Cane sugar production is major agro-indstry in India

1. SUGAR SITUATION
Introduction:
India is the largest consumer of sugar in the world and
Indian sugar industry is the 2nd largest agro-industry located
in the rural India. With 453 operating sugar mills in different
parts of the country, Indian sugar industry has been a focal
point for socio-economic development in the rural areas.
About 50 million sugarcane farmers and a large number of
agricultural labourers are involved in sugarcane cultivation
and ancillary activities, constituting 7.5% of the rural
population. Besides the industry provides employment to
about 2 million skilled/semi skilled workers and others mostly
from the rural areas. The industry not only generates power
for its own requirement but surplus power for export to the
grid based on byproduct bagasse. It also produces ethanol,
an eco-friendly and renewable energy for blending with
petrol. Following table gives the details of impressive
contribution of the Indian sugar industry to the national
economy.
1

2. Table I
NATIONAL ECONOMY
No. of Working Sugar 453
Factories
Cane Price Per Tonne US$ 20
Cane Price paid annually US$ 3700 Million
No. of cane farmers 50 Million
Sugar Production 20.0 Million Tonnes (Raw
Value)
Annual Tax contribution to US $ 500 Million
exchequer
Employment including ancillary 2 Million People
activities
Fuel Ethanol of 5% blend US $ 200 Million per
(Value) annum
Current export of Co-generated US $ 100 Million per
power (Value) annum
Growth in Capacity
Indian sugar industry has grown horizontally with large
number of small sized sugar plants set up throughout the
country as opposed to the consolidation of capacity in the
2

3. rest of the important sugar producing countries, where
greater emphasis has been laid on larger capacity of sugar
plants. The average cane crushing capacity in India, Brazil
and Thailand is given below:
Country Avg. Capacity (TCD)
Thailand 10300
Brazil 9200
India 3500
The Government of India licensed new units with an initial
capacity of 1250 TCD upto 1980s which was subsequently
increased to 2500 TCD. Government de-licensed the sugar
sector in August 1998, thereby removing the restrictions on
expansion of existing capacity as well as on establishment of
new units, with the only stipulation that a minimum distance
of 15 Kms would continue to be observed between an
existing sugar mill and a new mill. The number of sugar mills
and the growth in capacity over decennial period 1980-81 to
2000-01 and in the year 2001-02 to 2003-04 is given in
Table No. II.
3

4. Table No. II
GROWTH IN AVERAGE CAPACITY OF SUGAR MILLS
Decennial period No. of Units Average Capacity
ending Per Unit (TCD)
1980-81 299 1650
1990-91 377 2030
2000-01 423 3000
2001-02 437 3200
2002-03 433 3350
2003-04 453 3500
Cane Acreage & Production
Sugarcane occupies about 2.7% of the total cultivated area
and it is one of the most important cash crops in the country.
The area under sugarcane has gradually increased over the
years mainly because of much larger diversion of land from
other crops to sugarcane by the farmers for economic
reasons. The cane area has, however, declined in the year
2003-04 mainly due to drought and pest attacks.
4

5. Table III
SUGARCANE AREA AND PRODUCTION
FROM 1980-81 TO 2000-01 & UPTO 2003-04
Year Area under cane Cane Production
(Million hectares) (Million tonnes)
1980-81 2.67 154
1990-91 3.69 241
2000-01 4.32 296
2001-02 4.41 297
2002-03 4.36 282
2003-04 3.99 236
Unlike sugarcane, where the farmers are assured of a
minimum price by way of a statutory order issued by the
Government, in respect of all other agricultural crops
including food grains, the Government of India only
announces the minimum support prices (MSP). On the other
hand, with statutory protection, sugarcane farmers receive
the price as statutorily notified from the sugar mills even
when it resulted in sizable loss to the sugar undertakings.
5

