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India is the largest producer of sugar in the world and produces around 18.5 million tons of white plantation sugar per annum. Sugar industry is the second largest manufacturing industry in India after cotton. About 500 thousand people are directly employed in the sugar industry. Including farmers and their family members, around 45 million people constituting 7.5% of the rural population of India, depend on sugar industry for their livelihood. The industry contributes about Rs. 16 billion ($328.5 mn) to the Central and State exchequers.
India is also the largest consumer of sugar and consumes around 16 million tons of sugar per annum. There are 525+ operating sugar mills India. Sugarcane producing states are U.P, Maharashtra, Karnataka, Tamil Nadu etc.
Major Players - Balrampur Chini Mills, Bajaj Hindustan, Andhra Sugars, Thiru Arooran Sugars, Dhampur Sugar, Shree Renuka Sugars, Godavari Sugar Mills.
Sugar in India
As per the map of India ahead, Uttar Pradesh and Maharashtra are the largest producers of Sugar in India. Availability of water and moderate climatic conditions are the biggest success factors behind such production levels. Gujarat and Southern states of Karnataka, Andhra and Tamil Nadu are medium producers of sugar in India. The eastern, central, northern and north western parts contribute very little to total sugar production.
Largest Sugarcane Growing States in the country - Uttar Pradesh, Maharashtra, Karnataka, Gujarat, Tamil Nadu and Andhra Pradesh
These 6 states contribute 85% of the total sugar production in India
UP and Maharashtra together contribute slightly more than 57%
Growth in production
As per the following bar diagram production of sugar declined in the year 2008-09 to a meager 15 mn tones from record levels of 26 mn tones in previous year 2007-08 due to unfavorable climatic conditions but recovered in 2009-10 and is projected to cross 2007-08 levels in 2010-11 to 28 million tones.
But the following diagram reveals a very different picture. The production of sugar in 2009 is more than 2008 levels but land used in cultivation is more in 2008 and less in 2009. This can be due to following factors:
In 2009 farmers shifted to some other crops due to high volatility in sugar market and unfavorable climate.
Existing farmers went for more scientific methods of cultivation which despite retrenchment led to a higher production.
The climate was so unfavorable in 2008 that despite a larger area production was short of 2009 levels.
Projection for 2010-11 is apt as per area under cultivation which rose from 4200000 hectares to 4800000 hectares.
Export Import Analysis
Over the years the sugar production fluctuated noticeably. During the years of shortages India turned a net importer. Thus the overall scenario has been that of marginal export of sugar. A High Powered Committee was constituted to study the matter and after examining the matter in depth, it recommended total liberalization of the sugar sector to ensure steady and stable growth in production. Government of India has accepted this recommendation and steps are being taken in this direction.
The above table shows that despite a huge closing stock of sugar every year the exported amount is very less. This can be attributed to the fact that the government wants to keep a buffer stock for the next year so that if production lags behind consumption the spare stock can be used as can be seen in year 2002-03 and 2003-04 where consumption is way high than production as depicted by the graph below. But what needs to be seen that despite huge stocks why is the government importing sugar? The answer lies in the volatility of sugar market where correct amount of produce can't be predicted so sugar is imported to curb short term supply shortage.
The exports of sugar rose from year 2006-07 but have seen a declining trend from 2007-08.
As far as imports are concerned their relation with exports is inverse of it i.e. imports rose when exports declined.
Jawaharlal Nehru Port in Mumbai holds the maximum quantum of sugar to be exported whereas Kandla in Gujarat holds the minimum. JNPT is closely followed by Vizag/Vishakhapatnam in Andhra Pradesh as per crop seasons of 2003-04. Mumbai port has shown the maximum decline from 639 metric tons to a meager 45 metric tons followed by Tuticorin from 393 to 39 metric tons due to lesser production due to crop failure and future domestic requirements.
Indian Exports: Destination-wise
The following table shows India's export partners on metric tons basis. Indonesia, Sri Lanka and Bangladesh hold the maximum share. A lot of African nations like Tanzania, Uganda, Ghana etc. also feature in the list.
Major Sugar producers of the World
Largest Producer of Sugar in the world
Expected Production in 2008 - 09: 30.8 Million Tons
3rd Largest Sugar Producing nation
Expected Production: 13 Million Tons
4th Largest Producer of Sugar
Expected Production: 7.78 Million Tons
Production: 4.73 Million Tons
Mainly Domestic Consumption
5th Largest Producer of Sugar
Production of 5.01 Million Tons up to May 2008 - Increase of 6.3% over the previous year
The above table shows that those countries which produce maximum sugar are not necessarily the maximum exporters also. Out of the top 7 producers only Brazil and Australia feature in the list. India though the second largest producer also holds the second largest population so is placed at 10th spot as far as exports are concerned. China the 3rd largest producer doesn't figure in the list at all.
Concept of Command Area which binds Cane farmers and Sugar mills to sell and buy from each.
Sugar mills have to purchase all the Cane sold to them, even if it exceeds their requirement.
In case of capacity expansions at existing Sugar mills, there is uncertainty regarding allocation of additional Area based on the expanded capacity.
Government mandates 10% of sugar to be sold as levy quota sugar at prices much lower than the market. The government also specifies monthly release quotas for free sale sugar
Capacity and Production
Sugar producers are not allowed to own cane fields in India.
New sugar mills cannot be set up within 15 km of existing units.
Exports & Imports
Imports of both raw and white sugar attract a basic duty of 60% and a countervailing duty of Rs. 910 per ton.
In periods of sugar shortage, under the Advanced License Scheme (ALS), license holders can import raw sugar without paying any duty, subject to the condition that they re-export white sugar within a fixed period.
