Indian Sugar Industry

Globally, sugar is mainly extracted from either sugarcane or sugar beet.
Around 80% of
global sugar is extracted from sugarcane, and remaining 20% from sugar beet. In India,
sugar is extracted from sugarcane.
Sugarcane from farmer is crushed to get sugarcane juice and Bagasse as the by-product,
which can further be used in power generation, partly used for captive consumption and
remaining is sold. The sugarcane juice is further processed to get sugar and Molasses, which
can either be sold directly or further processed in the distillery to give Alcohol. This Alcohol
can either be Industrial Alcohol which is sold to Chemical companies for industrial
consumption or potable Alcohol (liquor); or Ethanol which can be used for blending in the
fuel. On an average, 95 kg of sugar and 10.8 litres of ethanol can be produced from 1 tonne
of sugarcane.
Indian Sugar Industry

Indian sugar industry is worth more than Rs. 80,000 cr (from sugar and its by-products). The
Indian sugar industry supports ~5 crore sugarcane farmers across India and hence has high
political importance as well. Major statistics about Indian sugar industry can be found at the
ISMA website (http://www.indiansugar.com/Statics.aspx). As of 31st July 2017, there are 732
sugar mills in India with total sugar production capacity of ~34 mn tons of sugar. Roughly
50% of the mills are private. Indian sugar demand is around 25 mn tons. Indian per capita
consumption of sugar was 18.8 kg v/s world average of 23 kg as of 2016. Total acreage of
India is ~47 lakh ha. Acreage of sugarcane crop in different states is as follows:
UP has ~115 sugar mills, with most of them being private mills. Whereas, Maharashtra has
more of co-operative mills. Also, average UP sugarcane crop age is 9.6 months v/s 12.85
months in Maharashtra. So UP farmers can grow some other crops for remaining time, like
Wheat & Paddy. Additionally, UP cane requires 1/3rd of irrigation water compared to
Maharashtra cane
Sugarcane Crop And Sugar Demand & Supply

Sugarcane crop is a ‘ratoon’ crop. The new crop is grown from the stubble of the crop
already harvested. So, the life of the crop planted is of multiple years, and generally new
crop is not planted in the same farm area for few years.
There are 3 variants of sugarcane crop in India:
1. Spring crop sown in March
2. Adsali crop sown in July
3. Autumn crop sown in September
Maturity time for adsali & spring crop is 18 months, whereas for autumn crop is 12 months.
In India, the sugar season (SS) is form Oct-Sept. So SS17 means Oct’16 to Sept’17, with
harvesting beginning in Oct’16. Total sugarcane crop production in India is ~300 mn tons.
Sugar Production And Consumption

State-Wise Sugar Production
For SS17-18, UP & Maharashtra produced ~10+ mn tons of sugar each, out of the total ~30
mn tons of domestic sugar production, accounting for 2/3 rd of Indian sugar production.
State-wise sugar production historically has been as following:
Key Variables And Sugar Cycles

Factors Affecting Sugar Realizations In India
Indian sugar industry is highly regulated. Quantity of sugar to be sold and exported by mills
is decided by the government, but at the same time government also bails out the industry
with subsidies during the bad times.
Sugar is a cyclical industry. If one needs to predict the sugar realisation, one should focus
more on supply of sugar than its demand, as the demand is more or less stable around 25
mn tons and is growing slowly and steadily. ~70% of the sugar demand is B2B (FMCG sector)
and only ~30%
demand is from B2C side. It is the supply of sugar which is more volatile and affects the
sugar prices. The same can be seen in the chart above showing the production and
consumption of sugar. Eg: In 2016-17, when the sugar production (supply) was 20.3 mn tons
compared to consumption (demand) of 25 mn tons, it lead to increase in sugar prices. The
supply of sugar depends majorly on the following factors:
2016-2017 Sugar Cycle

SS16-17 was a cycle when all the sugar stocks (specially UP based) gave multibagger returns.
It was a sweet situation for UP sugar mills as the Maharashtra sugarcane production halved
to ~4.5 mn tons, which lead to national level sugar supply shortage and increase in sugar
price, and at the same time UP had bumper productions, allowing all UP based sugar mills
to improve its results tremendously. Entire increase in realisation trickles down to PBT, as
there is no parallel increase in prices, leading to margins expanding exponentially. The same
can be seen through some sugar companies’ reported financials:
Based on the sugar cycles, the market price of the sugar companies also fluctuate, and
these price movements are very quick. One can both make and lose money very quickly by
investing in sugar companies’ stock. Let us have a look at market cap of some sugar
companies in past 2 decades. We can see how market cap have already fallen by more than
50% even before the results of 1st loss making quarters had been declared by the
companies. This is how much volatile are the prices of sugar companies’ stock. We can see
similar speed and volatility even while increase in stock prices during industry uptrend.
Sugar cycle explained in nutshell

