Impact of Global Economic Crisis on Indian Sugar Industry | India is the world's largest consumer and the second

largest producer of sugar, topped only by Brazil. Although, according to industry circles, India produces the cheapest sugar in the world, it is out priced in the international market because of the interference by the Government and the states. Nearly 2.8 lakh farmers have been cultivating sugarcane in the vast area of 4.4 lakh acres and over 11 crore people are directly or indirectly dependent on the sugar industry in the country. This project presents a holistic study into this sector in the light of the Global Economic crisis. | INTRODUCTION Indian sugar industry, second largest agro-based processing industry after the cotton textiles industry in country, has a lion's share in accelerating industrialization process and bringing socio-economic changes in under developed rural areas. Sugar Industry in India is well developed with a consumer base of more than billions of people. India is the largest consumer of sugar in the world. Sugar industry covers around 7.5% of total rural population and provides employment to 50 million rural people. About 4.5 crores farmers are engaged in sugarcane cultivation in India. Sugar mills (cooperative, private, and public) have been instrumental in initiating a number of entrepreneurial activities in rural India India is the second major sugar producing country in the world, the first being Brazil. Sugar industry occupies an important place among organised industries in India. Sugar industry, one of the major agro-based industrial in India, has been instrumental in resource mobilization, employment generation, income generation and creating social infrastructure in rural areas. Indeed, sugar industry has facilitated and accelerated pace of rural industrialization. At present, there are 553 registered sugar factories having capital investment of Rs. 50,000 crores and annual production capacity of 210 lakhs metric tonnes (ISMA Report, 2008). The annual turnover of industry is to the tune of Rs. 30,000 crores. The central and state governments receive annually Rs. 5000 crores as excise duty, purchase tax, and cess. The sugar industry in the country uses only sugarcane as input, hence sugar Companies have been established in large sugarcane growing states like Uttar Pradesh, Maharashtra, Karnataka, Gujarat, Tamil Nadu, and Andhra Pradesh. These six states contribute more than 85% of total sugar production in the country; Uttar Pradesh and Maharashtra together contribute more than 57% of total production. 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 rest of the important sugar producing countries, where greater emphasis has been laid on larger capacity of sugar plants. Sugar industry has brought socioeconomic changes in rural India by way of facilitating entrepreneurial activities such as dairies, poultries, fruits and vegetable processing, and providing educational, health and credit facilities. Figure 1: Classification of Indian sugar industry Indian sugar industry can be a global leader provided it comes out of the vicious cycle of shortage and surplus of sugarcane, lower sugarcane yield, and lower sugar recovery, ever increasing production costs and mounting losses. It needs quality management at all levels of activity to enhance productivity and production. Attention is required on cost minimization and undertaking by product processing activities. HISTORY OF INDIAN SUGAR INDUSTRY

Kautilya notices it in the list of principal crops cultivated. his remarks sugarcane is the least profitable of crops. This is. Probably what Manu means is that these two crops are not normally propagated by sowing seeds but are grown from offshoots. These names indicates that the Indians had a . Iskuda and Iksumati occur as the names of two rivers. khanda and sarkara.Sugar Production In Ancient Period In India Sugarcane has been one of the major crops of India since times immemorial. But. the term of sugarcane. Sugarcane fields greeted the eyes of a traveller wherever he went. Sugarcane plant and its juice find mention in the medicinal works of Caraka and Susruta. supported by the fact that little evidence of sugar or sugarcane is found in any archaeological site of the prehistoric or early historical period. in his medicinal work states that ksudra guda is formed by evaporating the juice of sugarcane down to a quarter. however. The cultivation of sugarcane caught the attention of the Greek visitors to India so something singular and strange. Samhitas and the subsequent Sutras. In the Jatakas. Indian literature provides enough evidence of availability of sugarcane in the ancient period. Even more refined are matsyandika. The occupation of cane pressing and the machine used in the process are specifically mentioned. khanda and sarkara. According to him. for it is subject to various evils and requires much care and expenditure. which are in fact four stages in the process of manufacturing granulated sugar Susruta mentions phanita. They speak of it as 'reeds that make honey without the agency of bees. Vajasaneyii. In addition. In ancient works. The Vyavahara Bhasya refers to sheds where such pressing machines were installed. The word Iksu has no parallel in any other Indo-Aryan language. From early Buddhist works. under kasra refers to phanita. India early evolved the technique of manufacturing sugar. these being in order of purity. khanda and sarkara. matsyandika. Maitrayani and Taittriya. Caraka notes the medicinal properties of these four types. which suggests that the IndoAryans only came to know about the plant only after entering India. matsyandika. there is a reference to pressing of sugarcane in machines. is found in the Atharvaveda. The Aryans knew the plant from a very early time and the fact that sugarcane is indigenous to India is beyond dispute. The Arthasastra includes the manufacture of sugar from cane juice in a list of works called Simbanika. guda. Guda is a purified product and contain few impurities. Iksu. each of which is purer than the preceding one. the sweet juice was due to the water which the cane absorbed from the soil being so warmed by the sun's heat that the plant was virtually cooked as it grew. The Arthasastra. it seems that sugarcane was a common crop and sugarcane juice a popular object of consumption. The sugarcane press and allied machines were known by the name of mahajanta (mahayantra or kolluka). guda. Caraka. this negative evidence is no proof that it was unknown. a third or half of the original volume. This phenomenon of sweet juice produced from reeds was ingeniously explained by Megasthenes. Manu at one place says that garlic and sugarcane grow in the same fashion as seeds.

