Indian Agri Overview:
Agriculture and allied sectors continue to remain one of the most
important sectors of the Indian economy and is the main source of livelihood for 55% of
Indias population (Source: India Brand Equity Foundation). India is the largest
producer of milk and pulses globally and continues to be the second-largest in production
of rice, wheat, sugarcane, cotton, groundnuts and fruits & vegetables. The agriculture
and allied sectors have remained resilient throughout the several external disruptions and
is estimated to have grown by 4.0% Annual Report 2022-23, as per third advance estimates
by Central Statistical Office (CSO). The sector accounted for 18.3% of the total gross
value added (GVA) during the FY 2022-23. While headline rainfall numbers for FY 2022-23
reflects above average monsoon, the season was marked by highly erratic spatial
distribution, extended withdrawal of monsoon and instances of flooding & crop damages.
Out of 36 subdivisions, 12 (40% of total area) received excess rainfall and 6 (17%)
received deficient rainfall. Southern and Western parts of the country received excess
rains while Eastern region witnessed rainfall deficit for the entire season. Uneven
monthly as well as geographic spread of south-west monsoon led to lower sowing of Kharif
crops, mainly paddy and foodgrains. Rabi season was also delayed due to extended
withdrawal of southwest monsoon and untimely & heavy rainfall in October. Nonetheless,
Indias total food grains production was estimated to reach all- time high of 330.53
Million MT in FY 2022-23, a growth of 4.7% year-on-year led mainly by rice, wheat and
cereals (as per third advanced
estimates). Backed by remunerative prices globally, Indias agri
export also reached all-time high of 32 billion in FY 2022-23, a growth of 11%
year-on-year. In 2023, overall monsoon is expected to be normal with expected rainfall at
96% of Long-period average (LPA), despite
delayed start (Source: Indian Meteorological Department). While it is
too early to predict evolving El-Nino conditions, any kind of impact is likely to be in
the end-stages of monsoon.
In the Union Budget for FY 2023-24, Government of India has continued
to focus on this sector and has made substantial budgetary
allocations as below:
Union Budget FY 2023-24 – Highlights for the agriculture sector
Agricultural Credit target of 20 Lakh Crore for FY 2023-24, an
increase of 11% year-on-year
Rs 8,514 Crore has been allocated to the Department of Agricultural
Research and Education.
Plan to set up a digital public infrastructure for agriculture as an
"open source, open standard, and interoperable public good". This will enable
inclusive farmer-centric solutions, market intelligence and support for the growth of
agri-tech industry.
The Agriculture Accelerator Fund to be established with corpus of 500
Crore over a period of 5 years to encourage agri-startups by young entrepreneurs
Allocation of 450 Crore for Digital Agricultural Mission and 600
Crore for the promotion of Agriculture sector through technology
In view of the abovementioned, agriculture output is expected to remain
robust and the sector is likely to continue a growth path.
With regards to commodity prices, FY 2022-23 witnessed a softening of
key commodity prices in the latter half of the year with world adapting to geo-political
tensions, opening of grain export corridor from Ukraine and bumper sowing of all the major
crops in key producing nations such as Soybean in Brazil and Maize in US. As per the World
Bank report on Commodity market outlook, the World Bank commodity price index fell by 32%
from its historic peak in June 2022. In addition, crude oil prices fell from high of
$138/barrel in March22 to Low of $70/barrel in March23 amid the apprehension
of deeper global slowdown. Nevertheless, as per the World Bank, "commodity prices
still remain well above their pre-pandemic (2015-2019) and Agricultural prices are
projected to decline 7% in 2023 and ease further in 2024".
India possesses around 700 sugar mills in the country with a capacity
to crush 340 lakhs metric tonnes of sugar with an annual turnover of H1,00000 crores. The
sugar industry has provided livelihood to nearly 50 Lakh Indians. India is expected to
produce 320 to 330 Lakh tonnes of sugar in 2022-23 after considering diversion of 40Lakh
tonnes of sugar for ethanol production. Indias domestic sugar consumption is
expected at around 275 Lakh tonnes in SS 2022-23. India had an opening balance of sugar
between 80-100 Lakh tonnes in the past few years which is expected to be around 58 Lakh
tonnes in SS 2022-23. The area planted under sugarcane in the country has enhanced by 6%.
The government allowed sugar mills to export 60 Lakh tonnes of sugar in SS 2022-23. Sugar
mills have contracted to export about 56 Lakh tonnes till January 2023; producers.