Sugarcane pricing policy
The Central Government fixes the SMP of sugarcane in terms of Clause 3 of the Sugarcane (Control) Order, 1966 for each sugar season. The SMP is fixed on the basis of the recommendations of the Commission for Agricultural Costs and Prices (CACP) and after consulting the State Governments and associations of sugar industry and cane growers. The SMP is fixed having regard to the following factors:-
a) Cost of production of sugarcane;
b) Return to the growers from alternative crops and the general trend of prices of agricultural commodities;
c) Availability of sugar to consumers at a fair price;
d) Price at which sugar produced from sugarcane is sold by sugar producers; and
e) Recovery of sugar from sugarcane.
Statutory minimum price (SMP) of sugarcane
The Central Government has fixed the Statutory Minimum Price (SMP) of Sugarcane for the 2006-07 sugar season at Rs. 80.25 per quintal linked to a basic recovery of 9.0%, subject to a premium of 88 paisa for every 0.1% point increase in the recovery above that level. The SMP of sugarcane payable by sugar factories for each sugar season since 2000-01 has been shown in the following table:-
Under the provision of sub-section 3(c) of section 3 of the Essential Commodities Act, 1955, the ex-factory prices of the levy sugar requisitioned from the sugar mills is fixed having regard to:-
(a) The minimum price, if any, fixed for the sugarcane by the Central Government;
(b) The manufacturing cost of sugar;
(c) The duty or tax, if any, paid or payable thereon; and
(d) The reasonable return on the capital employed in the business of manufacturing sugar.
Sugar mills are paid the levy sugar price on zonal basis. However, the Central Government also determines the average all-India levy sugar price. For the sugar season 2003-04, the average all-India levy sugar price has been determined at Rs.1305.92 per quintal as against Rs.1259.99 for the preceding sugar season.
Levy sugar supply under PDS
The population base for supply of levy sugar under the PDS was changed from 1991 census population to the projected population as on March 1, 1999 with effect from March 1, 2000. With effect from February 1, 2001, the population base for supply of levy sugar under the PDS has been changed to the projected population as on March 1, 2000.
In order to ensure better targeting, levy sugar supply under the PDS has been restricted only to the BPL families in all states /UTS except the North Eastern States, Hill States and Island Territories, with effect from 01.02.2001.The minimum per head per month quantum of levy sugar allotted under the PDS was increased from 425 gms to 500 gms with effect from February 1, 2001.
The Monthly levy quota under the PDS for various states /UTS with effect from 01.02.2001 is 2.16.Lakh Tones .The retail issue price of levy sugar under the PDS has been fixed at Rs. 13.50 per kg. w.e.f March 1, 2002, which is continuing.
Wholesale price of non-levy sugar
160.20 Lakh tones of non-levy free sale sugar was released for sale in the open market during 2005-2006 sugar season as compared to 146.00 lakh tones during the previous sugar season, 2004-2005. The range of wholesale prices of non-levy sugar in the four metropolitan cities (Delhi, Mumbai, Kolkata and Chennai) during 1998-99 to 2006-07 (upto 30th November, 2007) sugar seasons were as follows:
Retail prices of non-levy sugar
The range of retail prices of non-levy sugar in the four metropolitan cities (Delhi, Mumbai, Kolkata and Chennai) during 1998-99 to 2006-07 (upto 30th November, 2007) sugar seasons were as follows:-
Sugar Portals and Futures Trading.
India is currently the largest producer and consumer of sugar in the world. In the year 2001 it produced 18.50 million tons of sugar as against 12.05 million tons in 1991. Sugar industry is the second largest manufacturing industry in India, next only to textiles. It is amongst the cost effective industries in the world with a turnover of about Rs. 2000 billion. The industry supports nearly 30% of the Indian population directly or indirectly.
With such voluminous trades it is natural that everyone connected with it, be he a wholesaler, retailer, transporter or buyer, faces some obstacles directly or indirectly. To remove these obstacles some Sugar Portals have come up in India. Trade through a sugar Portal increases the proximity and helps in finalizing a deal from the remotest comers of the globe. Deals can be concluded quicker through the portals which aim at B2B and B2C e-commerce. Processing of sale-offers and buy offers, order confirmation, billing and payments are made on-line. With the help of the advancements in information Technology a new dimension is being given to the normal sugar trade practice by shifting the scene from the traditional Auction Halls, Mandis and Bazaar to the on-line shelf and making this commodity easily affordable.
In April 2001, the Government of India's Cabinet Committee on Economic Affairs (CCEA) and the Ministry of Food permitted futures trading in white sugar to stabilize the market and safeguard the interest of farmers, stockists and exporters.
Sugar was approved for futures trading in May, 2001. At present, three national exchanges viz. National Commodity and Derivative Exchange Ltd. (NCDEX), Mumbai, Multi Commodity Exchange Ltd., (MCX), Mumbai, National Multi Commodity Exchange (NMCE), Ahmedabad and E sugar India Ltd., Mumbai & E-Commodities Ltd., Delhi have been given recognition for future trading in sugar. Except, E-Commodities Ltd., Delhi, trading in sugar is taking place in all other exchanges. Bulk of the futures trading in sugar takes place at NCDEX. The volume of trading in sugar during the last three years is as given below:
Increasing sugar production - reducing inefficiencies, likely consolidation in industry.
Increase in cane production - incentives to farmers - switching to other crops.
Limitation in cane production - Yield, Climate.
Adding capacities - new refineries.
The above figure shows the trend of world sugar future prices from December 2010 to projected figures for October 2011. It shows a declining trend which means supply of sugar will be more due to good climatic projections in major producing countries leading to rise in stocks and thus lowering of prices. But seeing the volatility of market they can prove wrong as any climatic or government interruption can lead to a shortfall in supply and thus spiraling up the prices.