cream. which they mix with milk. one can assign the beginning of sugar manufacturing in Aryan India to somewhere about the eighth century B. a hundred miles north of Perim and a Bathacala. implies many others also in the word adayah." Sugar Production In Medieval Period In 1213 AD. "There are sweet melons. sugarcanes and tubers and abundant. The fermented product of grains is of Vaisyas. naipala.knowledge of soil that best suited for sugarcane cultivation and recognised that was the soil irrigated by certain rivers was very suitable for the crop. the Chinese ambassador. The people make wine and sugar from juice”. honey. though the Aryans were acquainted with sugarcane. Regarding Kosambhi located on Jumuna thirty miles above Allahabad. ginger and sugar is prescribed for diarrhoea and solid or dry sugar can satiate hunger and thirst when eaten.". Ch-u-ts-ai reported to Jenghiz Khan "In this century sugarcane is cultivated. "They feed themselves generally on cakes of parchedgram. though by name mentioning only the pundra and kantara types.. dirghapatra. the plants. In 1498. he wrotes "This place harvests a large quantity of rice and somesugarcane. the Chinese Buddhist pilgritu Fa-Hien entered India to the east of the Indus and he writes. he was followed by the Hiuen-Tsang who travelled in 629 AD observed. "Punjab (Pounatch) produces much sugarcane but no grapes". Vasco de Gama also saw large quantities of sugar at Calicut Ludovico di Verthema. Cunningham wrote. tapaseksu." Hiuen-Tsang during his visit (671-95) to India. Caraka mentions two varieties paundraka and vamsaka.30 Three hundred years later. In 399 A. But Susruta mentions twelve varieties.Paundraka.. the commentator. sucipatraka. "Gandhara of Swat (Peshwar) produce also much sugarcane of which they make stone honey". kasteksu. The Brahmans drink the juice of grapes which differs completely from that distilled from wine". a . this refers to the cultivation of sugarcane plants in enclosures. butter." A pill consisting of equal parts of the bark of yellow myrobalans. When strangers are entertained in monastery ghee. bhiruka. vamsaka. "As you go forward from the mountain. and to the careful tending needed for the crop Advanced knowledge of sugarcane cultivation is clear from the classification of the plants into several types. names some of these. sugar and other eatables are offered. on seeing an immense quantity of sugar at Zibit in Arabia. solid sugar and mustard oil. an Italian who travelled in the East in 1503-8. the pomegranate and the sugarcane". nilapora and kosakrt.C assuming some necessary antecedent period for the knowledge to grow.. Describing a sylvan village on the outskirts of the Vindhya forests of Harsacarita gives a graphic picture of a sugarcane field. On the basis of the reference to the word in the early Buddhist literature. He mentioned. In the Vedic period it thus seems that. they had not acquired the knowledge of manufacturing sugar from its juice. The juice of grapes and sugarcane is the food of the Khatriyas. differing according to their qualities. sataporake. Ksiravamin.. to the harm done to them by antelopes and rabbits. trees and roots are all different from those in the land of the of ban except the bamboo.D. The Amarakosa.

the other species is hard. Since independence there has been an overall increasing trend in sugar production in India. In the third plan the target of production was 35lakh tonnes.76 lakh tonnes. Table 1 Progress of Sugar Industry during Five Year Plans Before the commencement of First Plan there were 138 sugar factories with an installed annual sugar production of 19. one called paunda. This resulted in decontrol up to some extent. so full of juice that a sparrow by specking could make the juice flow. IN 1950-51 there were 138 sugar mills in India but up to 31st March 2004 this number increased to 461.34 lakh tonnes. Although the sugar production upto 3rd Plan was more than target but due to seasonal variations the target could not be achieved in fourth plan. In the Sixth plan the larget was 76 lakh tonnes but the production was only 61. Again in Fifth plan the production was more (28. Although the production of sugar decreased in 1992-93 and 1993-94 but it increased to 146 lakh tonnes in 1994-95 and India became largest sugar producing country in the world. common sugar.29 lakh tonnes which was slightly more than demands.little south of Goa on the Malabar Coasts recorded "a great abudance of sugar especially candied according to our way. To meet the increasing sugar requirement during different plan periods targets of sugar production were fixed as depicted in table 1. white candy. 50. Due to short fall in production of the cane in first three years of the Third plan the target could not be fulfilled but at the end of the plan the target of production was achieved with production of 35. cane is stated to have been of various kinds.000 crores and annual production capacity of 180 lakh metric tonnes (ISMA Report. Production of sugar has increased by leaps and bounds in the planning period. At present there are 553 registered sugar factories having capital investment of Rs. 175 in the second plan.It is evident that cultivation of sugarcane was prevalent all over India. DEVELOPMENTS IN THE INDUSTRY IN RECENT TIMES Five Year Plans And Sugar Industry The sugar industry was granted protection till 1950. In Aln-i-Akbari written by Abul Fazal in 1590. one species is so tender and so soft. During the plan period. but mainly of two sorts. In 2002-2003 the production of sugar in India was 28 lakh tonnes which decreased to 170 lakh tonnes in 2003-04. 2004) and presently sugar industry is the second largest agro-based industry of India. The former was grown for eating and the latter for sugar making-brown sugar candy. and refined sugar useful for the preparation of all kinds of sweetmeats.5 lakh tonnes which was increased to 25 lakh tonnes but the actual production exceeded up to 30.32 lakh tonnes of sugar. The number of the sugar factories increased to 143 in the first plan. The production increased to 30. to achieve targets of sugar production.42 lakh tonnes) than target (54 lakh tones). During second plan the target of production was 22. PRICING OF SUGAR: .29 lakh tonnes in the second plan. licences were issued for setting up of new factories and for many of the existing units to expand the size of the units. In the Eight plan the target further could not be achieved. Again in Seventh plan it was more than target.

