Following Brazil, India is the largest manufacturer of sugar across the globe, contributing 14% to its total global production. The industry that employs around 2.86 lakh workers attracts an investment of INR 1,250 Crores. About 2.5 Crore people in India grow sugarcane where sugar factories under the organized sector produce it alone while traditional sweeteners like gur and khandsari are produced in the unorganized sector. Major production comes from Maharashtra, Gujarat, Uttar Pradesh, Tamil Nadu, Karnataka and Bihar. Maharashtra accounts for 25% of all operating sugar mills in the country, producing 30% of total volume produced in India, due to its longer crushing period and higher recovery rates. Peninsular India produces more sugar as compared to the north and local companies usually meet logistics needs. Bajaj Hind and Shree Renuka Sugars are top players in the domestic industry in terms of sale. Although this industry has many participants that crowd domestic markets, the need for consolidation of this industry rises by the day.
The 2014-15 crushing season saw an 11.5% rise in production in the country with 24.72 million tons produced which was an addition to 2013-14 figures by 2.84 million tons. This leads to an estimate of 24.8 million tons in 2015-16 and 28.5 million tons in 2017.
The Indian Government has made several efforts to stifle growth of sugar imports in to the country to protect the domestic participants. Import duty was raised from 15% to 40% to discourage imports. In addition, export subsidies of INR 4,000 per ton were introduced for raw sugar shipments that amounted to 1.4 million tons. However, due to lack of structure and quality, the Indian sugar industry has yet to achieve command over domestic and international markets. Current realizations of many mills have fallen short of surpassing input costs since they have to shell out INR 2,100 per ton to farmers as per Fair and Remunerative Prices against the average cost of conversion that amounts to INR 800 per ton that excludes salaries and overheads. This wide gap between income and cost of production has left producers desperate to generate income through sale of by-products of sugarcane. In response to this, Union Government has introduced several export incentives in alliance with state Government waiving off purchase tax.
A steep fall in sugar prices due to the shutting down of mills has left domestic participants handicapped with heavy arrears to be paid to farmers. With the plunging Brazilian currency, international sugar prices have fallen leading to a further pull on export value of Indian sugar. This combined with uneconomic sized mills have furthered dampened prospects for this industry. To add the woes, Gur and Khandsari, which are substitutes to sugar, are fast gaining markets due to growing health awareness related to these products.
It is commendable that the Government is taking strict efforts to revive the potential for this industry. Interest free loans and cheap agro-financing to meet cane arrears to the tune of INR 11,000 Crores are being introduced but the cycle is deeply vicious. A high cost of production, falling international prices of sugar and poor economies of scale have forced Indian Government to introduce export subsidies and cheaper loans that are costly to the exchequer. WTO has stepped in to question the viability of these subsidies and their compliance with WTO agreements. With no support from the falling domestic sugar prices, several companies have turned in on banks to write their loans off as NPAs.
Although a bumper crop season would take care of the distress to a certain extent, indirectly aiding these companies would not help much. Banks need to intervene and directly redress arrears to the farmers instead of routing it through domestic companies. Price floors need to be introduced along with better credit agreements. Since sugar is a slow moving, heavy commodity that dries very fast, its shelf life needs to be extended through better logistics support and storage facilities. Thus, the infrastructural growth in the logistics industry would benefit this industry through cost reduction. This industry needs to see some stability through consolidation and stronger export figures.
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What this report contains:
A detailed overview of the industry
Structure of the industry from both, domestic and international perspectives
Related industries that this industry has inter-dependencies with and their understanding
Detailed analysis of industry segments in terms of the value and depth of corresponding market
Analysis & insights about the elements and critical success factors of this industry using strategic models
A forecast on the state of this industry in 2020, predicting the growth and movement patterns for 2016 - 2020
Our professional analysis on the future of the industry based on strategic actions adopted by major industry participants
Quantitative estimates and forecasts of the growth prospects of the industry using revenue and financial forecasting models