Sugarcane Prices
From Oct 2009, the concept of Statutory Minimum Price (SMP) of sugarcane was replaced
with the ‘Fair and Remunerative Price’ (FRP) of sugarcane for 2009-10 and subsequent sugar
seasons. FRP is the minimum price that a sugarcane farmer should receive for his cane.
Though, some states like UP have State Advised Price (SAP) which is generally higher than
the FRP.
FRP v/s. SAP in UP has been as follows:
Cane Arrears
Cane Arrears is the amount pending to be paid to the sugarcane farmer by the sugar mills.
As per rule, mills need to pay farmers within 14 days of receipt of sugarcane. If failed,
interest rate of 15% per annum is charged to the mills. Higher cane arrears discourages
farmers to grow sugarcane in the next season.
By May’18 end, cane arrears had reached over Rs. 20,000-22,000 cr due to dramatic fall in
prices on the back of over production of sugar in this season. This 20,000 cr arrears is
staggering ~25% of the total 80,000 annual amount to be paid to the farmers for their cane.
By-Products Of Sugar Industry
Cogeneration
1 tonne of sugar can produce ~300 kg of Bagasse which can be converted to ~130 KWh of
power. The power generated by an integrated sugar mill is partially captively consumed and
remaining is exported. India’s sugar industry has potential to export 7500 MW power, and
total installed cogeneration capacity in all sugar mills is ~4200 MW, of which ~3200 MW is
being exported by sugar mills to the grid.
Ethanol
Ethanol is a very key by-product for integrated sugar mills. We will elaborate on Ethanol
industry in detail in our next blog.
Import/Export Of Sugar
A solution to over production of sugar is to export sugar. Our 2 neighbouring countries,

Bangladesh and Sri Lanka collectively import ~3.5 mn tonnes of sugar annually. Also, India
has bilateral and SAARC free-trade agreements with both the countries. So if India is able to
export some amount of additional production, it can help in stabilising the sugar supply and
hence the sugar prices. Currently, the government has allowed 2 mn tons of sugar export till
September 2018 to clear up surplus sugar stocks. If there is normal monsoon this year
(CY2018), leading to production of another 32-33 mn tons of sugar in SS2018-19, India will
have to export 5-6 mn tons of sugar next year.
Rangrajan Committee
The Rangrajan Committee had made salient recommendation to the government in 2012 to
stabilise the sugar industry. The recommendations are as following:

Most of these recommendations have been approved by state governments of Maharashtra

and Karnataka. However, the recommendations are yet to be levied by the UP government.
Recent Regulatory Updates

Recently, due to oversupply of sugar, the prices of sugar have fallen leading to sugar mills
selling sugar at losses and hence the mills are finding it difficult to clear their cane arrears.
Cost of production of sugar is ~32-34 rs per kg (28-23 rs of sugarcane purchase cost and ~3-
4 rs of conversion cost), so sugar mills need to sell sugar at 34-35+ rs per kg ex-mill prices to
make profits.
Currently the ex-mill sugar price is 26-27 rs leading to huge losses for sugar companies. The
quantum of loss is such that it undermines the EBITDA level profits from Cogeneration and
Distillery division, leading to even consolidated EBITDA level losses for the sugar companies.
The cane arrears have reached Rs. 20,000 + cr. To stabilize the situation, the government is
considering following options:
 Cess on sugar (Rs. 1-1.5 per kg) to create a fund which will be used to clear
the cane arrears.
 Production-linked subsidy on cane.
 Reduction of GST on ethanol from current 18% to 5%.
 Creating a buffer sugar stock of ~3 mn tons by the government.
 Fixing minimum ex-mill prices.

Indian Sugar Industry

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Indian Sugar Industry

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Globally, sugar is mainly extracted from either sugarcane or sugar beet.

Indian Sugar Industry

Sugarcane Crop And Sugar Demand & Supply

Sugar Production And Consumption

Key Variables And Sugar Cycles

2016-2017 Sugar Cycle

Sugar cycle explained in nutshell

A solution to over production of sugar is to export sugar. Our 2 neighbouring countries,

Most of these recommendations have been approved by state governments of Maharashtra

Recent Regulatory Updates

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