Expectations of a decline in sugar production have dampened prospects of any additional
exports during the 2022-23 sugar season. Going forward, the sugar sector is expected to
gain traction due to the governments continuous support and growing focus on
diversion towards ethanol production to promote the ethanol blending program in India.
(Source: Economic Times, reuters, Mongabay.com)
Particulars (Lakh tonnes) SS 2022-23 (E)
Opening balance (as on 1st Oct, 2022) 58
Estimated sugar production 328
Estimated sugar consumption |
275 |
Estimated export |
61 |
Closing balance (as on 30th
Sept, 2023) |
50 |
Stock to use ratio 22.5% |
|
As for the Sugar Sector, the Indian Sugar Mills Association (ISMA),
estimates that the total acreage under sugarcane in the country is
estimated to be around 58.28 lakh hectares in 2022-23 SS; a 4 %
increase vis a vis 2021-22 SS.
As per the latest estimates of Indian Sugar Mills Association (ISMA),
India is estimated to produce about 355-360 Lakh MT of sugar & 450 Crore Liters of
Ethanol from sugarcane with sugar consumption pegged at about 275 Lakh MT.
Indian sugar exports and imports India remains the second biggest
exporter of sugar globally. India is expected to export around 61 Lakh tonnes plus of
sugar in the 2022-23 sugar season. According to the Indian Sugar Mill North America is the
largest ethanol market with an ethanol market share of more than 18.6% worldwide.
Supportive government regulations of the countries in North America towards ethanol
production, deployment of ethanol as a biofuel and growing awareness of the necessity to
moderate environmental pollution were the major factors contributing to the dominance of
the region. United States remains the primary contributor in the North American region.
Europe contributes around 16.3% of the global ethanol market. Ethanol prices enhanced
during the second quarter of 2022 in line with the expansion of the European market. The
Asia Pacific region is expected to record the quickest CAGR growth between 2022 and 2032
on account of growing fuel consumption and increased industrial activity. India and China
are significantly employing ethanol in the pharmaceutical ethanol market in the Asia
Pacific region. The developing countries in the region have embarked into a brand new
renewable energy programme that is cleaner and better suited to lower high crude oil and
petrochemical imports. (Source: Future market insights.com
Global Business Environment
Global economies were impacted over the last 2 years by uncertainties
and volatility on account of Covid-19 fallout, prolonged Russian- Ukraine conflict and
monetary tightening by central banks amidst inflationary trends. The global economy
bounced back strongly in 2021 despite the COVID-19 pandemic, but in 2022, it faced new
challenges such as rising fuel and input costs, geopolitical tensions in Europe, and
increasing interest rates worldwide to combat inflation. These issues led to higher
production costs, which resulted in higher prices for goods and services, causing global
inflation to peak at 8.80%. This led to concerns among central banks worldwide, resulting
in a tightening of monetary policy, higher interest rates, and increased volatility in
financial markets.
Leading agencies have predicted a decrease in world trade growth in
2023, with a subsequent recovery in 2024, in line with global demand. These predictions
are based on various assumptions, such as the lower costs of fuel and non-fuel goods since
October 2022, as well as increased tightening of policies by major central banks.
According to the World Economic Outlook, January 2023, by the International Monetary Fund
(IMF), According to the World Economic Outlook, July 2023 published by the International
Monetary Fund, global growth is projected to fall from an estimated 3.5 % in 2022 to 3.0 %
in both 2023 and 2024. Upside inflation surprises have been most widespread among advanced
economies, with greater variability in emerging markets and developing economies. As a
result, advanced developed economies are expected to account for nearly three-quarters of
global GDP growth in 2023.
Source: World Economic Outlook January 2023, IMF
The global sugar market size is pegged at 180431Lakh Tons in 2022/23.
According to the IMARC Group, the market is expected to reach 2172.0 Lakh Tons by 2028,
registering a growth rate of 1.20% during 2023-2028. Global sugar production is expected
to have decrease by 17.11Lakh tons to 1804.31 Lakh tons. A poor finish to the EU harvest
and an unprecedented truncation of the UK beet harvest, due to freezing temperatures and
snow fall mid-December, is added to by a lower Indian Sugar production. Meanwhile, Brazil
and Thai sugar production figures were revised higher, tempering the aggregate downward
revision in Global production, but also increasing the export market origin concentration
still further. Sugar consumption is expected to create new records on account of growth in
markets like China, Indonesia and Russia. Higher exports from Brazil and Thailand are
expected to offset the decline in India. Stocks are expected to remain at a low level as
growth in global consumption surpasses production growth. (Source: einnews.com, apps. fas.
usda.gov)
Indian Economic Overview
Global economies were impacted over the last 2 years by uncertainties
and volatility on account of Covid-19 fallout, prolonged Russian- Ukraine conflict and
monetary tightening by central banks amidst inflationary trends. Despite this, India
maintained its position of the fastest growing economy in the world for both these years.