The union ministry of agriculture then makes a public announcement of SMP. in place of minimum support price (MSP) that it announces for food grains and essential commodities. The Tuteja Committee has also recommended that the Central Government may dispense with the release mechanism for free sale sugar with effect from October 1. The balance sugar referred to as "free sale sugar" can be sold in the open market. in February 2002. 2003. the levy sugar quota would automatically be converted into free sale sugar. in March 2003. whereby the Government determines the quantum of sugar that can be sold every month. under which. January 2000) 2001-2002 | 15:85 (wef. Table 2: Levy Obligation Over The Years Year | Levy Sugar: Free sale sugar ratio 1996-1997 | 40:60 | 1997-1998 | 40:60 | 1998-1999 | 40:60 | 1999-2000 | 40:60 | 2000-2001 | 30:70 (wef. a maximum of 3 months may be permitted for lifting of levy sugar by the Government. the Central Government decided. Free sale sugar is also regulated to some extent. The sugar so collected is distributed to consumers through Fair Price Shops under the public distribution system. This helps the Government maintain stability in sugar prices. several state governments announce a much higher State advised price (SAP) for cane is increased every year by the central government. to dispense with the release mechanism with effect from April 1. by regulating the supply of sugar based on the underlying demand.But sadly the regulatory authorities do not allow the industry . affected to some extent by the release mechanism. the Government statutorily determines the price of levy sugar. However. On top of the SMP. a fixed percentage of the total production is to be necessarily sold by the sugar mills to the Government or its nominees at a pre-determined price referred to as "levy sugar". where after.The Government has been following a dual pricing policy for sugar. Thus. Sugarcane Directorate of Uttar Pradesh Government) SAP and SMP in sugar industry The central government declares a statutory minimum price for every year. As per Tuteja Committee. February 2001) 2002-2003 | 10:90 (wef. State governments further jack up the price . 2005 The levy imposed has reduced from 40% in the 1990s to 10% effective from March 2002. by way of a release mechanism. 2005. it was decided to continue with the release mechanism up to September 2005 and to review the position in February. The Committee has also recommended that beyond the initial time limit. without any recurring levy obligation on this portion of levy sugar. March 2002) 2003-2004 | 10:90 | 2004-2005 | 10:90 | | | | | (Source: Government of India Gazette. The Tuteja Committee has also recommended continuing with the 10% levy obligation level. while the price for the free market sugar is market determined. The SMP is actually worked out by the commission on agricultural costs and prices (CACP) through a structured and streamlined methodology.

50 | 2 | 32. /Qtl. /Qtl. At that time. Once upon a time they were very profitable but now.3 % 5. it has since widened due to high free sale sugar prices.8 times 3. /Qtl.) | %Change | (Rs. Average debt – equity ratio has been 2.25 | 1 | 44. the cooperatives are on its death bed now. /Qtl.50 | 31 | 1889 | 2006-07 | 125 | 9 | 80. Govt of UP. Average current ratio for the years 2002-07 has been 0. Figure 2: Historical Free sale sugar and Levy Sugar Prices (Rs.75 | 36 | 1510 | 2007-08 | 125 | 0 | 81. making private sector's presence almost insignificant in the state.to correspondingly and commensurately increase the price of sugar. Average creditors days is 114 days 7.15% | | | | 0. The cooperative changed this situation by assuring the farmers of off-take of their . The following table brings out this important point: Table 3: Differences between SMP and SAP Prices for Sugarcane SMP and SAP Prices for Sugarcane | Season | SAP*(UP) | SMP( Central Govt) | Difference Between Sap and SMP | AVG.00 | | 22. ISMA SMP: Statutory minimum Price SAP: State Advised Price As can be seen from the table.50 | 30 | 1760 | 2005-06 | 115 | 7 | 79. sugar cooperatives alone contribute 95 per cent of the total sugar produced in the state. / metric tonne) FINANCIAL DETAILS Given below are some financial details of the sugar industry 1.) | %Change | (Rs. For example in Maharashtra.82 | 35 | 1502(Upto June’o8) | CAGR | 5. while the gap between levy sugar prices and free sale sugar prices had narrowed considerably until 2002-2003.) | 2003-04 | 95 | | 73.5 times 4.) | %Change | (Rs.50 | 7 | 35. Average debtors days is 15. Patil brought together sugarcane farmers of 44 villages in Ahmednagar district in western Maharashtra and formed Asia's first cooperative sugar factory.00 | 23 | 1485 | 2004-05 | 107 | 13 | 74. Average return on capital employed is 10. extracting sugar from cane was so expensive that most of the farmers preferred to convert it to jaggery.23% | Sources: GOI. The first sugar cooperative in Maharashtra was formed by Vithalrao Vikhe Patil in 1950 to resist the uncouth exploitation of farmers by money-lenders and private mill owners. Wholesale Sugar Price** | | (Rs.8 days 6. Stock– to use ratio – 55% ROLE OF SUGAR COOPERATIVES: Sugar cooperatives in India were the backbone of India's sugar sector.18 | 1 | 43. Current assets in sugar industry comprises of 60-70% of the total assets 2.64% | | 2. which resulted in a glut of jaggery in the market.

300 per quintal. The subsidy is for exports up to 10 lakh tonnes. India produces around 20 million tonnes of sugar and exports just one million tonnes. the subsidy came at a time when global markets had crashed. the government recently lifted the ban on exports and decided to create a buffer stock. In India. cane planting will go down and crop patterns will change. causing shortage of sugar. despite export subsidy. As a result. In a bid to rescue the sugar sector. Currently. Then. causing losses to sugar mills and farmers. This is also true to the global sugar scenario and thus to prevent imports at low global prices. The impact of the price crash will ultimately be felt by sugarcane farmers. While India is the third largest sugar producing nation in the world. As a result. Biggest problem the sugar industry facing today is surplus production -. prices of sugar have been steadily sliding this year. which is the largest producer and exporter of sugar.350 a quintal announced by the Central government. sugar mills were not able to ship the commodity to other countries at a competitive price. Maharashtra government announced an export subsidy of Rs 1. Situation has changed down the years.000 per tonne. farmers will be forced to shift to other crops. it is only the seventh largest exporter of the commodity for 2005-06 fiscal.sugar prices crashed from Rs 1. However. the price of cane is more than the price of sugar. According to S L Jain. the director-general of Indian Sugar Mills Association. lifting the ban on exports came at a time when global prices had crashed. payment to farmers will be delayed. While sugar production has increased in the last decade. So. The decision-making is delayed because of the high number of people involved in the process.from 10 lakh tonnes in 1950 to over 200 lakh tonnes at present. The major problem being faced by the cooperative sugar sector is unprofessional management. Another issue is that of vagaries of nature. much lower than 59 of Brazil. which means that the government controls sugar capacity .800 to Rs 1.produce at a reasonable price. This has led to accumulation of stocks with sugar mills which affected prices. While consumption of sugar is increasing at a steady pace of 4 to 5 per cent per annum. This situation can be rectified if the government encourages exports. which is over and above the export subsidy of Rs 1.from January to March this year -. the government has a high tariff protection in place. 1955. The per capita consumption stands at 18 kg. it does not match the increase in production. But. domestic sugar consumption has grown at a sluggish pace. In three months' time -. Sugar industry is grossly governed by natural vagaries and the infamous sugar cycle of two years surplus followed by one year of shortage. sugar is under the purview of Essential Commodities Act. This is one of the main reasons why the margins are under pressure. As mills run into losses. The unique aspect of the cooperative movement was that a farmer with a small landholding is also given the same status of a shareholder. lack of foresightedness and absence of decision-making process. the industry is facing the problem of plenty. This year.