6. Apart from fixation of statutory minimum price for sugarcane,
the industry is also required to share 50% of the extra
realisation on free sale sugar over the levy price with the
cane farmers. Delay in making the cane price payment over
15 days also attracts 15% penal interest. For the season
2003-04, the average sugarcane price paid being Rs.950/-
per tonne, is much higher than the cane prices, paid in the
major sugar producing and exporting countries, where it is
linked to sugar sales realisation and is also disbursed in 2 to
3 installments.
Tempted by such securitisation of price, farmers preferred to
increase area under cane causing spurt in cane acreage and
sugarcane production significantly. From a level of 154
million tonnes in 1980-81, the cane production increased to
241 million tonnes in 1990-91 and further to 296 million
tonnes in 2000-01. Since then it has been hovering around
300 million tonnes until last year. In the season 2003-04,
however, sugarcane production declined to 236 million
tonnes mainly due to drought.
Cane Utilisation
Not only cane acreage and cane production has been
increasing, even drawal of cane by the sugar industry has
6

7. also been increasing over the years. For, in India sugarcane
is utilised by sugar mills as well as by traditional users like
gur and khandsari producers. In early 1980s, the proportion
of cane drawn by the sugar industry was hovering around
35% which went upto to 50% in 1990s and to as high as
69% in the year 2002-03. In the year 2003-04, percentage
drawal of cane, however, declined a bit due to more intense
competition from the alternate sweeteners gur and
khandsari. The table No. IV gives data on cane production
and cane utilization for different purposes.
Consumption Trends
Apart from white sugar, India also consumes alternate
sweeteners - jaggery and khandsari, which are placed at
about 9 million tonnes per annum. Taking into account all the
3 sweeteners i.e. white sugar, jaggery and khandsari, on a
per capita basis, Indian consumption stands at a reasonably
high figure. This would be evident from data of per capita
consumption of sugar in various countries given in the Table
No.V.
The consumption of white sugar in India is generally urban
based, in rural areas the alternate sweeteners gur and
khandsari are consumed predominately. The consumption of
7

8. sugar in urban areas in some of the states of Indian union
with higher GDP and income levels, matches favourably with
various developed countries as given in Table No.VI.
Table No. IV
% Cane utilisation for
Year White sugar Gur and Seed, feed and
khandsari chewing
1980-81 33.4 54.8 11.8
1990-91 50.7 37.4 11.8
2000-01 59.7 28.8 11.5
2001-02 57.4 31.5 11.1
2002-03 68.9 20.1 11.0
2003-04 56.1 32.5 11.4
8

9. Table No.V
PER CAPITA CONSUMPTION OF SUGAR IN VARIOUS
COUNTRIES
(Kilogram, Raw value)
Country 2000 2001 2002 2003
Australia 63.5 55.2 55.8 54.9
Brazil 57.5 57.7 60.2 58.0
E.U. 37.5 36.0 38.4 37.2
U.S.A. 32.6 31.5 32.4 30.3
Thailand 29.1 31.0 31.2 32.6
Japan 19.0 18.4 19.1 18.9
World Average 20.7 21.0 21.7 22.1
INDIA |Sugar| 16.5 17.5 17.5 18.0
INDIA |Cane based 10.0 9.0 9.0 9.0
Alternate Sweeteners|
Source: ISO Year Book
9

10. Table No.VI
PER CAPITA CONSUMPTION OF SUGAR IN URBAN
INDIA
States Kgs. per annum
Punjab 71.5
Haryana 68.5
Maharashtra 40.9
Gujarat 40.9
Kerala 41.5
Uttar Pradesh 35.2
Tamil Nadu 29.1
Karnataka 23.3
All 31.5
India
Cogeneration
Cogeneration of power by sugar mills in India began a
decade back in the year 1993-94 with the Ministry of Non-
conventional Energy Sources (MNES) formulating its
guidelines for fixation of the rate of power supplied by sugar
mills to the Electricity Boards. With a small beginning by 8
10