Indias Gross Domestic Product (GDP) is estimated to have expanded by 7.2% in FY
2022-23 as per the latest estimates released by Central Statistical Office (CSO).
Relatively quicker recovery from pandemic and robust GDP growth in FY 2022-23 was
reinforced by buoyant private consumption and strong capital formation bolstered by the
governments continued capital expenditure push even during the pandemic period.
Governments continued policy thrust on capital expenditure through infrastructure
spending was visible in the Union budget for FY 2023-24 as well with increased capital
investment outlay by ~37% to ? 10
Lakh Crore. Reserve Bank of Indias [RBI] Economic Survey released
in February23 has listed number of positive factors supporting robust
growth momentum such as:
Universal vaccination coverage enabling rebound of spending on
contact-based services (restaurants, hotels, shopping malls, and
cinemas) and the return of migrant workers in construction industry
Performance of high-frequency indicators such as GST collections
crossing the 1.4 lakh crore benchmark for twelve successive months, increasing
electronic toll collection levels, robust energy demand, robust tractor sales, auto sales
and high UPI transactions
Increased credit appetite of well-capitalized public sector banks and
the credit growth to the Micro, Small, and Medium Enterprises
(MSME) sector etc.
Strengthening of the corporate balance sheets
India is set for another record year of merchandise exports having
registered 6% year-on-year growth to reach an estimated $447.5 billion during FY 2022-23.
The sustained resilience of Indian economy amidst global uncertainties is expected to
continue in FY 2023- 24 as well. As per consensus forecasts, Indias GDP growth in FY
2023-24 is expected to be in the range of 6.0% - 6.5%. The primary growth drivers include
robust private consumption, Governments firm focus on infrastructure spending and
enhanced credit growth supported by deleveraged corporate balance sheets coupled with
improved asset quality of the banks. Strong infrastructure push under the Gati Shakti
(National Master Plan for Multimodal Connectivity) initiative and logistics &
industrial corridor development is expected to drive industrial competitiveness in the
long term and support future growth. In FY 2022-23, the world also witnessed end of
quantitative easing by all the major central banks. Major central banks in fact resorted
to Quantitative Tightening to rein in the soaring inflation. Following aggressive rate
hikes by US Federal bank from 0.4% in April22 to 4.9% in March23, RBI also
raised the repo rates by 250 bps from 4.0% to 6.5% during the same period. Inflationary
pressures have now started easing with a transmission of softening WPI inflation expected
soon on CPI inflation. Forecasts by various international agencies show moderating
inflation in India in FY 2023-24 in the range of 5.0%- 6.0%, within RBIs target
range.
Industry Structure and Development:
The Company has 3 major business verticals namely Sugar, Edible Oil and
Grain & Pulses. The Sugar business performed very well on the back of consistent
exports policy of Government of India. The Company has maintained its market share in the
export business in spite of tough global markets conditions. Other business verticals were
not remunerative vis-?-vis sugar business due to which contributions to the top &
bottom lines of other business verticals were lower during the year compare to the
previous year. Other factors which affected these segments were mainly price mismatch,
slow demand coupled with tight liquidity, partial recessionary conditions and withdrawal
of investments. The Company is looking out for more opportunities in other commodities to
keep the trajectory of growth maintained in coming year.
Opportunities and Threats:
These have the various bench marks and keep changing on the various
domestic and global business outlooks.
Opportunities:
Sugar and Ethanol policies by the government, leading healthy prices
and margins in Sugar
Strong global demand of Edible Oil and Grains to continue
Capacity expansion and production efficiency
Expertise in new products development.
Good geographical reach and continued efforts to expand it.
Have positional to expand on our own, lower dependency of others.
Risks and Threats:
Increase in cost of supply chain and logistics
Increase in inflation rate and cost of products
Non availability of manpower, farm labors.
Uncertainty of monsoon rain and threat of global warming. India
agrarian economy is mainly dependent on the agriculture production which largely
contribute to the farmers income.
Increasing global trade war and sanction
Unstable Indian Rupee exchange rate against major foreign currencies.
