CONTENT

• INTRODUCTION • INTRODUCTION TO SKIL • PROFILE • SUGAR PRICE • DEMAND FACTOR – GLOBAL • DEMAND FACTOR – INDIA • GLOBAL PRODUCTION, SUPPLY • SUGAR PRODUCTION AND SUPPLY IN INDIA • FACTORS AFFECTING PRODUCTION • THE BREAK-EVEN POINT • SUGARCANE UTILIZATION • SUGAR CONSUMPTION IN INDIA • SUGAR EXPORT • SUGAR PRODUCTION • SUGAR MARKETS IN DISARRAY • SUGAR IN THE NEXT CENTURY • TO SUM UP

INTRODUCTION: India is the largest producer of sugar in the world. In terms of sugarcane production, India and Brazil are almost equally placed. In Brazil, out of the total cane available for crushing, 45% goes for sugar production and 55% for the production of ethanol directly from sugarcane juice. This gives the sugar industry in Brazil an additional flexibility to adjust its sugar production keeping in view the sugar price in the international market as nearly 40% of the sugar output is exported. Sugar industry – Global: Brazil and India are the largest sugar producing countries followed by China, USA, Thailand, Australia, Mexico, Pakistan, France and Germany. Global sugar production increased from approximately 125.88 MMT in 1995-1996 to 149.4 MMT in 2002-2003 and then declined to 143.7 MMT in 2003-2004, whereas consumption increased steadily from 118.1 MMT in 1995-1996 to 142.8 MMT in 2003-2004. The world consumption is projected to grow to 160.7 MMT in 2010 and 176.1 MMT by 2015. According to ISO, the world sugar output is forecasted to reach 145.0 MMT and consumption to reach 147.0 MMT in 2004-2005, resulting in

a deficit of around 2 MMT in 2004-2005. Further, since October 2003, nearly 5 MMT of surplus sugar are expected to have been removed from the world sugar balance, reducing the stock/ consumption ratio to less than 42%. INTRODUCTION TO SKIL: Sugar Knowledge International Limited, known throughout the world's sugar industry as SKIL, was established in 1980 to provide consultancy services to the cane sugar sector. It was intended that advice would be available for both agricultural and factory operations. From these modest beginnings it has grown into a company providing a broad range of professional services for all aspects of the beet and cane sugar industries. The founders of SKIL, and all the current directors, built their careers working for multinational sugar companies such as Tate + Lyle, Booker and British Sugar. This ensures that services are provided with a clear understanding of the corporate context including, perhaps most importantly, full commercial awareness. The company, however, jealously guards its independence from any sugar group and is one of the few truly independent organisations offering professional services to the sugar industry internationally. It is difficult to identify a single project as typical of the work undertaken by the company because of the diversity shown

in the project listings. The work for PTP XXIV / XXV in Indonesia comes closest because it involves several projects ranging from the initial concept to subsequent expansion. PTP XXIV / XXV, an Indonesian Government company, appointed SKIL to assist in establishing sugar estates in the outer islands. SKIL oversaw the development and initial operation of two large estates financed by the World Bank and other International Lending Agencies. SKIL was also retained in later years to assist with their subsequent expansion. Today SKIL is an independent professional services company with the resources necessary to provide consultancy, project engineering, project management and operational management to both the beet and cane sugar industries, including the utilisation of molasses and other by-products. The company has the flexibility to work with its clients in the way most appropriate to the particular project. Its clients have the assurance of working with a UK registered company with full Professional Indemnity and Public Liability insurances. Since its establishment, SKIL has completed projects in most parts of the sugar world and worked with many International Lending Agencies: Studies for new sugar developments and acquisition of existing operations

Operational reviews and remedial assistance for agricultural, factory and refinery operations Design and supervision of agricultural and factory refurbishments Design and project management of new developments and expansions Training of staff and management both on site and via external visits SKIL is steadily expanding its role in the sugar industry, offering a comprehensive range of services: Operational consultancy in the field and factory to resolve acute problems and guide their recovery through refurbishment. Development planning and conceptual design at both new and existing sites. Assistance with rising of project finance. Engineering design and commissioning. Contract administration and construction supervision of projects. Operational management of cane sugar estates. Most organisations require assistance from time to time, often during projects when work loads peak but also when operational problems arise. SKIL, recognising this, has responded by ensuring that it is quickly able to offer the appropriate help.