11. sugar mills generating 50 MW power, today, 48 units have
set up their power plants generating 680 MW power.
According to information currently available, an equal
number or say 50 sugar mills are in the process of putting up
power plants to produce yet another 700 MW, taking the
total generation to about 1400 MW against an assessed full
industry potential of 3500 MW. The State-wise breakup of
installed cogeneration capacity is given in Table No.VII.
Though, there have been problems mainly related to
acceptance and continuation of the power rates as per the
MNES guidelines as also with regard to actual payment
against power supply to the Electricity Boards. Yet as would
be evident, there has been appreciable growth and this trend
is likely to continue in future as well because of growing
demand for power in the country.
11

12. Table No. VII
STATEWISE ANNUAL INSTALLED COGENERATION
CAPACITY
State Installed Capacity MW
Number of Units
Andhra 10 130
Pradesh
Karnataka 11 160
Tamil Nadu 14 255
Uttar 9 100
Pradesh
Punjab 1 10
Maharashtra 3 25
Total 48 680
Fuel Ethanol
Encouraged by the success of the pilot projects in the year
2000-01, the Minister for Petroleum and Natural Gas
announced in Indian Parliament in December 2001, the
Government's decision to implement the mixed fuel
12

13. programme with ethanol in three phases. The
implementation of first phase (5% blend) was further sub-
divided into two parts, it has been taken up first in 9 States
and 4 Union Territories with effect from 1st October, 2003,
where sugarcane crop is being extensively grown. In the
second part, the rest of the country is to be covered. Under
this programme the requirement of fuel ethanol worked out
to roughly 350 million litres to go upto 500 million litres when
the entire country is covered. The Government have also
indicated the second and third phases of the ethanol
programme. In the second phase, the objective is to
increase the blending of ethanol to 10% with petrol. Apart
from ethanol, work had also begun on blending ethanol with
diesel.
Enough capacity has been created for production of ethanol
within a short period. Mostly, distilleries attached with sugar
mills have taken up this programme. Out of 295 distilleries,
as many as 118 distilleries are attached with sugar mills, of
them 70 have added new ethanol plant with production
capacity of over 700 million litres sufficient to meet 5% blend
for the entire country. The state wise position is given in
Table No. VIII.
13

14. Table No. VIII
The state wise installed Ethanol production capacity
State/UT Requirement of Oil Availability in
Marketing Cos. the State & UT
Uttar Pradesh 51 190
Punjab 32 Nil
Haryana & 24 Nil
Chandigarh
Maharashtra 70 350
Gujrat, Daman Diu & 40 30
Dadra & Nagar Haveli
Goa 5 Nil
Andhra Pradesh 40 30
Karnataka 35 58
Tamil Nadu & 48 52
Pondicherry
Total 345 710
Besides 128 million litre capacity is under implementation in
UP and about 200 mln. litre capacity is under various stages
14

15. of implementation in Maharashtra and other states making
the total capacity to over 1000 million litres sufficient to meet
the requirement at 10% ethanol blend under the second
phase. Following table gives the details of Ethanol
production at 90% utilisation of molasses for distillation from
2001-02 to 2003-04 and estimates upto 2006-07.
SEASONAL ETHANOL PRODUCTION AT 90 %
UTILISATION OF MOLASSES FOR DISTILLATION
Year Million litres
2001-2002 1620
2002-2003 1755
2003-04 1215
2004-05* 1140
2005-06* 1600
2006-07* 18 70
*Projected
However, the pricing of ethanol is an important issue which
needs further consideration particularly in view of the steep
decline in sugarcane and sugar production in the year 2003-
04 and 2004-05, thereby affecting the output of byproduct
molasses, which is being used for production of fuel ethanol
15