Unpredictable surge in Covid19 and its impact on economic
outlook.
Monsoon has a direct impact on cane farming and a weak monsoon can
impact the availability of cane and hence sugar for exports.
The Company recognizes that above risks are an integral part of
business and is committed to control & manages these risks in a proactive and
efficient manner. The Company assesses various potential risk factors from time to time in
the internal & external environment and incorporate risk mitigation in its strategy,
business and operation plans using cost-effective available tools to minimize its impact
on the overall businesses.
Segment –wise or product – wise performance:
Your company is primarily engaged in the exports and imports exploiting
the opportunities in bringing the expertise and economies of scale into the trading
operations of major bulk commodities such as Sugar, Edible Oil, Pulses, Lentils, Cotton
and other Agri commodities.
Sugar Trading Business:
The Government of India imposed restriction on export of sugar during
the year to balance the domestic demand & supply dynamics & to stabiles domestic
prices to contain food inflation. The imposition of restriction on export impacted the
sugar export business volume of the Company despite having large export business on hand
which could be otherwise freely executed in full in an OGL environment but due to limited
availability of export quota, your Company had to curtail export business and diverted
focus on domestic markets.
In domestic markets, your company is expected to be leading large
supplier of sugar between sugar surplus & deficient regions and create
value for the company.
Your company is also working with leading industrial consumers &
FMCG companies to fulfill their long terms supply needs being reliable
large suppliers of commodity.
In exports- Imports segment, your company is expected to be involved as
reliable re-exports partner for leading suppliers of world market
sugar by importing and re-exporting sugar to various regions.
Other strategic businesses:
Your company is working to be involved in the supply chain of various
other agri and food businesses.
Your company has set up a dedicated trade desk for Diary and related
products in domestic and exports market.
Your company is leveraging the world market relationships to develop
imports of Pulses & lentils from Australia, Canada and other origins. India is net
importer of pulses & lentils. it is anticipated that during current season, there will
be a shortfall in the indigenous production vis-?-vis previous year and the country has
to continue placing more dependence on import. Your Company is hopeful to sustain
viability of these new business verticals in future as well
Outlook
Company continued to strive not only to maintain topline but also was
successful in achieving higher growth by tapping new markets. The
companys focus on exports helped attain better sales than
previous years to maintain growth in this segment of business.
We expect the profitability ratios to improve in the coming years as
profit margins of subsidiary companies are satisfactory in view of the global market
scenario.
Risk and Concerns:
Foreign Exchange Risk
The Company is exposed to risk from market fluctuations of Foreign
Exchange. We try to minimize the risk of foreign exchange fluctuation by entering into
forward contracts immediately on booking the export orders.
Commodity Price Risk
To take care of commodities price risk, export orders are immediately
tied up with suppliers for efficient sourcing. However, this risk cannot be eliminated in
case of imports because there is a time lag between the date of placing order and
receiving delivery. Further, for the sake of economy, size of import contracts is too big
to achieve back-to-back tie up with local buyers.
Risk elements in business transactions
The buyers and suppliers are selected after due diligence. Advances of
10-20% from overseas buyers, irrevocable letters of credit, payment at sight documents,
ECGC cover, etc. are obtained, wherever considered necessary. As regards domestic trade
delivery is released on receipt of full payment.
Physical risks to cargo
All our warehouses are adequately insured. For imports on CIF basis the
supplier obtains insurance cover and for import on C& F basis insurance cover is
obtained by the Company. For export shipments made on C&F basis, insurance is covered
by the buyer and in case of orders on CIF basis, insurance is obtained by the Company.
Warehouse to Warehouse insurance cover is obtained for domestic trade.
Internal control systems and their adequacy:
The Company has well, structured internal control mechanisms and
internal Audit department is headed by a senior executive which reviews all transactions
independently on continuous basis. Internal audit department regularly briefs the
management and necessary steps are taken wherever, necessary. Besides the Company has
retained outside audit firm to conduct Internal Audit on continuous basis.
Material development in Human Resources / Industrial Relations front,
including number of people employed:
The Company provides a challenging, open and professional satisfying
work environment to its employees. Necessary steps are taken for boosting their motivation
and active involvement in the organization. The Company also encourages its employees to
continuously upgrade and improve their skills and qualifications.
For and on behalf of the Board of Directors
Of Sakuma Exports Limited
Place: Mumbai Saurabh Malhotra
Date: 25th May 2023 Chairman & Managing Director
DIN:00214500
+91-9892691696