PROFILE: We are a focused, innovative corporation having core competencies in the areas of sugar and engineering. Our growth has been empowered with steadfast and distinctive adherence to business ethics, transparent governance and commitment to highest standards of social responsibility. From a humble beginning in 1930s, we have transformed ourselves into an INR 10 billion company through an interesting blend of people, technology and entrepreneurial spirit. Today, we touch the lives of millions of people globally by serving our customers in the areas of sugar, turbines, gears & gearboxes and water & wastewater treatment. While we are amongst the three largest sugar manufacturers in India, we are also the market leaders in our engineering businesses, having a global footprint. Embracing the virtues of integrity, excellence and commitment, we move ahead to take on the opportunities and challenges offered by the future. We are geared to transform into a truly global enterprise through a prudent mix of technical innovation and exceptional customer service delivery.

Our commitment to excellence and strong corporate governance guides us in this endeavor, as we look ahead at powerful growth and building a socially equitable, sustainable future Business Overview: Triveni's association with the Sugar Industry is as old as the Industry itself. In pre- independence India, the promoters of what is now the Triveni Group established several sugar factories in pre independent India. Even now, Triveni is the pre- eminent name in the Indian sugar industry. With a current cane crushing capacity of 43,500 TCD (Tonnes Crushing per Day) and new sugar units underway, the Triveni Group continues to be one of the largest producers of sugar in India. The crush capacity of the existing plants are (as follows; • Khatauli, in District Muzaffarnagar (16,000 TCD) • Deoband in District Saharanpur (14,000 TCD ) • Ramkola in District Kushinagar (6,500 TCD) • Subitgarh in District Bulandshehar (7,000 TCD) All Four sugar factories are located in the state of Uttar Pradesh. In all the factories, double suphitation process is followed for sugar production.

Triveni is operating a 10,000 TCD (and is in the middle of increasing it to 14,000 TCD) capacity sugar unit at Deoband in District Saharanpur, Uttar Pradesh. As a result of modernisation activity taken up at Deoband, there was substantial reduction in process steam consumption and therefore increased availability of bagasse. It was decided to use the additional savings of bagasse as result of the modernisation of the plant synergitically in a high pressure & temperature cogeneration power plant at Deoband. The sugar produced at Triveni's factories is direct consumption plantation white low ICUMSA (an International method for determining colour value of sugar, lower value means whiter sugar), bold grain sugar which commands premium in the market. A lot of emphasis is placed on the quality control procedures and quality of sugar produced in the factories. At all the factories, emphasis is on usage of energy efficient systems, modern technology and R & D for better operations and for improved per hectare sugar output. As a result of Triveni's tie up with Sugar Research International of Australia, the group factories have access to modern equipments & process knowhow. Khatauli & Deoband plants are located in fertile, well

irrigated and high cane intensity region of western Uttar Pradesh where the sugar cane crop is least dependent on the vagaries of the Monsoon & therefore are very consistent in terms of the cane availability & capacity utilization. The Ramkola unit is located in lucrative eastern UP where the realization of sugar (particularly because of the robust demand from sugar deficient West Bengal) is better as compared to western UP. Khatauli & Deoband units have been one of the largest exporters of sugar to Pakistan just 3 years back when sugar export was allowed to this country. The cane development activities taken up by the factories are regarded to be amongst the best in the industry. Group has been pioneer in using modern techniques like Satellite tracking for getting information on area in its command for enabling decisions on which variety to be propagated in which area. Factory has huge data base on individual farmer's field data (total cane area, past supplies, ratoon and plant cane acreage, soil details, land type details etc.) to take prudent decisions on cane development.

Through aggressive cane development during last couple of years, factory has now over 40% of its command area under high sugar cane varieties. This helps the factory to achieve better sugar recovery so as to be amongst the best performing factories in the state. Major cane varieties are: Early (High Sugared) Varieties General Cane Varieties CoJ -64 CoS -88230 CoS -8436 CoS -767 CoS -84212 CoS -8432

SUGAR PRICE: The Government has been following a dual pricing policy for sugar, under which, 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". The sugar so collected is distributed to consumers through Fair Price Shops under the public distribution system. The balance sugar referred to as "free sale sugar" can be sold in the open market. Free sale sugar is also regulated to some extent, by way of a release mechanism, whereby the

Government determines the quantum of sugar that can be sold every month. This helps the Government maintain stability in sugar prices, by regulating the supply of sugar based on the underlying demand. Thus, the Government statutorily determines the price of levy sugar, while the price for the free market sugar is market determined, affected to some extent by the release mechanism. As per Tuteja Committee, the Central Government decided, in February 2002, to dispense with the release mechanism with effect from April 1, 2003. However, in March 2003, it was decided to continue with the release mechanism up to September 2005 and to review the position in February, 2005. 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, 2005 The levy imposed has reduced from 40% in the 1990s to 10% effective from March 2002. The Tuteja Committee has also recommended continuing with the 10% levy obligation level. The Committee has also recommended that beyond the initial time limit, a maximum of 3 months may be permitted for lifting of levy sugar by the Government, where after, the levy sugar quota would automatically be converted into free sale sugar, without any recurring levy obligation on this portion of levy sugar. LEVY OBLIGATION OVER THE YEARS