16. in India. Moreover, the recent budget proposal for the year
2005-06 to hike the excise duty on molasses from Rs.500/-
to Rs. 1000/-per tonne is a matter of serious concern and
needs immediate reconsideration by the Government.
Fortunately, the use of ethanol as a blend fuel adopted by
most of the countries producing / exporting sugar is a
healthy development, which provide flexibility for the sugar
industry in those countries to absorb cane supplies for
production of ethanol, thereby balancing the sugar economy
and also ensuring the reasonable price structure for sugar.
Such corrections in the future will ensure a healthy growth of
the sugar industry.
India in the World Market
Indian approach towards export of sugar is vastly different
and market friendly. India has been exporting sugar
occasionally in periods of sugar surpluses. Whereas, most
other countries dump their excess sugar in the International
market despite easy accessibility to funds carrying low rate
of interest, the Indian sugar industry has observed
considerable constraint by limiting its exports. In the last five
years it exported 4.07 million tonnes sugar. India had an
average exportable surplus of 6.23 million tonnes during the
16

17. last 5 years. As against this, on an average, the sugar
exported was only 0.81 million tonnes or 7.69% of the total
exportable surplus as would be evident from the data given
in Table No. IX.
Table No. IX
Exportable surplus, sugar stock & actual exports
Closing Exportable Actual
% export
Stock surplus Export
Year of surplus
(Million (Million (Million
stocks
Tonnes) Tonnes) Tonnes)
1999-00 9.38 5.38 0.07 1.30
2000-01 10.4 6.4 1.2 18.75
2001-02 11.3 7.3 1.1 15.06
2002-03 11.6 7.6 1.5 19.73
2003-04 8.5 4.5 0.2 4.44
Average 10.23 6.23 0.81 7.69
Sugar exports, in a limited manner, were mostly confined to
the neighbouring countries. If India were to liquidate its huge
stocks in the international market, the world sugar prices
would have nose-dived effecting all exporting nations.
Disciplined Indian approach towards exports deserves
17

18. consideration so as to bring about order in the world sugar
market, rather than resorting to subsidized exports.
Current Scene
Indian sugar sector having a large stake in the world sugar
economy, like on several occasions in the past, once again
found itself at cross roads. From an era of large production,
high surpluses and virtually unmanageable stocks, India has
turned into an importer of sugar, albeit of raw sugar, to meet
the gap between supply and demand thereof, following two
consecutive years of exceptionally low sugar output.
Reasons for this are not far to seek. Severe drought
conditions in Southern and Western India, in particular,
coupled with attack of pests and diseases, took heavy toll of
sugarcane crop during the year 2003-04 and the current
year 2004-05, with sugar output plummeting from over 20
million tonnes to 14 million tonnes in 2003-04 and to 12.5
million tonnes in 2004-05. Notwithstanding such a steep
decline in production, large opening stock of sugar once
considered as unbearable burden came in handy to reduce
the real deficit to around two million tonnes, which has been
met with raw sugar imports of equivalent quantity.
18

19. Table X
SUPPLY AND DEMAND POSITION OF SUGAR
FOR THE SEASON 2003-04 AND ESTIMATES FOR 2004-
05 & 2005-06
(Figures in million tonnes)
2003-04 2004-05 2005-06
Opening stock 11.6 8.5 4.5
Production 14.0 12.5 17.5
Imports 0.55 2.0 1.5
Total availability 26.15 23.0 23.5
Off-take for
1. Internal
consumption 17.45 18.5 19.0
2. Export 0.2 - -
Total 17.65 18.5 19.0
Closing stocks 8.5 4.5 4.5
As would be evident from the above table, after meeting
adequately the projected demand for sugar, the carry
forward stocks at the end of sugar year 2004-05 would stand
at a reasonable figure of 4.5 million tonnes, equal to broadly
19