Taking into account all the 3 . Cane Utilization in India Figure 3: Cane Utilization in India Source: International Symposium On Bio-Fuels In the year 2003-2004. however. the proportion of sugarcane drawn by the sugar industry was hovering around 35%. The weight age given to a product in WPI calculations signifies its level of importance in family budget.gur and khandsari. Import of sugar or export is mainly resorted to when there is a mismatch in domestic sugar production. In India sugarcane is utilised by sugar mills as well as by traditional users like gur and khandsari producers. This ultra-sensitivity is because of irrationally high weight age given to sugar in India’s price indices. sugar has a weight age of 2.additions through industrial licensing and determines the price of sugarcane and the quantity that can be sold in the open market.013. Following table gives data on sugarcane utilization for different purposes.gur and khandsari. This is unrealistic and artificial. the steel that is 3. particularly in computation of the most commonly used Wholesale price index (WPI). Figure 4: Sugarcane Utilisation (Source: ISMA) Figure 5: Sugar contribution in various industries SUGAR CONSUMPTION IN INDIA: Apart from white sugar. the weight age of sugar increased by 78.When the WPI was revised in the mid-90’s taking 1993-94 prices as the base. HIGH WEIGHTAGE IN WHOLESALE PRICE INDEX There is undue hype about sugar prices in India. SUGARCANE UTILIZATION: Not only has the sugarcane acreage and sugarcane production been increasing.6.84per cent to reach 3.63. which stipulates that the government can use 20 per cent of the country's total production for sale abroad. In early 1980s. This is absurd as Iron and steel are significantly more important than sugar in value terms to the economy. percentage drawal of sugarcane. 1958. declined due to rising sugar prices and more intense competition from the alternate sweeteners . which are placed at about 9 MMT per annum. In WPI calculations based on 1981-82 prices. The sudden growth in 2002-2003 can be attributed to the fact that sugar prices in this year were very low and Gur and Khandsari manufacturers could not effectively compete with the low sugar prices. India also consumes alternate sweeteners . drawal of sugarcane by the sugar industry has also been increasing over the years. Sugar export is governed by Sugar Export Promotion Act. which went upto to 50% in 1990s and to as high as 69% in the year 2002-2003. The weight age given to sugar equals the weight assigned to iron and steel.

But imports continued because of the sharper fall in world market prices. India may import about 4. Table 4: Per Capita Consumption of Sugar In Urban India States | Kgs.446 mln tones. It can be expected that this gap will close with increase in urbanization leading to a growth in the total sweeteners market in India. Following protests by the domestic industry. As income levels and GDP rises. Also. has turned a net importer in 2008/09 due to a sharp drop in the output.73% to 167. and low import tariffs. In rural areas the alternate sweeteners gur and khandsari are consumed in larger quantities. The comparative operating performance of a sample company for the last two seasons is given below: WORLD SUGAR SCENARIO After two consecutive seasons of surplus between world sugar production and consumption. given the differential between world and domestic prices. The world consumption of sugar is forecasted to grow by 1.5 | Maharashtra | 40. However. The consumption of sugar in urban areas in some of the Indian states with higher GDP and income levels. as can be seen from the following table.5 | Uttar Pradesh | 35.e.sweeteners i. Figure 6: Differences in Production and Domestic off take The consumption of white sugar in India is generally urban based. the glut on the domestic market following the sharp rise in 1998/99 production did not stop importers bringing in huge amounts. it can be expected that there will be a gradual shift from consumption of alternate sweeteners to white sugar. the biggest sugar consumer in the world. World Sugar economy is now facing a significant supply-demand imbalance. World production is .9 | Gujarat | 40.2 | Tamil Nadu | 29. the government stepwise raised the import duty.5 | In India. Import of sugar this fiscal India. white sugar consumption is much lower than the world average.9 | Kerala| 41. matches favorably with various developed countries. Indian consumption is more than the world average (See the table below).1 | Karnataka | 23. on a per capita basis. gur and khandsari. white sugar. This clearly implies that per capita consumption of sweeteners in rural India is much lower.1 million tonnes in the year starting from 1st October. The highest per capita consumption of sugar is in the states of Punjab and Haryana which are adjoining the sugar producing region of western UP. 2009. the total per capita consumption of sweeteners in urban India is higher than total India average by around 5 kg per annum. Per annum | Punjab | 71. There will be fall in global sugar production.5 | Haryana | 68.3 | All India | 31.