Year 1996-1997 1997-1998 1998-1999 1999-2000 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005

Levy Sugar: Free sale sugar ratio 40:60 40:60 40:60 40:60 30:70 (wef. January 2000) 15:85 (wef. February 2001) 10:90 (wef. March 2002) 10:90 10:90

(Source: Government of India Gazette, Sugarcane Directorate of Uttar Pradesh Government) As can be seen from the table, while the gap between levy sugar prices and free sale sugar prices had narrowed considerably until 2002-2003, it has since widened due to high free sale sugar prices.

Historical Free sale sugar and Levy Sugar Prices (Rs. / metric tonne)

DEMAND FACTORS – GLOBAL: According to ISO, the world sugar output is forecasted to reach 145.0 MMT and consumption to reach 147.0 MMT in 2004-2005, resulting in a deficit of around 2 MMT in 20042005. Further, since October 2003, nearly 5 MMT of surplus sugar are expected to have been removed from the world sugar balance, reducing the stock/ consumption ratio to less than 42%. The world consumption is projected to grow to 160.7 MMT in 2010 and 176.1 MMT by 2015. According to ISO, the world sugar output is forecasted to reach 145.0 MMT and consumption to reach 147.0 MMT in 2004-2005, resulting in a deficit of around 2 MMT in 2004-2005. Further, since October 2003, nearly 5 MMT of surplus sugar are expected to have been removed from the world sugar balance,

reducing the stock/ consumption ratio to less than 42%. The world's largest consumers of sugar are India, China, Brazil, USA, Russia, Mexico, Pakistan, Indonesia, Germany and Egypt. According to USDA Foreign Agriculture Service, the consumption of sugar in Asian countries has increased at a faster rate, as a direct result of increasing population, increasing per capita income and increased availability.

DOMESTIC CONSUMPTION FOR 2004-2005 (All units in MMT)

The Essential Commodities Act (ESA) was amended and the sugar release mechanism was brought within the direct purview of the ESA. This will bring discipline in the sugar release mechanism by making it legally enforceable.

In the past, the Government permitted only small sized units of 1,250TCD and 2,500TCD. Expansions for 5,000 TCD and above were discouraged. The industry has grown horizontally as a result of this. The Government of India delicensed sugar sector in August 1998 encouraging entrepreneurs to set up sugar mills without a license but at a distance of 15kms away from existing factories. The delicensing is applicable not only for new capacity initiatives but also for expansion of existing capacities. The Government permitted futures trading in sugar and granted approval to three Companies for setting up Futures Exchange. Consequently, certain sugar Companies floated Public Limited Companies to cater to this new segment. Futures trading will allow sugar companies to hedge and manage their risk better. The Government of Uttar Pradesh has issued a new UP Sugar Policy. The UP Sugar Policy recognises the need to attract new private mills because the Government sector and the Co-operative sector may not be able to put up these mills due to constraints of funds. The incentive package under the UP Sugar Policy includes capital subsidies, reimbursement of transportation costs of sugar, etc. DEMAND FACTORS – INDIA: The demand or in other words, the consumption of

sugar is increasing and the demand is being fulfilled by more production. Still, the price of sugar has been elastic and rising steadily. Though, being a basic commodity, price hike limit has been fixed time to time by the government. Otherwise, sugar would have been directly influenced by little fluctuations in demand and supply.

In India, major sugarcane growing states are 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.

Sugarcane occupies about 2.7% of the total cultivated area (Source: ISMA Website accessed on May 16, 2005) 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 sugarcane area has, however, declined in the year 2003-04 mainly due to drought and pest attacks. Following table shows area under sugarcane farming and total can production.