20. three months' consumption requirement for the initial period
of 2005-06 sugar year.
However, for the first time, the new Government with its
farmer and rural area centric approach, evolved a policy for
import of raw sugar that has not only helped the sugar
economy, but has also helped to crossover the period of
aberrations in a manner that has protected all the three
major stake holders - sugarcane farmers, sugar industry as
well as the consumers.
Import of raw sugar, in fact, began in the previous season
2003-04 itself - initially under DFRC license against white
sugar exported out of the country, followed by fairly sizeable
imports under the "Advance Licensing Scheme" (ALS) of the
Commerce Ministry. No doubt, to facilitate import of raw
sugar, Government of India at the initiative of Ministry of
Agriculture and Food, relaxed certain stipulations by de-
linking grain to grain matching of raw sugar import with white
sugar export for fulfillment of export obligation. Further a
much longer period of 36 months has been allowed to fulfill
the export obligation as against the normal period of 24
months.
20

21. Under the impetus of this scheme, sugar factories in
Southern India, Northern India as well as Western India
imported significant quantities of raw sugar to increase
availability of sugar for domestic consumption during the
sugar year 2004-05. Thus, availability of additional sugar
supply was fairly wide spread, although in Southern India
with higher imports, larger additional supplies of white sugar
became available. However, this did not cause any regional
imbalance considering the larger deficiency in supply in the
Southern and Western India.
In the table No. XI, the estimates for import of raw sugar
regionwise for the years 2003-04 to 2004-05 has been given.
21

22. Table XI
REGION-WISE RAW SUGAR IMPORT
(Figures in Lakh Tonnes)
Addl. Qty.
2003- 2004-05 (Oct.
expected by
04(Oct.- 2004 to 10th
30th Sept.
Sep.) Mar.2005)
2005*
Karnataka 0.49 3.79 1.60
Tamil Nadu 3.65 2.78 1.30
Andhra 0.89 1.84 0.60
Pradesh
Uttar Pradesh 0.50 4.82 1.80
Maharashtra - 0.57 0.80
Bihar - 0.07 -
Total 5.53 13.87 6.10
*Projected
Future outlook
With reports of far more satisfactory sugarcane plantations,
sugar production for the season 2005-06 is likely to show a
quantum jump to about 17.5 million tonnes. Even so, fairly
significant quantity of raw sugar import will continue in the
22

23. coming year provided the price of raw sugar in the
international market continues at reasonable levels. Import
of raw sugar under 'Advance Licensing Scheme' limits the
sugar industry alone to process the same to fulfill the export
obligation. Thus, imports more or less correspond with the
actual additional requirement of sugar to meet the projected
deficit in supply.
In the past, inadequate availability of sugar arising out of
decline in production was supplemented by way of additional
supplies through import of white sugar from the world
market. It is for the first time that the Government have
instituted the new policy of facilitating import of raw sugar
thereby placing greater reliance on the ability of the sugar
industry to process raw sugar and make additional supplies
of refined white sugar available for consumption in the
domestic market.
Sugar industry on its part has also responded to the needs
of the situation and discharged satisfactorily its
consequential obligation. The success of the new policy
clearly underlines that in future too whenever any such
occasion arises, emphasis would be laid on raw sugar import
rather opening up white sugar imports. Thus, a new demand
23

24. driven policy has taken shape in the large interest of all
concerned within the sugar sector.
On the other hand, sugar has a long established
international market with sizeable volumes of over 45 million
tonnes being traded each year. Asian continent, Far East
and the Middle East region importing around 15 million
tonnes of sugar annually, provides an excellent means of
increasing our exports, specially in view of the steep
increase in the ocean freight in the recent past. Moreover,
India has a great potential to increase sugarcane and sugar
production as the sugarcane crop merely occupies about 3%
of our cultivable area. What is needed is a fresh outlook i.e.
sugarcane pricing policy based on sugar prices and a trade
policy akin to the one followed by other regular sugar
exporting countries. Larger production and higher sugar
exports on a regular basis may provide incidental added
value to the sugar sector and enable setting up of large
sugar complexes - producing clean energy i.e. ethanol and
power beside sugar, thereby ensuring adequate and timely
payment of sugarcane price to the millions of sugarcane
farmers.
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