RBI allows restructuring of debt
For major industries with debt over Rs.500 crore and above
Allows coversion of upto 50% debt into various instruments including
non-convertible debentures etc.
Request to get S4A scheme extended to sugar industry too
Only modification required is reduction of threshold limit to Rs.100
crore since most sugar companies are in small/medium level
This will give time to sugar industry to recover its losses and
get back on its feet
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Fuel grade ethanol
At 10% blending with petrol, 280 crore litres of ethanol reqd.
Last year requirement was 266 crore litres
Supplies were 111 crore litres @4.3% blending
Against 280 crore litres reqt., 2 Rounds of EOI has given 78
crore litres of contracts for 2016-17 (Dec - Nov)
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Policy changes and supplies
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2011-12 2012-13 2013-14 2014-15 2015-16 2016-17
Policy Change Quantity Contracted (Million Litres)
Fixed Price Policy
Changed to market driven price policy
Exemption from Central Excise Duty
Changed to fixed price policy. Price not linked to crude
oil/petrol price
Excise waiver withdrawn.
Procurement Price reduced
674.1 413.9 382.2
300.6
779.3
1110.0
Positive policies on ethanol & withdrawal later
There has been a flip-flop on ethanol policies and pricing
Dec 2014 Cabinet decision is an important milestone
Modi Govt. decided on a fixed pricing policy for ethanol
Linked ethanol price to sugar price and delinked from crude oil price
In July 2015, another positive decision taken to exempt
ethanol from central excise duty of 12.5%
However, these two positive decisions were suddenly reversed
Ethanol prices reduced by Rs.2-3 per litre
Excise duty waiver withdrawn in middle of contract period
Has resulted in much lower ethanol offers for 2016-17 period
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Ethanol supply constraints
Feedstock availability
B-heavy molasses can be diverted from sugar to ethanol to give enough
for even 15% blending, but require encouraging prices
Ethanol production capacity
Only 130 out of 530 mills have ethanol capacities
Ethanol movement
Taxes & duties by States and insistence of excise permits incorrect
Reiterated by GOI by amending IDR Act in 2015
Stable policies, pricing and incentives required
To attract investments as also ensure more feedstock for the purpose
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Policy requests for ethanol
Restore excise duty waiver on ethanol and pass on benefit to
sugar companies/ethanol manufacturers
Ethanol price should be fixed not only to cover its producing
cost, but should also give credit to
Ethanol’s property to control pollution and improve air quality
Also that it improves returns of farmers
And that it reduces net oil import bill
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GST for sugar industry: Industry’s requests
On sugar, currently taxes & duties are around 2.5%
GST on sugar should therefore, be at the lowest rate of 5%
On sugarcane, no central tax or duty
To ensure returns of farmers don’t get affected, sugarcane be exempted
Current excise duty on ethanol is 12.5%
But considering its several benefits, including reducing air pollution,
tax on ethanol should be minimal: GST on ethanol at lowest rate of 5%
Cess on sugar currently at Rs.124 per quintal
Cess be used for cane payment/ PSF; if not, should be subsumed
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Current year 2016-17 sugar balance sheet
Opening balance
(as on 1st Oct, 2016)
77.5 lakh tons
Estimated sugar production 213 lakh tons
Sugar availability during the season 290.5 lakh tons
Estimated sugar consumption 242 lakh tons
Closing balance
(as on 30th Sept, 2017)
48.5 lakh tons
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Domestic requirement/ sugar sales
Sugar despatches in Oct-Dec 2016 lower by 5.5 lakh tons than
the sales last year Oct-Dec 2015
Field reports suggest sugar sales in Jan. ‘17 slow, and
therefore will be lower to the 25 lakh sold in Jan ‘16
Last sugar season 2015-16, 248.5 lakh tons was sold
Beverages, sweet makers etc. reporting lower sales/ growth
Considering, 5.5 + less sales in Jan ‘17 + similar sales in
balance 8 months, sugar desptaches in 16-17 at 242 lakh tons
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What is a good opening stock of sugar on 1st Oct??
Traditional norm was 3 months sales i.e. for Oct-Dec months
Oct-Dec 2016 it was 65.3 lakh tons, Oct-Dec 2017 was 59.8 lakh tons
But that was under regulated release mechanism
When there was a lag of at least 45 days between production and sale
Production reported after month got over, & ROs issued for next month
Nov. production was therefore available for sale only in January
With no release mechanism, no lag b/w production & sale
Sugar produced in Nov. is now available for sale in Nov itself
In current season, 28 lakh tons produced in Oct-Nov
New sugar is available in market from Nov. itself in full swing
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Surplus sugar production expected next season
Good initial sowing reports, good rainfall & water availability
Indicate surplus sugar production in 2017-18
Sugar production to be in full swing from end of Oct’17
30 lakh tons of new sugar expected in market in Oct-Nov ’17
Sales in Oct-Nov in past has been 37-40 lakh tons
Whereas OB on 1st Oct ‘17, expected at 48.5 lakh tons (equivalent to
2.5 months consumption requirement)
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ISMA will suggest on imports, if & when need arises
No need for any sugar import or change in import duty now
Final production nos. for 16-17 will be available by March-April
Enough time of 4-5 months to decide on imports to supplement OB
Imports would be required only if production and
consumption numbers are significantly different to estimates
Unrestricted and unnecessary imports will burden
industry and farmers for several years as seen in past
ISMA will be in constant touch with Government to
To decide to import as & when the need arises,
As also to decide on quantity and methodology of imports
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Cost of production higher in current year 2016-17
Higher SAP for cane in North India
Increased by States by 10-15%
Drought in West and South India
Lower production and sugar recovery means higher per unit cost
As compared to cost of sugar of Rs.33 per kilo last year,
the costs are therefore, higher at Rs.37.5 per kilo currently
At these costs, retail sugar prices would also be higher
Otherwise, cane price and bank loan repayments will fall in arrears
Plus, FRP for next year proposed to be increased by 10%
Will increase costs by another 10% next year
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All India average ex-mill price of sugar vis-à-vis Cost of Production of sugar
3081 3067
2950
2790
2618
2460
2405
2157
2433
2583
2910
3170
3400
3450
3475 3456
3400
3600
2000
2200
2400
2600
2800
3000
3200
3400
3600
3800
All India Ex-Mill Prices
CoP Rs. 3100/qtl
CoP Rs. 3300/qtl
CoP Rs. 3750/qtl.
Concluding ….
1. Cane price be determined as a Revenue Sharing Formula
If it is below FRP, the gap be filled up from a Fund like PSF,
Which in turn could be funded through a sugar cess
2. Debt of sugar industry be restructured under S4A
By modifying threshold limit to Rs.100 crore
3. Ethanol price and excise duty waiver be restored
States be convinced against State duties and excise permit requirement
Can be started from BJP ruled States: Maharashtra, Haryana, Gujarat
4. GST: sugar & ethanol at 5%, cane exempted, Cess for PSF
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Concluding…..
5. Adequate sugar availability in current 2016-17 season
With healthy carry forward of 48.5 lakh tons for next season
Enough for 2.5 months consumption requirement
New season’s sugar would be available in full swing by end Oct ‘17
No need of any imports or reduction in import duty
6. Cost of production of sugar is higher this year
Retail prices would therefore be higher to last year by 10-15%
Need to accept that costs will be higher next year by another 10% due
to an increase in FRP for 2017-18
Hence sugar prices this year and next year will be higher
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Thank you