The final raw sugar is like a soft brown sugar and is stored in a large sticky mountain. It can be used like that but usually it gets dirty in storage and has a distinctive taste.817 million tonnes. Press-Mud: It is rich source of manure for crops. because one cannot get all the sugar out of the juice. Table 5: World Sugar Balance PROCESS OF MANUFACTURING SUGAR: Production Process and By-products Sugar is primarily extracted from sugarcane and beet. The difference between the production processes of sugar from the two raw materials is minor. After settling out much of the dirt and other impurities. the juice is thickened into syrup by boiling off much of the water (evaporation) The syrup is placed into a very large pan for boiling and more water is boiled off until conditions are right for sugar crystals to grow Once the crystals have grown the resulting mixture of crystals and syrup is spun in centrifuges to separate the two (like spinning clothes in a washer). Additionally.expected to increase by 4. which is 8. some small fibers and green extracts from the plant). Molasses: It is a prime input for the manufacture of alcohol and Alco chemicals like acetic acid.the soil from the fields. By-products There are essentially three main by-products generated by the sugar industry. FACTORS THAT AFFECT SUGAR INDUSTRY . That is why it is further refined to produce white sugar for human consumption.903 million tonnes in the previous season. as against 50. which most people don't want. acetic anhydride.964 million tonnes. there is a sweet by-product made . It is used for generation of steam and power required for processing of sugarcane. The crystals are then given a final dry with hot air before being stored. World export availability for season 2009-10 is expected to be 51.molasses. usually by crushing the sugar cane (at this stage the sweet juice contains many impurities . ii) Artificial sweeteners: These are compounds providing the sweetnerss of sugar without the calorific value.404 million tonnes lower than world consumption. A ton of sugarcane crushed produces around 350 kg of bagasse. It is mostly used by diabetics. heart patients and obese. It is also an important constituent for the production of compound cattle feed. These are mostly used in villages and by rural folk as sweetners and also as important sources of nutrition. In India the process of manufacturing sugar is as follows: 1) Extraction of juice from sugar cane 2) Clarification and evaporation of juice 3) Crystallization and centrifugation Figure 7: Production Process Extraction of the cane juice from the sugar cane. World export availability is expected to rise due to projected growth in output in exporting countries. Substitutes and complimentary products of Sugar Sugar substitutes can be divided into two major categories: i) Gur and Khandsari: Gur is unrefined sugar and khandsari is non centrifuged sugar. 45 kg of molasses and 510 kg of press mud. Bagasse: It is the other major by-product of the sugar industry.

Sugarcane prices 3. This led to massive amounts of lending by banks for home purchases.and fuel predicament as oil prices are escalating to new hights. of course. 1611. Secondly. the United States and some other European countries enjoyed prolonged boom in house prices since the early 1990s right up to end of 2006. Consequently. (956. Japan. Utilisation of by-products 4. Alternative fuels are being promoted globally as the increasing gasoline prices trigger inflation. these financial innovations actually spread the risks of the underlying weak credits throughout the Western financial system. not credit worthy. These big exporting nations sold their products to American and European consumers and then parked their surpluses (over and above their imports) in American and European government securities. Table 7: Sugar and Molasses production CAUSES OF THE GLOBAL CRISIS First. Basic food commodities are some of the goods hit by this inflation. Plant size and location 5. businesses and government more than doubled from about 160% in 1982 to 340% in 2007. more simply. Germany and oil exporters. the ratio of gross debt to GDP of US households. this huge increase in borrowing was encouraged by rapid financial innovation which supposedly reduced and transferred the risks (of default) by borrowers. To . ethanol’s rise in the fuel market could be a result of increased maize input. Interest burden Table 6: Demand and Supply of sugar in India Effect of Ethanol production on Sugar industry: The world is experiencing yet another energy. they would never fall. Demand-supply position and its impact on prices 2. In other words. A sharp fall in the sugar production in the country has resulted in a revival of sugar prices and has improved profitability. Working capital requirement and cost of funds 6. many of these borrowers were “sub-prime” or. Sugar cane prices can be impacted significantly by ethanol production.There is a marked improvement in the financial performance of the Company for the year under review when the Company has earned a profit (before Depreciation and Tax) of Rs. rather than sugar. People began to believe that house prices can only go up. In fact.03) lacs during the immediately preceding financial year. Most of this massive increase in borrowing was accounted for by households and financial firms (like banks). The financial performance of a sugar factory mainly depends on the following: 1. often to borrowers who did not have jobs or steady incomes. As an indicator of this huge borrowing binge. This housing bubble was part of a massive borrowing binge in the United States and some European countries by households and financial institutions that was fuelled by the “easy money” policies of their central banks and huge inflows of funds from capital surplus countries such as China. such as sub-prime home loan borrowers.57 lacs as against loss of Rs. Not for nothing has the billionaire Warren Buffet termed these complex “financial derivatives” as WMDs or weapons of mass destruction! The explosion of financial innovation fuelled excess growth of the finance industry and built an enormous house of financial cards on a weak base of shaky credit risks.

Nature and dimensions of the crisis In the winter 2006/7 US housing prices started to fall for the first time in fifteen years. Brazil and Mexico experiencing negative growth). The sharp slowdown in economic activity in the US and Europe quickly spread across the world through the channels of a global credit squeeze and a massive drop in demand for goods and services from major exporting nations like China. Thus. This meant that hundreds of billions of dollars of financial derivatives which were based on these underlying mortgage loans also lost most of their value. production and foreign trade. including India. investment. the growth of the rich advanced economies will drop from about 3% in 2007 to minus 4% in 2009. An important reason why this massive expansion of complex financial products. Governments in these countries launched massive bail-outs of their banks and increased government spending to contain the impact on the rest of the economy. It is true that there had been a steep correction in Indian stock prices in January 2008. the growth of developing and emerging countries will slow sharply from about 8% in 2007 to less than 2% in 2009 (with some countries such as Russia. In this way the financial crisis in the US and parts of Europe not only damaged production and growth in these countries but led to sharp drops in exports and production throughout all those countries which for many years had relied on the US and European markets for their export growth. the enormous increase in imprudent borrowing and excessive lending was fuelled by old fashioned greed. Impact of Global crisis on India Although the global financial crisis had begun to gain force in the US and Europe by the autumn of 2007. But our main concern throughout the first 7–8 months of 2008 was with the sharp increase in inflation because of the commodity price shock that . by the summer of 2007 “the house of financial cards” began to collapse and a growing number of American and European banks announced huge losses on their mortgage related securities and investments. stock markets and commodity prices. By the beginning of 2009 it had become quite clear that the current global recession is the worst since the Great Depression of 1929–32. in India it was mainly perceived to be rich world problem right up till August 2008. which fuelled the huge asset price bubbles in housing. Finally. and world trade growth will drop from 7% in 2007 to an astounding minus 11% in 2009. As a result many of the sub prime housing loans (mortgages as they are called) became bad loans.5% in 2009. Nothing like this has been experienced by the global economy in the last 75 years. This process of financial collapse gradually gathered steam and came to a boil in September 2008 when major American investment banks (like Lehman Brothers) collapsed and others (such as Merrill Lynch) were saved through forced mergers with healthier banks. The latest estimates and projections by the IMF and the OECD (an organization of 30 advanced economies) indicates that the global economic growth will fall from about 4% in 2007 to minus 2. bank credit continued to be almost frozen. could go on for many years is because of a growing culture of weak regulation of financial institutions and markets that prevailed in the US. and some other countries for the past two decades. the share in the total US corporate profits of financial firms (like banks) increased from less than 10% in 1980 to 40% in 2007. It really is an extraordinary economic crisis. Germany and several other Asian countries. built on a foundation of shaky housing loans. UK. leading to sharp falls in consumer spending. Despite trillions of dollars of bail-outs and fiscal stimulus.give you another number. The financial melt-down of September 2008 led to a freeze of credit markets in the US and Europe and transmitted the sudden liquidity squeeze throughout the financial world. Japan.

