PRICING POLICY of SUGARCANE for 2021-22 SS

INDIAN SUGAR MILLS ASSOCIATION

27 Oct 2020

India is a structural surplus sugar producer

• Sugar availability in last 3 years (2017-18 to 2019-20) of 364, 439 & 420 lakh

tons was very high against domestic requirement of around 255 lakh tons

• Availability expected to be very high again next year at 417 lakh tons

2

127 193 284

264 145189 244

263251

244283 251

203325

332

274 310

85 40

43110

105 44

5059

6693

75

9178

39

107

146

107

185185

199

219229

213208

226 228 242 256 248 245254 255 257

260

507090

110130150170190210230250270290310330350370390410430450

2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21( E)

Opening balance Production Internal Consumption

In lac tons

Opening Balance for every sugar season

60 66

93

75

91

78

39

107

146

107

20

40

60

80

100

120

140

2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 (P)

2020-21 (E)

Mn. tons

3

• Carry forward stocks continues to be very high in last 3 years

• 107 lakh tons of inventory is blocking Rs.35,000 crore of funds + bumper

production will further block more working capital

Sugar balance sheet & surplus

Sugar season 2018-19 2019-20 2020-21

Opening balance (as on 1st Oct) 107 146 107

Estimated sugar production 332 274 310

Sugar availability during the season 438 420 417

Estimated sugar consumption 255 257 260

Estimated exports 38 56 ??

Closing balance (as on 30th Sept) 146 107 157

2

• CACP should keep the continuous high sugar surplus in view, while

recommending FRP and other related policies

(in lakh tons)

4

Relative returns: sugarcane outcompeting others

Crops Relative Gross Returns over A2+FL with respect to sugarcane

2020-21 2019-20

Sugarcane 100 100

Cotton + Wheat 50 50

Paddy + Wheat 47 49

Paddy + Paddy 31 36

Soybean + Wheat 37 34

Soybean + Gram 28 29

5

Source: CACP report for 2019-20 & 2020-21

• Returns from sugarcane continues to be very high as compared to other crops

• Problem of surplus cane & sugar can be addressed by correcting this distortion

Projected FRP over A2+FL cost for 2020-21 too high

State

(1)

Modified A2+FL plus

trans. & ins. ch.

(2)

FRP at State

specific recovery

(3)

FRP higher than

A2 + FL cost

(4)=(3)/(2)

Andhra Pr 228 278.73 1.22

Karnataka 158 301.53 1.91

Maharashtra 183 330.03 1.80

Tamil Nadu 237 270.75 1.14

Uttar Pradesh 183 332.03 1.81

Uttarakhand 158 319.20 2.02

All-India 184 318.34 1.73

6

• Sugarcane farmers getting 1.73 times of A2+FL cost, at all India level

• Considering Govt’s target of giving 1.5 times A2+FL, all India average FRP should

be Rs.276 and not Rs.318.34 per quintal

• Distortion too high in major cane growing States like UP, Maharashtra & Karnataka

Source: CACP, 2020-21 report

Cane price arrears direct result of current cane pricing system

2723 4315

8577

12702

18648 20099

13530

9526

19780

28389

22000

2000

4000

6000

8000

10000

12000

14000

16000

18000

20000

22000

24000

26000

28000

30000

2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 (E)

Rs. in crore

Cane price arrears are because of

mismatch between:

a) cane price and sugar price and

b) cash inflow and cash out go

• Lack of linkage between cane price and

sugar price making cane price unaffordable

• Exports are unviable adding to high

inventory, blocking cash flows

Amongst large producers, India pays the highest cane price

23.57

20.09

23.91

42.5

0

5

10

15

20

25

30

35

40

45

Thailand Brazil Australia India

2019-20

USD/ton of cane

8 Source: Australia – Queensland Sugar Ltd.

Thailand – Cane and Sugar Board

Brazil - CONSECANA

India – Average all India FRP

• If India is a structural surplus sugar producer, it needs to export regularly

• Such high cane prices make Indian sugar uncompetitive, and always dependent on

Govt. subsidies on exports

• With export subsidies not possible after 2023 (as per WTO), Indian cane pricing

policy needs reforms urgently

Indian cane pricing policy challenged in WTO

Brazil, Australia and Guatemala have complained against Indian sugar and

sugarcane policies in WTO

Complaint is also against high FRP

Stating FRP has “doubled in 9-10 years”

Causing surplus sugarcane production resulting in surplus Indian sugar

Causing global glut, depressing global prices

GOI’s legal experts feel there is need to amend Indian cane pricing policy

RSF along with PSF is WTO compliant

9

ISMA’s SUBMISSIONS

10

Rationalise cane pricing policy

India should adopt global practices & systems

ISO’s report of June ‘19 says 16 out of 22 countries have RSF for cane price

Govt. has to adopt the RSF system

Along with PSF to protect interests of farmers

Cane price at 75% of sugar price realisation (any higher % will burden millers –

Rangarajan Committee done a detailed calculation).

To export surplus sugar, Indian sugar has to become globally competitive

For that, sugarcane pricing has to be rationalized and made reasonable

Freeze FRP at current levels till 50% above A2+FL catches up with FRP

Consider the recent increases in yield levels in FRP

To control continued surpluses, correct the distortion in crop/ farm economics

11

Some long pending requests

The premium above basic recovery of 10%

Should be shared 50:50 between mills and farmers

CACP should clearly recommend the sharing

3 instalment payment of cane price

CACP may recommend exact formula/ system of the instalment payments

Transport rebate for ‘purchase centre’ procurement be revised

For both rate and the ceiling on distance between centre and mill-gate

Rebates for mechanical harvesting & binding material be revised

Non-cane material in mechanical harvesting increases by 12-14%

Rebate on biding material of 1% is too low as compared to actuals

Increase in base recovery from current 10% to 10.5%

With premium, rebates & discounts for higher & lower recoveries

ISMA’s request to CACP

CACP should give clear recommendation on the following:

Prescribe the system and timing for 3 instalment payment of cane price

The sharing percentage/formula between millers and farmers, of the premium

above base recovery

Rebates for transport, binding material & mechanical harvesting

Instead of leaving it on any Committee

These recommendations will be deliberated upon by Govt. before acceptance

Long term objectives of using sugarcane and molasses to produce ethanol

along with enough sugar for domestic requirement

The ad-hoc policies/schemes intending to temporarily discourage sugarcane or

give cash incentives for other crops should not be encouraged

Most important: sugar price to support the FRP

With Govt. fixing a minimum selling price (MSP) for sugar since June ‘18

CACP should suggest the MSP which can support the FRP recommended

The mismatch between cane price and sugar price is the main reason for

cane price arrears, so ….

The cane price be determined as per sugar price realization i.e. RSF

But till such time that happens, MSP should be determined as per FRP

And the best placed Authority to suggest the correct MSP for sugar is CACP

CACP’s recommendations should be accepted in toto

Or GOI should stop fixation of FRP

14

Thank you