SUGARCANE AREA AND PRODUCTION FROM 1980-1981 TO 2000-2001 & UPTO 2003-2004 Year 1980-81 1990-91 1999-'00 2001-02 2002-03 2003-04 2004-05 Area under sugarcane (Million hectares) 2.7 3.7 4.2 4.4 4.3 3.9 3.7 Sugarcane Production (MMT) 154.3 241.1 299.2 298.4 281.6 221.2 201.9

(Source: National federation of Co-operative Sugar Factories, Energy Lines (2005)) From a level of 154 MMT in 1980-1981, the sugarcane production increased to 241 MMT in 1990-1991 and further to 296 MMT in 2000-2001. Since then it has been hovering around 300 MMT until few years. In the season 2003-2004, however, sugarcane production declined to 236 MMT mainly due to drought. (Source: ISMA Website accessed on May 16, 2005 GLOBAL PRODUCTION, SUPLLY: Following table provides an overview of the production, supply and distribution of sugar in the international market. WORLD SUGAR PRODUCTION, SUPPLY, AND DISTRIBUTION

(September - August) (All figures in '000 metric tons)
20032004 Opening Stocks Production Imports Exports Consumption 69,327.3 20022003 62,040.0 20012002 62,063.3 20002001 62,223. 6 132,20 0.0 43,573. 9 44,212. 9 13,172 1.2 62,063. 3 19992000 57,611.7 134,753.9 41,226.3 42,720.6 128,647.7 62,223.6

143,701.9 149,405.2 137,982.6 48,190.3 52,062.7 48,593.2 51,339.9 45,261.1 47,759.7

142,766.9 139,371.1 135,507.3 69,327.3 62,040.0

Ending Stocks 66,389.9 Ending stocks as % of consumption 46.50%

49.74%

45.78%

47.12% 48.37%

(Source: FO Licht World Sugar Balance for 1995/1996 till 2004/2005) According to ISO, the world sugar output is forecasted to reach 145.0 MMT and consumption to reach 147.0 MMT in 2004-2005, resulting in a deficit of around 2 MMT in 20042005. Further, since October 2003, nearly 5 MMT of surplus sugar are expected to have been removed from the world

sugar balance, reducing the stock/ consumption ratio to less than 42%.

SUGAR PRODUCTION & SUPPLY IN INDIA: 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. Following table shows the state-wise sugar production in India for 2002-2003 and 2003-2004.

SUGAR PRODUCTION BY STATE IN INDIA (in MMT) State Uttar Pradesh Maharashtra Karnataka 20022003 5.65 6.22 1.87 %of Total 28.06% 30.86% 9.28% 20032004 4.55 3.18 1.12 % of Total 33.60% 23.44% 8.24%

Gujarat Tamil Nadu Andhra Pradesh Haryana Punjab Uttaranchal Bihar Others TOTAL

1.25 1.64 1.21 0.64 0.59 0.50 0.41 0.17 20.14

6.22% 8.16% 6.01% 3.16% 2.91% 2.47% 2.03% 0.85%

1.07 0.92 0.89 0.58 0.39 0.39 0.27 0.20

7.87% 6.80% 6.54% 4.30% 2.88% 2.86% 2.02% 1.46% 100.00%

100.00% 13.55

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. The average sugarcane crushing capacity in India, Brazil and Thailand is given below: AVERAGE SUGARCANE CRUSHING CAPACITY Country Thailand Brazil India Avg. Capacity (TCD) 10,300 9,200 3,500

FACTORS AFFECTING PRODUCTION: Sugarcane availability depends on:

Area under sugarcane cultivation: The area under cultivation of sugarcane in the proximity of the mill determines the amount of sugarcane that can be made available. Crop switching from sugarcane to other crops effectively lowers the area under cultivation of sugarcane. Climate and irrigation facilities: Sugarcane is a tropical crop which requires adequate water and sunshine. In addition, monsoons can affect the crop yield and quality of the crop. The state of UP is supplied water from the Ganga, which along with its tributaries and associated canal system accounts for 34% of the total river water available in the country (Source: Ministry of Water). This available perennial water reduces the state's reliance on seasonal monsoons. Crop diseases and pests: Crop diseases affect both the quantity and quality of sugarcane. Harvests have been impacted severely by insects and pests (Eg. Wholly Aphid). Several sugar factories are currently investing in research and development in the field of Entomology to control such pest outbreaks. Sugarcane yield: This is the total sugarcane output per hectare of land. It depends upon several factors like climate, soil, variety of sugarcane, and development measures undertaken by sugarcane farmers, agencies, co-operatives, government, and sugar manufacturers. Agricultural engineering and extension services, usually undertaken by

individual sugar mills, have played an important role in increasing sugarcane yields Diversion of sugarcane to other products: The sugarcane producers may not supply the sugarcane to a sugar manufacturer and divert the production to other products like gur, and khandsari which are forms of crude sugar. THE BREAK-EVEN POINT: In its simplest form, the break-even chart is a graphical representation of costs at various levels of activity shown on the same chart as the variation of income (or sales, revenue) with the same variation in activity. The point at which neither profit nor loss is made is known as the "breakeven point" and is represented on the chart below by the intersection of the two lines:

`In the diagram above, the line OA represents the variation of income at varying levels of production activity ("output").

