India. Sugar Annual. Apr 2013 Nov. 2, 2013
Indian sugar production for marketing year (MY) 2013/14 (October-September) is forecast to decline by 8 percent to 25.3 million metric tons (raw value basis) on lower cane production and higher diversion for alternative sweetener. India is set to become a net sugar importer in MY 2013/14 on relatively strong domestic prices. The government’s reform of marketing controls on the sugar industry will give millers greater flexibility in managing sales and cash flows, which in will ensure timely payment to cane farmers.
Note: All sugar data in the report are raw value basis unless otherwise mentioned.
Assuming a normal monsoon and favorable weather, MY 2013/14 sugarcane planting is forecast at 5.35 million hectares, marginally higher than last year. In April 2013, the Government of India (GOI) abolished the sugar levy on mills and deregulated sale of sugar in the open market. The policy change (discussed in detail in the policy section) will help mills increase revenues and ensure timely payment to cane farmers, which should encourage higher planting in MY 2013/14.
Despite higher plantings, total sugarcane production is likely to decline slightly in MY 2013/14 to 355 million tons. Cane yields in Maharashtra, India’s leading sugar producing state, are unlikely to recover from last year’s drought. An expected larger proportion of retune crop will reduce Maharashtra’s sugarcane yields, and as a result, Indian average cane yields will shrink over last year.
India’s total centrifugal sugar production for MY 2013/14 is forecast at 25.3 million tons (includes 497,000 tons of khandsari - a low recovery sugar prepared by an open-pan evaporation method). The forecast 8 percent decline in production over last year is mostly due to a larger diversion of cane for gur production as gur prices are expected to remain relatively strong compared to sugar prices in MY 2013/14. Gur (crude non-centrifugal lump sugar) production is forecast higher at 7.24 million tons compared to 5.8 million tons in MY 2012/13.
Post anticipates MY 2012/13 sugarcane production at a record 360 million tons due to higher than expected cane planting, particularly in Uttar Pradesh. However, lower sugar recovery in the drought affected state of Maharashtra is likely to bring down India’s average sugar recovery to 10.5 percent compared to last year’s 10.8 percent. Consequently, MY 2012/13 sugar production is estimated at 27.4 million tons, down 4 percent compared to last year.
The recent weakening of gur prices vis-à-vis sugar and relatively strong cane prices paid by sugar mills limited sugarcane diversion for gur production during the peak crushing season. MY 2012/13 mill sugar production as of March 15, 2013 is estimated at 21.05 million tons (crystal weight basis), compared to 21.25 million tons for the corresponding period.
MY 2013/14 Indian sugar consumption is forecast to rise to 26 million tons on continued strong domestic demand. A growing population (about 1.8 percent per annum), coupled with forecast Indian economic growth of 6 to 6.7 percent in fiscal year 2013/14, are likely to support higher sugar consumption. Bulk consumers, which include soft drink manufacturers, bakeries, hotels and restaurants and confectionary manufacturers, account for nearly 65 percent of the total consumption. Most khandsari sugar is consumed by local sweet meat shops. Gur is mostly consumed in rural areas for household consumption and feed use.
Concern that a weak 2012 monsoon would reduce sugarcane yields and sugar production led to a rally in domestic prices during the second half of MY 2011/12 and the first quarter of MY 2012/13. Strong export demand in MY 2011/12 for Indian sugar underpinned domestic prices. After peaking in December 2012, domestic sugar prices softened on higher than anticipated domestic sugar production and weakening international prices. Currently, Indian wholesale sugar prices range from $530 to $585 per ton, and are likely to remain firm in MY 2013/14. However, international price movements can influence domestic prices. Although gur prices had softened in the first half of MY 2012/13, prices are likely to firm up in the second half on lower gur production.
India is likely to be a net sugar importer in MY 2013/14 due to lower sugar production forecasts. Imports are forecast at 1.5 million tons while minimal exports are forecast at slightly more than half a million tons. During the first trimester of MY 2012/13, India imported approximately 890 tons of raw sugar due to lower international prices. Exports were limited to 340 tons. The current pace of imports suggests that India will import as much as 1.3 million tons MY2012/13. Commercial exports are likely to be minimal, except for sugar re-exported under the Advance License Scheme (ALS).