the farm loan waiver. Indeed. This sense of complacency and illusion of decoupling from the global slowdown was shattered by the events of September 2008. The net result was that the combined fiscal deficit of Centre and States doubled from 5. reversing all the antiinflationary tightening it had done in the previous four years. higher spending on National Rural Employment Guarantee Programme and. fertilizers. right through the summer of 2008. credit for foreign trade vanishing and loans from foreign banks drying up. as global demand for all commodities suddenly deflated with the deepening of the recession in major industrial countries.had hit us (and the rest of the world) from early 2008. The Government. The Government announced additional spending increases and tax cuts in December and January. food grains that had accelerated from late 2007 was much more a product of the global economic boom during 2002 to 2007 than of any recession in Western countries.5% in 2008/9. with over US$300 billion of forex reserves in its coffers at the beginning of the year. of course. Faced by the sharp credit crunch and the sudden slowing down of the economic activity after September 2008. fertilizers. petrol. had already pumped up spending (even before September 2008) on Sixth Pay Commission pay increases. and this despite the Government keeping the issue prices of food grains. The external balance of payments situation was also helped by the sharp drop in oil and fertilizer prices from their July 2008 peaks. the steep increase in global commodity prices of oil. With the collapse of huge Wall Street banks and the resulting freeze of bank credit flows in the West. . for its part. Yes.5% of GDP in 2007/8 to about 11% of GDP in 2008/9. the RBI was able to contain the slide in the value of the rupee and avoid any currency crisis. the exchange rate of the rupee came under pressure. their economic effect was the same as for “fiscal stimuli” like the ones Western countries had already launched to combat recession. exports and industrial output had began to decline and overall economic growth slowed sharply to just 5. kerosene. In fact. These large expenditure increases had been driven mainly by political or populist reasons but. 2008. implying the full year growth of around 6-6. With foreign capital flowing out and export earnings dropping. India’s growth slowdown in the second half 2008-09 would have been greater. I am sure you will all remember how the rate of inflation jumped from about 5% in February 2008 to over 10% by April 2008. Europe and Japan. this was a little less than the 9% growth that the country had enjoyed in the previous five years but it was still a very rapid rate of economic expansion by global standards. the Government and Reserve Bank responded quite swiftly. diesel. there was an immediate worldwide liquidity crunch and a massive amplification of the recessionary forces in the US. The liquidity shock was immediately felt in India. much higher subsidies for petroleum products. which began in the spring of 2008. 2009 is unlikely to be much better. fortuitously.3 % in the final quarter of October-December. Fortunately. and LPG largely unchanged during that period. But for this massive increase in fiscal stimulus. metals. Growth in January-March. This view seemed to gain some support from the fact that rate of India’s economic growth in the first half of 2008/9 was still close to 8%. with foreign institutional investors withdrawing their money. Even before the end of 2008. there was a widespread view that the economic growth of Asian developing countries like China and India was “decoupled” from the slowdown in advanced countries of the West. Over the four months of November--March the RBI quickly loosened its monetary and credit policies. undertaken for whatever reasons. fertilizers and food grains.

the rate of economic growth had slowed to the 5-6% range in the second half of the year from the 9% average of the previous five years. Due to the above mentioned factors the prices of sugar have been following a ‘sugarprice cycle’. The following diagram schematically explains the ‘Sugar-price Cycle’: The ‘sugar-price cycle’ effect explains the price fluctuations for the last as well as the present centuries. with global commodity prices falling sharply the rate of inflation was also dropping quickly in India although food prices were still uncomfortably high. ie. Colombia. India’s exports in JanuaryMarch. Yes. This crisis also affected several countries which are the primary consumers of sugar and sugar products. Over the year these two factors have actively contributed to the price changes but later on an additional factor has taken shape due to globalization. footwear and leather products and gems and jewellery. To explain the impact of the crisis on the industry one has to consider several other factors.In summary. India’s banking sector was not significantly exposed to the trillions of dollars of toxic assets that were swirling around global financial and credit markets. by the end of the year 2008/9. but it was still much better than the negative growth rates in industrial countries and better than the performance of most significant developing countries with the exception of China. IMPACT OF THE CRISIS ON THE SUGAR INDUSTRY The impact of the Global Economic Crisis on the sugar industry is not as direct as its effects on other industries. textiles. This cycle explains how variation in sugarcane availability affects the production of sugar as well as the global sugar prices. Still. Mexico. the global crisis had taken a substantial toll of India’s economic performance but it was by no means catastrophic. Brazil. Furthermore. Asian Financial crisis affected the economies of all major sugarcane cultivating as well as sugar producing countries like Thailand. The following graph shows the price as well as inventory variations of sugar globally: Figure 8: Global Inventory Variations of Sugar The last ‘Sugar-price cycle’ started with the ‘Asian Financial Crisis’ of 1997 and came to a close during the current Global Slowdown of 2007. However. . The main factors that affect the price of sugar commodities are the demand for sugar and supply of sugarcane. cost of processing or production. One more very important point: thanks to RBI’s conservative approach to financial liberalization. Philippines etc. the slowdown had its own share of contribution to the dire conditions faced by the sugar industry at present. This meant that hundreds of thousands of jobs were lost in sectors like garments. 2. ‘Sugar-price cycle’ also includes the returns from sugar trade which in turn accommodates the processing or production costs of borne by the sugar industry. which in turn affects future sugarcane cultivation. 2009 were about 20% lower than in the previous year. The reasons for the ‘Asian Financial crisis 1997’ being considered as the starting-point for the sugar cycle: 1. with the sudden shrinkage in world trade after September 2008.