OB represents the total fixed costs in the business. As output increases, variable costs are incurred, meaning that total costs (fixed + variable) also increase. At low levels of output, Costs are greater than Income. At the point of intersection, P, costs are exactly equal to income, and hence neither profit nor loss is made. SUGARCANE UTILIZATION: Not only has the sugarcane acreage and sugarcane production been increasing, drawal of sugarcane by the sugar industry has also been increasing over the years. 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 sugarcane 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 2002-2003. 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. In the year 2003-2004, percentage drawal of sugarcane, however, declined due to rising sugar prices and more intense competition from the alternate sweeteners gur and khandsari.

Following table gives data on sugarcane utilization for different purposes. SUGARCANE UTILISATION % Sugarcane utilisation for Year White sugar Gur and khandsari 54.8 37.4 28.8 31.5 20.1 32.5 Seed, feed and chewing 11.8 11.8 11.5 11.1 11.1 11.4

1980-1981 33.4 1990-1991 50.7 2000-2001 59.7 2001-2002 57.4 2002-2003 68.9 2003-2004 56.1

(Source: ISMA accessed on May 16, 2005) SUGAR CONSUMPTION IN INDIA: Total Indian Consumption of sugar has grown at a Compounded Annual Growth Rate of 3.6% from 14.7 MMT in 1997-1998 to 18.2 MMT in 2003-2004 (Source: ISMA and CRIS-INFAC). Apart from white sugar, India also consumes alternate sweeteners - gur and khandsari, which are placed at about 9 MMT per annum. Taking into account all the 3 sweeteners i.e. white sugar, gur and khandsari, on a per capita basis, Indian consumption is more than the world average (See the table below). However, white sugar consumption is much

lower than the world average. The consumption of white sugar in India is generally urban based. In rural areas the alternate sweeteners gur and khandsari are consumed in larger quantities. The consumption of sugar in urban areas in some of the Indian states with higher GDP and income levels, matches favorably with various developed countries. 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. As income levels and GDP rises, it can be expected that there will be a gradual shift from consumption of alternate sweeteners to white sugar. Also, as can be seen from the following table, the total per capita consumption of sweeteners in urban India is higher than total India average by around 5 kg per annum. This clearly implies that per capita consumption of sweeteners in rural India is much lower. It can be expected that this gap will close with increase in urbanization leading to a growth in the total sweeteners market in India. PER CAPITA CONSUMPTION OF SUGAR IN URBAN INDIA States Punjab Haryana Maharashtra Kgs. Per annum 71.5 68.5 40.9

Gujarat Kerala Uttar Pradesh Tamil Nadu Karnataka All India

40.9 41.5 35.2 29.1 23.3 31.5

In India, the glut on the domestic market following the sharp rise in 1998/99 production did not stop importers bringing in huge amounts, given the differential between world and domestic prices, and low import tariffs. Following protests by the domestic industry, the government stepwise raised the import duty. But imports continued because of the sharper fall in world market prices. Even Malaysia, the government of which took steps to control domestic demand to stem the outflow of foreign exchange, kept imports at reasonable levels. The same is true of South Korea, where net imports dipped only slightly in 1998, while a modest rise is forecast for 1999. In the Philippines, careful economic management, together with liberal import rules to augment domestic supplies after the 1998/99 crop shortfall, prevented a fall in sugar consumption. As a result, imports in 1998/99 were noticeably above those of the previous year. The very high support levels for sugar that form part of the stabilization regime in Japan have for years impacted on that

country's sugar consumption and imports. While Japan has been affected by the economic crisis in the Far East, the long-term declining trend of imports and demand has hardly varied in the past two years. The Chinese economy has remained largely untouched by the Asian financial crisis, although GDP growth has slowed to single digits. But an expected growth of more than 6 percent in 1999 can hardly be called a disaster. What has affected China's demand growth is not so much the slowdown of the economy but the large usage of high-intensity sweeteners, mainly saccharin. And that has nothing to do with Far Eastern economic problems.

CHART OF ASIAN SUGAR CONSUMPTION

SUGAR EXPORT: Exports of sugar from the country have been de-canalized since 1997, enabling sugar mills to undertake exports on their own and to compete directly in the international market. Further, exports from a mill do not form part of the quota under the market quota release system. Despite this, India has not been a consistent exporter of sugar in the past. It has been exporting sugar occasionally in periods of sugar surpluses. In the last five years it exported 4.07 MMT sugar. In these years, India had an average exportable surplus of 6.23 million tones every year.