The central government, with effect from May 11, 2012, allowed sugar exports without restrictions under Open General License (OGL), subject to prior registration with the Directorate General of Foreign Trade. Sugar mills, exporters and importers are free to export and import sugar as per their commercial prudence. Sugar can be imported from any country under OGL, including raw sugar, subject to payment of the prescribed import duty (10 percent with effect from July 13, 2012). With raw sugar selling at a discount to local prices, refiners in Maharashtra and Karnataka will have an incentive to import raw sugar.
Total MY 2013/14 ending stock is forecast at 10.8 million tons, slightly higher than MY 2012/13 ending stocks. Stocks for both the years are above par with normal stock levels (three-month consumption requirement).
Sugarcane Production and Pricing Policy
The GOI supports research, development, training of farmers, transfer of new varieties, and improved production technologies (seed, implements, pest management) to growers in its endeavor to raise cane yields and sugar recovery rates. The Indian Council of Agricultural Research (ICAR) conducts sugarcane research and development at the national level. State agricultural universities, regional research institutions, and state agricultural extension agencies support these efforts at the regional and state levels. Central and state governments also support sugarcane growers by ensuring finances and input supplies at affordable prices. To increase the area of cultivation and production in the country, the GOI has implemented the “Sustainable Development Fund of Sugarcane Based Cropping System Area under Macro Management Mode of Agriculture” program in various sugarcane growing states. Additionally, under Rashtriya Krishi Vikas Yojaana (National Agriculture Development Program), state governments have been given flexibility to choose their priorities for the formulation of crop development projects, including sugarcane. The GOI collects Rs. 240 ($5.60) per ton of sugar produced by mills in support of the Sugarcane Development Fund (SDF), which is used to support research, extension, and technological improvement in the sugar sector. The SDF is also used to support sugar buffer-stock 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. In March 2008, the GOI enacted the Sugar Development Fund (Amendment) Bill, 2008, enabling the government to include the use of SDF funds for debt restructuring and soft loans to sugar mills.
The GOI establishes a minimum support price (MSP) for sugarcane based on recommendations by the Commission for Agricultural Costs and Prices (CACP) and consultations with State Governments and sugar industry and cane grower associations. Four years ago, the GOI announced a new fair and remunerative price (FRP) system that links cane prices with miller’s sugar price realization. Several state governments augment the MSP/FRP, typically by 30-40 percent, due to political compulsions rather than market pricing. Sugar mills are required to pay the “state advised price” (SAP) to sugarcane farmers irrespective of the market price of sugar. A forecast of a smaller cane crop normally encourages sugar mills to pay higher cane prices, resulting in prices exceeding the MSP/FRP in most of the growing states.
Sugar Marketing Policy: Government Approves Partial Market Decontrol
On April 4, 2013, the Cabinet Committee on Economic Affairs, chaired by Prime Minister Manmohan Singh, abolished the sugar levy on mills and deregulated the sale of sugar in the open market. Under the sugar levy, mills were obligated to sell 10 percent of their sugar production at below-market prices to the GOI. The GOI distributed this sugar at subsidized rates to poor consumers through the public distribution system (PDS). Under the new system, the GOI will continue to supply subsidized sugar for the poor by procuring sugar from the open market through open tenders. The difference between the open market price and PDS sale price will be borne by the GOI. The sugar industry will continue to be subject to production controls by state governments, including sugar industry licensing, specified cane procurement areas for sugar mills, and cane pricing. Decontrol of sugar marketing will be reviewed in two years after assessing its effect on farmers and market prices. (For more information please refer to GAIN report IN3036). An official notification on sugar levy reform is expected to be out soon. On March 26, 2013, prior to the partial decontrol of the sugar industry, the GOI decided to release 10.4 million tons of sugar as non-levy quota for open market sale between April and September, 2013. The sale and delivery period for the above quota is specified without inter-month restrictions. The non-levy quota will be apportioned and released only among those sugar mills which have submitted online production returns at the time of release. Mill-wise quota apportionment will discount the entire non-levy quota released for the period of October, 2012 through March, 2013. Any quantity left unsold will not be available for sale during the period of April, 2013 to September, 2013. There will be no conversion of unsold non-levy quota into levy quota during the period of current release, i.e. April to September, 2013 (PIB Press Release ).
India’s ethanol program is based on producing ethanol from sugar molasses, a by-product of the sugar industry and not directly from sugarcane or corn as in most countries