Figure 9: Global Sugar prices Impact of Global Slowdown Global slowdown contributed to several changes in the sugar market as well as sugar industry. The decline in sugar and wheat prices during the last six months has helped fast-moving consumer goods (FMCG) companies that make bread. biscuits and beverages to reap higher realisations. ethanol production from sugarcane increased as in Brazil. More farmers supplying to ethanol producing industries due to low prices from sugar mills. the prices started to gradually increase after a nadir point in 2000 and reached a peak point by 2006.2 million tonnes to 28 million tonnes. Thailand etc 6. thus leading the country to go for large scale import of sugar from Brazil. The impact of the slowdown on India includes: 1. The commodities market also suffered the heat of the slowdown. Governments declaring high Minimum Support Price (MSP) and State Advised Price (SAP) for sugarcane inorder to counter the slowdown and the Indian General Elections of 2009. Fall in sugar prices worldwide 3. The crisis affected the commodities market and various Sugar-based Commodity funds Impact of Asian Financial Crisis on the sugar industry 1. Increase in sugar prices in India. 5. Increase in sugar inventory deficit in India. Due to low returns and rise in fuel prices. 3. The present situation of the sugar industry in India can be connected to the effects of the global slowdown which started off in 2007. more attention spends on sugar production. the world could witness a severe sugar drought by 2010 due to this shortage. India could play a key role in recharging a global commodity market in the thick of an economic downturn.7 million tonnes and sugar prices have also dipped over the same period owing to a 45 per cent jump in output from 19.3. Wheat prices have slumped due to an increase in output from 69. With global consumption gradually picking up. The wheat-based industry was incurring losses when prices of these inputs were high. India's eight million tonne sugar production is projected to suffer a shortfall in the 2008-09 sugar year and its projected 7-9 million tonne sugar output deficit in the 2009-10 season beginning October 1. has been . The following are some of the significant changes: To fill the gap between sugar demand and supply many of the sugar refineries were going for expansion plans but the slowdown led to lack of financial funds and thus most of the refineries had to stick to their current production capacities.5 million tonnes last year to 73. According to Credit Sussie. not as a producer. Availability of sugar rose owing to weak economic situation of sugar-exporting countries 2. India’s role would be as a crucial market. including Coca-Cola and Pepsi. Fall in sugarcane cultivations in Western and Northern parts of India owing to higher returns from wheat and rice cultivation 4. The beverages industry. When the credit bubble burst most of the investors sold their funds at cheap prices leading to a fall in sugar markets which thereby led to fall in global sugar inventory. Fall in sugar production from Indian sugar mills 2. So with the gradual fall in production and increase in worldwide sugar consumption.

but investors lovin' it 27 Oct 2009. 0237 hrs IST. Ram Sahgal & Vijay Gurav.000 tonnes.10 / 5 .5% for the sugar year 2009-10 5. Recent Media reports on sugar industry: As per recent media reports. According to sugar industry estimates. to prevent upward spiral of domestic prices triggered by supply concern. India Regression Equation of y on X: Y = a + bX For finding the values of a and b.05 (x-µ)=X | Square of time deviations (X2) | Product of time deviations and sales (Xy) | 2004 – 05 | 237.74 | *Data from ministry of agriculture. 2009 The government is planning to raise the cap on duty-free refined sugar import by one million tonnes once the current limit is exhausted.09 | -2 |4 | -474. which has been aggravated by the global economic slowdown.09 | 290. the Centre had allowed traders to import up to one million tonnes of duty-free white sugar till November 30.20 |0 |0 |0 | 2007 – 08 | 348. the two companies would be able to save Rs 7. the Indian Government has taken various measures: 1.18 | 2005 – 06 | 281. Special Committee for Minimum Support Price determination 2. Sugar buyers fret as prices rise. At an average monthly consumption of 25.45 |2 |4 | 580. which can be inferred from the following reports: ‘Govt may raise duty-free refined sugar import cap by 1 MT’ Press Trust of India / New Delhi October 28.90 | n=5 | ∑y=1512.19 | 2008 .19 |1 |1 | 348. the nation’s biggest sugar producer led a rally in the sector’s stocks as investors lapped up the shares in anticipation of higher prices for the commodity due to lower supplies and a government rule that may free the companies from states’ clutches in terms of prices paid to cane producers.10 | ∑X=0| ∑X2=10 | ∑Xy=173. consume 150 thousand tonnes of sugar annually.Earlier. on an average. Relief Measures by Indian Government Considering the situation of falling production rates and rising demand.5 crore every month.17 | 2006 – 07 | 355. The Centre is likely to fix the fair and remunerative price of sugarcane at close to Rs 130 a quintal based on a sugar recovery rate of 9. Government permission to import 2 million tonnes of raw sugar 4. Govt regulations to reduce ethanol production from sugarcane Figure 10: Forecast of India’s sugar inventory DEMAND FORECASTING: Table 8: Demand forecasting Year (x) | Production (in Million tonnes) (y) | Time deviations from 2004 . both companies. the situation of the sugar industry needs serious attention.another gainer from the crash in sugar prices. a (constant variable) = ∑y / n = 1512.17 | -1 |1 | -281. ET Bureau Bajaj Hindusthan. Government advisory to state regarding the fixing of State Advised Prices 3.