As against this, on an average, the sugar exported was only 0.81 MMT or 7.69% of the total exportable surplus. This is primarily because domestic prices have remained higher than international prices. However, should quotas for LOME / APEC for India increase; there will be enough incentive for Indian manufacturers to export.

EXPORTABLE SURPLUS, SUGAR STOCK & ACTUAL EXPORTS Closing Year 199900 200001 200102 200203 200304 Stock (MMT) 9.38 10.4 11.3 11.6 8.5 Exportable surplus (MMT) 5.38 6.4 7.3 7.6 4.5 Actual Export (MMT) 0.07 1.2 1.1 1.5 0.2 % export of surplus stocks 1.30 18.75 15.06 19.73 4.44

Average 10.23

6.23

0.81

7.69

Lax financial discipline forced Brazil to freely float the real from January 1999. Between March 1998 and March 1999, the real devalued by more than 60 percent, which greatly increased Brazil's competitiveness and the attractiveness of the export market relative to the domestic market for the country's sugar producers. The devaluation of the real has undoubtedly drawn significantly more sugar into the international arena. To a large extent, the devaluation cushioned the effect of the fall in world market prices and helped Brazil to pump out enormous amounts of sugar, facilitated by the diversion of cane from alcohol to sugar production. Greater competitiveness and low freight rates made Brazilian sugar appear in markets as far afield as South Korea, Malaysia and Indonesia. The growth of Brazilian sugar exports must be regarded as one of the main factors behind the fall in world prices.

Asian exporters have also contributed to weak prices, albeit to a far lesser extent. Thailand's sugar industry was plunged into financial difficulties by the country's economic problems and poor returns from the world market. Many mills had to put sugar up as collateral against bank loans. The creditors in turn were unwilling to release the sugar at rock-bottom prices, which restricted legal exports in 1998/99, despite a recovery of production.

Following table provides an overview of the Import and Export of sugar in the international market.

Net Sugar Imports/Exports - 1000 Tonnes, Raw value

Notwithstanding such gyrations, it cannot be denied that the structure of the world market has changed and that today's price response differs markedly from that before the mid1980s. Without going into details, it is obvious that one of the consequences of these changes is greater price stability than in the past.

SUGAR PRODUCTION:

» Business Overview With a current cane crushing capacity of over 43,500 TCD and further expansion/new sugar units underway, Triveni continues to be one of the largest producers of sugar in India

» Facilities Using the most productive and eco-friendly processes, we crush 43,500 tonnes of sugar cane from three efficient production facilites at Khatauli, Deoband and Ramkola.

» Raw Material We believe that in order to deliver a superior quality product, we need to have superior quality raw material too. We lay special emphasis on procurement as well as sugarcane development to ensure this...

» Plants & Machinery For us, from sugar manufacturing to supply of sugar plant & machinery was a natural diversification. We entered in this field in mid

60s.

» Plants & Process The standard double sulphitation process of clarification and 3 1/2 massecuite boiling scheme for production of direct plantation white sugar...

» Branded Sugar - Shagun Shagun brand of sugar stands for pure, healthy and superior quality. Triveni employs advanced technology from UK and USA that ensures hands-free and sterile environment in production.

» Environmental Compliance We conduct our business in accordance with a well laid out, comprehensive environmental policy and environment management system...

» Technology Know about our state-of-the-art technology that helps us leverage our superior manufacturing capabilities, reduce energy consumption and improve sugar quality.

» Future Initiatives Our new production units, capacity enhancement and initiatives for cleaner environment are geared to serve our customers and society at large. We present an account of our future initiatives before you.

» Key Strengths Our strengths go beyond vast collection network, sound financial support, strategic location of plants and ultra modern facilities. We strengthen our base through strong & transparent relationships with farmers.

» Strategic Alliances With a strong strategic alliance partner like Sugar Research International, we have access to

the best sugar equipments & knowledge in the world.

» Milestones We had a prosperous journey since the setup of our first sugar production unit at Khatauli in 1933. These are some of our key milestones that we have crossed during our journey.

» Contact You can get in touch with us at the specified address and contact numbers for all the information that you need and business enquiries you have.

Following table provides an overview of the production of Alcohol in India from 1998-99 to 2006-07.

Alcohol Production

(in million liters) Alcohol Molass Producti Industrial Potable Other Surplus Year 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 es Prod. 7.00 8.02 8.33 8.77 9.23 9.73 10.24 10.79 11.36 on of Alcohol 1411.8 1654.0 1685.9 1775.2 1869.7 1969.2 2074.5 2187.0 2300.4 Use 534.4 518.9 529.3 5398 550.5 578.0 606.9 619.0 631.4 Use 5840 622.7 635.1 647.8 660.7 693.7 728.3 746.5 765.2 Uses 55.2 576 588 59.9 61.0 70.0 73.5 77.2 81.0 Availability 238.2 455.8 462.7 527.7 597.5 627.5 665.8 742.3 822.8

SUGAR MARKETS IN DISARRAY: Much has been said in recent years about the greater stability of world sugar market prices, resulting from the structural changes since the mid-1980s. Deregulation has increased the number both of producers and users that are exposed to movements in world market prices. Hardly any large state entities remain which are prepared to sell surpluses to the world market regardless of price. The tendency is for surpluses to be withheld and stored when returns from the world market fail to meet the costs of production. Moreover, developing countries with higher income and price elasticities now play the leading role on the import side. Those that are exporters lack the resources to subsidise the dumping of surpluses on the world market. All

this makes for more stable global prices and helps avoid a prolonged price depression.

And yet, the Daily Price of the International Sugar Organization fell from 13.28 cents/lb in 1995 to 8.92 cents/lb in 1998 and further to a low of 5.42 cents/lb in April 1999. This is a decline of 59 percent in nominal values and nearly 62 percent in 1995 money. That does not look like a stable market, although prices have recovered to some extent. ECONOMIC TURMOIL, PRICES, CONSUMPTION AND TRADE FLOWS: So what has gone wrong? Were there exceptional circumstances which caused the steep fall in world market prices?

The first thing coming to mind is the recent economic turmoil in Asia, Latin America and Russia. The collapse of the Thai baht in July 1997 marked the beginning of the financial crisis in Asia. Within weeks, Thailand's difficulties turned into a regional problem. Soon, Indonesia, the fourth most populous country in the world, and South Korea, the world's eleventh largest economy, were engulfed in crisis. Until then vibrant Asian economies were plunged into steep recession. And not only emerging economies were hit - look at Japan - nor were the repercussions confined to Asia. The trouble reverberated around the world. The root of the problem is excess capacity. There have been numerous warnings in recent years that the continuing build-up of export capabilities in Latin America and the Pacific Rim would lead to overcapacities and low global prices. These warnings were not heeded, and the expansion process continued unabated.

NET SURPLUS –GLOBAL: Pakistan has increased its production capacity in recent years until it is now far beyond domestic needs, giving rise to large exports. High production costs and low world market prices mean that these have to be subsidized. But

financial constraints forced the government to limit subsidized exports to half a million tonnes, not enough to make much difference to the market. But is the situation really as serious as world prices might suggest? Some will recall that the International Sugar Agreement of 1977 aimed to stabilize prices in the range of 11 to 21 cents/lb. The Australian sugar industry, one of the most efficient in the world, argued at the time that 12 cents/lb was needed to ensure the viability of the industry.

RUSSIA SUGAR IMPORT: What about Russia, the largest importing country? It was assumed that the rouble devaluation in August 1998 and

declining per capita incomes would take their toll on sugar consumption. However, here, too, things did not turn out so badly. Helped by the fall in world market prices, Russia imported much more than western observers had thought possible. One explanation is that, due to the lower value of the rouble, imports of sugar-containing products virtually stopped and domestic products took over. Moreover, it is believed that the use of sugar for illegal distilling was significantly greater than in 1998 due to a ban on alcohol imports, which came into effect on January 1, 1999. Even financing more than 5 mln tonnes of sugar imports was not a problem. Ironically, the financial crisis greatly facilitated sugar import financing. Before the crisis, private banks seldom engaged in import financing, as gambling with treasury bonds was more attractive. But after the August devaluation, the banks turned to the real economy. According to Russian trade sources, the August crisis made investment in raw sugar and tolling uncommonly profitable, and imports were mainly financed from domestic funds.

Russia's economy again weakened, after some modest growth in 1997 and early 1998, the first since the transition began. Although Russia plays only a limited role in the world economy, it heightened fears of a global slowdown. Latin America came under pressure in January 1999, when Brazil abandoned its crawling currency peg. Given that Brazil accounts for almost a third of the region's output and that the Brazilian GDP is set to decline by an estimated 1.2 percent in 1999, Latin America as a whole was bound to be affected. Fortunately, the crisis remained confined to parts of the world, and it would be wrong to speak of a global economic crisis. But as this brief review indicates, several major sugar importing and exporting countries were at the epicentre of the turmoil. Currencies were drastically devalued, and it is reasonable to think that this should have impacted on the sugar market.