iii.74 / 10 = 17. Low . iii. 1996 to ensure adequate cane supplies to sugar mills. The Government brought in measures such as weekly quota for free sale.27 | 2012 – 13 |6 | 406. Fertility of Land is decreasing. both at zero% customs duty.53 | 2010 -11 |4 | 371.01 | CHALLENGES FOR THE SUGAR INDUSTRY Raw Materials i.= 302. organisation and managerial ability vii. Resources iii. i.42 + 17. Lack of funds. Enhance share of Indian sugar industry in global trade ii.42 b (rate of growth) = ∑Xy / ∑X2 = 173.37(X) With the help of this equation. weekly reporting mechanism to monitor sugar dispatches and sale. Fluctuation in Sugar Cane ii. The Centre is also planning to bring back Gur under the Sugarcane (control) order. Globalization has brought a number of opportunities but at the same time posed certain challenges before sugar industry. and resource as well as infrastructural problems. Sugar recovery is also lower in comparison with other sugar manufacturing countries. Low rainfall in sugarcane cultivation areas Sugar Policy of the Government of India Rising prices of sugar has caused concern to the Government and it has intervened substantially to control the prices of the sugar. Most of sugar units in India utilize production capacity below 50%. Lack of Irrigation Facilities.37(X)(In Millions) | 2009 – 10 |3 | 354. iv.42 +17. liberalized raw sugar import under Advance Authorization Scheme [with change in export obligation norm from ‘grain-to-grain’ to ‘tonne-to tonne’ basis] and finally the facility to import raw sugar without export obligation as well as import of white sugar up to 10 lakh tonnes by Government agencies.64 | 2013 -14 |7 | 424. Industry has a great challenge of existence in global market vi. Biggest problem the sugar industry facing today is deficit production India ranks first in sugar consumption and second in sugar production in world but it's share in global sugar trade is below 3%. v. Indian sugar industry has been facing raw material. the regression equation is Y = 302. because it is one of the essential commodities. Enhance quality and quantity of sugar.37 Hence.90 | 2011 – 12 |5 | 389. Due to water shortage shift of farmers to multiple crop cultivation. we can find out the trend values for the next five years as follows: Table 9: Forecast of sugar industry for next 5 years Year | X | Y= 302. ii. Infrastructure Production of sugarcane i.

The main concern of sugar industry in India is fluctuations in sugarcane production due to inadquate irrigation facilities. Indian sugar industry is characterized by high production costs. quality and quantity of sugar needs to be enhanced.capacity utilization and inadequacy of raw material led to closer of 100 sugar factories in India. could provide additional impetus to longer-term market growth unless in the meantime the Government allows the food & beverage industry to import its sugar requirement directly and putting a ceiling on their stock holding. Adequate and regular power supply to sugarcane growers and sugar factories would increase production and productivity. industry has a great challenge of existence in global market. . All the area under sugar cultivation should be brought under drip irrigation to conserve water as well as fertilizers. lower sugarcane yield. FUTURE OUTLOOK The sugar industry seems to be finally coming out of the worst ever recession that it had seen over the past few decades. demand for white sugar is expected to continue to increase. There is still uncertainty about the sugarcane prices as the matter is under litigation and will have a significant impact on the profitability of the industry. After successive years of surplus production and uninhibited capacity addition. Indian sugar industry has been cash striven for decades. the sugar output in India has started declining. sugarcane yield has been lower (59 Mts per hectare). In recent years. These mills cannot have economies of scale so they have to incur high production costs. Indian sugar industry can be a global leader provided it comes out of the vicious cycle of acute shortages and surplus of sugarcane. In addition. and frequent droughts in tropical and sub-tropical areas where sugarcane is grown ona large scale. To enhance share of Indian sugar industry in global trade. This leads to escalation of production costs and weakness competitive edge of the industry. Mounting losses and decreasing networth of sugar factories have been responsible for sickness of sugar industry. Although gur and khandsari are still consumed in rural areas. Most of sugar millsin India are having daily sugarcane crushing capacity of 1250 tonnes.Sugar prices have been a political issue rather than economical issue. Therefore. Special attention is needed to be given on water resource management. Obviously. daily crushing capacity should be extended to 2500 tonnes. Many a times it worsens economy of sugar factories. This development has witnessed a smart rally in sugar prices that have come back to the levels that were prevailing in 2006. While it may be still premature to comment on the production estimates for 2008-09. Low cash inflow due to piling stocks leads to serious financial crisis and finally to closing sugar factories. A stable long term policy is needed in which the shackles are removed which constrain this industry from growing in a healthy manner. Furthermore. The growth of sugar demand by food & beverage industries and other non-household users. sugarcane production in India has decelerated to a great extent due to water and power shortage. Sugar recovery is alsolower in comparison with other sugar manufacturing countries. it is evident that production will not exceed consumption as area under sugarcane plantation has fallen significantly. Against the backdrop of skyrocketing crude prices policymakers have become aware of sugarcane as an energy crop and are encouraging mills to go integrated and produce ethanol and power. estimated to account for about 45% of total consumption. Sickness in sugar industry has reached to an alarming proportion. prices of byproducts such as molasses and bagasse have also started strengthening. with the fall in sugarcane production.

NCDEX 10) Maize and sugar prices: the effects on ethanol production .indiansugar.Equity Research .BIBLIOGRAPHY 1) ‘Sugar .Improving Sugarcane Cultivation in India’ An Initiative of ICRISAT-WWF Project 5) ‘India Sugar Sector’ . posted 03.Equity Research .India Equity Research by Edelweiss . Banras Hindu University (MPRA Paper No. New Delhi . ISMA 12) Sector Review .com 8) http://dacnet.Agricultural Products & AgribusinessAsia Pacific/India by Credit-Suisse (dated 11 August 2008) 6) ‘India Sugar Sector’ .Agricultural Products & AgribusinessAsia Pacific/India by Credit-Suisse (dated 3 September 2009) 7) www. 6065. Pricing & Incentives . December 2007 / 12:26) 3) The World Sugar Trade :TRADE UNION BRIEFING NOTE AND RECOMMENDATIONS (7th World Sugar Trade Conference.in 9) Sugar: Futures Contracts .nic. President. Singapore) 4) ‘SSI:Sustainable Sugarcane Initiative .Ethanol: Economics.March 9.Centre for Trade and Development (CENTAD).P Rama Babu.Sector Update’ .Bachelor Thesis in Economics by Federico Porrez Padilla 11) INTERNATIONAL SYMPOSIUM ON BIO-FUELS .India Sugar Sector – Credit Suisse. India Research Analyst Team 13) A Case Study of Sugarcane Farming and Sugar Industry in Bihar .2007 2) ‘Indian sugar industry :A strong industrial base for rural India’ by Adya Prasad Pandey.

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