SUGAR IN THE NEXT CENTURY: Looking towards the next century, we need have no fears about the future of sugar demand. On any estimate of world population growth, a great deal more sugar will be needed. Can the additional sugar be produced and which countries will be the main suppliers? Technological advances already under way in the areas of genetic engineering; ground-based and satellite-borne sensor and positioning systems for precision field and transport management; juice filtration; combined heat and power generation and so on promise that the ever greater productivity achieved in this century will continue in the next. The wide range of unit sizes and performance still existing within most national sugar industries, as well as between countries, indicates the vast production and efficiency reserves not yet exploited. There will also be new developments in the field of alternative sweeteners. These new products will contribute to still the world's hunger for sweetness, but, at the same time, will impose a ceiling on the price expectations sugar producers can entertain in the longer run, without opening the gate to competitors. Structural changes on the supply side are the daily bread of the market. At the beginning of the 19th century, Jamaica was the world's leading sugar exporter; at the end, it was

Germany. From 1904 onwards, Cuba was for decades firmly installed in first place. On the eve of the 21st century, Brazil is the greatest sugar exporter. There is circumstantial evidence that with the devaluation of the real Brazil can make money, or at least break even, at 56 cents/lb. If true, this could completely change the face of the supply side, unless the Brazilian cost structure changes markedly for the worse. None of the other efficient producers (Australia, Guatemala, and Thailand) are profitable at this price. Brazil already controls 25 percent of the market and still has enormous potential for expansion. In a few years, perhaps, the world sugar market will mirror that for coffee, and adverse weather in Brazil will send shock waves through the global sugar market. Alongside the challenges posed by the ongoing process of liberalization, the call to the world's sugar industries in the 21st century is to devise strategies of sustainable development in order to avoid the dangers of an excessive concentration of production and associated price fluctuations. WHAT CRISIS? Last autumn, the spectre of a global recession loomed over the world economy. Asia's crisis appeared set to deepen.

Russia had defaulted. European banks, currencies, and stock markets were affected and the euro area was seen to be faltering. Contagion was threatening Latin America with the Brazilian real under siege. Fears that even the United States economy would not withstand the downturn in other parts of the world engendered visions of world-wide depression. Concerted policy responses by OECD member countries and strong reflationary policies in the crisis-affected Asian economies averted a meltdown. Synchronized interest rate cuts and fiscal stimuli laid the basis for an upturn in the global economy at the beginning of 1999, and the gloom began to lift. Stability was restored to Asian currency and financial markets. The euro area withstood the Russian crisis, and the Brazilian infection was effectively contained. Estimated GDP growth rates suggest the worse is over. True, there are still danger areas, such as Indonesia and Russia. The fears that the US economy might be heading towards a hard landing have not been entirely banished. But overall the situation is much brighter than it was a year ago. This will stimulate sugar consumption, which can be expected to grow at a healthier rate than in 1998/99. Exporters have reason to hope for better prices. The EU will be forced to reduce output in 2000/01, and Brazil also expects to produce less. Indian sugar production could be sharply down next season due to the effects of previous oversupply. As a result, there could be an absolute decline in

production next season. The long-awaited draw-down of stocks could become reality in 2000/01. That will take the wind out of the sails of protectionists, who already have sleepless nights because of the impending World Trade Organization negotiations. These are likely to bring further cuts in support, increased market access thanks to lower tariffs, and further reductions of export refunds and quantities. The overall objective is continuing trade liberalization. That makes cost-cutting the name of the game, in order to survive in a more liberal economic environment.

To sum up: The evidence indicates that the economic turmoil in the Far East had only minor impact on sugar consumption and import demand. The reason is that the economic difficulties and currency devaluations were outweighed by the drastic fall in global sugar prices and political considerations. In conclusion, the sugar industry will not be lacking in meeting the requirement of ethanol. In a market economy, there would be a considerable shift from the gur and khandsari sectors which are inefficient producers with poor

quality. In the current scenario of glut in sugar production, it may be advisable to divert such additional cane for the production of alcohol after meeting the sweetener requirement. The additional availability of alcohol on the assumption that the entire cane is utilized for the production of sweeteners will be about 200 million liters over and above that indicated in the table. Alternatively, if additional cane available is utilized for the production of alcohol to bring in a balance in the demand and supply of sugar, the alcohoI production at the end of the 10th Plan would be around 1,485 million liters. Such flexibility has become very relevant in the current scenario of economy liberalization and more particularly as a means to correct the aberrations in sugar production.

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