HKG Management Discussions


Annexure-D

Global Economic Scenario

The South-Asian region, including India, stands as a significant cornerstone in the global sugar landscape. Indias historical association with sugarcane and its evolution into a key player among world sugar producers is remarkable. The infusion of innovative technologies in sugarcane cultivation and management has catalyzed a shift toward a self-reliant, diversified, bio-based, and sustainable sugar industry, solidifying its place as a global contender.

With adept linkages and collaborations, this resilient industry has adeptly navigated challenges, even amidst the backdrop of the COVID-19 pandemic. Beyond its economic achievements, the industry demonstrates its commitment to corporate social responsibility, contributing to the holistic advancement of stakeholders. This commendable approach aligns seamlessly with the 2030 Agenda for Sustainable Development Goals, illustrating the Indian sugar industrys dedication to a brighter and more sustainable future.

Indian economic scenario

Situated prominently in the South-Asian landscape, India shines as a prominent sugar-producing nation, boasting a recent history of abundant sugar harvests. Supported by a robust research and development infrastructure, the countrys sugar sector stands resilient. This prowess has enabled the industry to surmount a plethora of challenges across production, processing, and ancillary domains.

From ancient times, as evidenced in historical records, India has cultivated sugarcane and skillfully refined its yield. Over time, the innovation wheel turned, giving birth to tailor-made technologies to match temporal and geospatial requirements. This gradual progression empowered India to ascend to a significant global role, firmly establishing its foothold on the international stage

Industry Structure and development

Embedded in its inherent inclusivity, the sugar industry spans approximately 5.0 million hectares, constituting 2.57% of the total cropped area, supporting over 7 million farmers and their families, as well as encompassing the labor force and entrepreneurs linked to more than 550 sugar mills. In India, sugar holds an indispensable position in mass consumption, with an annual domestic demand of around 27 million tons. Notably, sugar and jaggery emerge as cost-effective energy sources, contributing about 10% of daily calorie intake.

Sugarcane, often hailed as the crop of the future, is set to redefine its role. Beyond sugar production, its poised to emerge as a renewable source of green energy, encompassing biofuels, bioelectricity, and a myriad of bio-based products. The industrys annual output includes 370-400 million tons (MT) of cane, 2730 MT of white sugar, and 6-8 MT of jaggery and khandsari. Additionally, the industry contributes around 3.2 billion liters of alcohol, 4700 MW of power, and an array of chemicals. Impressively, the industrys power generation capacity allows for exporting approximately 3500 MW of power to the national grid.

The sugar industry has transformed into comprehensive sugar complexes, weaving together the production of sugar, bioelectricity, bioethanol, biomanure, bio-CNG, and chemicals. Indias sugar sector has commendably met the nations sweetener and energy demands, becoming largely self-reliant. This journey stands as a guiding light, illuminating the path for other nations in constructing a productive, profitable, and sustainable industry.

Risks and Concerns

The Indian sugar sector exhibits a pronounced cyclical pattern, its dynamics intricately intertwined with governmental policy shifts and weather fluctuations. A typical sugar cycle spans 3-5 years, with lower sugarcane and sugar production prompting an upswing in sugar prices and expedited farmer payments. This leads to an expanded area under cane cultivation. Subsequently, increased cane acreage results in elevated sugar production, followed by a decline in sugar prices and diminished mill profitability. This cycle eventually culminates in delayed payments to farmers, inducing a reduction in cane cultivation area.

Sugars universal consumption spans households and major food industries such as biscuits, chocolates, ice creams, and pharmaceuticals. The livelihoods of numerous farmers hinge upon sugarcane cultivation. Consequently, a perpetual tension exists between the Central Governments aim to regulate open market prices and the States pursuit of securing higher prices for sugarcane farmers.

The sugar industry grapples with multifaceted risks, including cane availability, regulatory uncertainties, fluctuating sugar prices, and cane costs. Cane, the industrys primary raw material, is pivotal to operations. Any disruptions in securing cane timely can significantly impact the business. Cane availability hinges on climatic conditions, the accessibility of harvesting labor, and farmers choices regarding competing crops.

The regulatory framework for the sugar industry is jointly overseen by the Central and State Governments. While the Central Government determines the Fair and Remunerative Price (FRP) for sugarcane before the season commences, State Governments set the State Advised Price (SAP), consistently higher than the FRP. State Governments wield authority over the sugar cane command area, while the Central Government regulates imports and exports within the sector.

Future Outlook

Looking ahead, the Indian sugar industry is poised for significant advancements in the upcoming 2023-24 season (October 2023 to September 2024). Projections indicate a substantial 4 million metric ton increase in sugar production, reaching a total of 36 million metric tons. This growth trajectory is driven by rising consumption due to increased demand from bulk buyers and processed food manufacturers.

Over the past five years, the Indian Government has undertaken strategic measures to foster ethanol capacity expansion. This strategic move not only aims to reduce the nations reliance on imported crude oil but also effectively channel excess sugar inventories into ethanol production. These combined efforts are expected to propel the growth of the ethanol market in India.

Indias ambitious vision includes achieving an E20 blend by the year 2030. Central to this objective is the ethanol blending program, which places emphasis on procuring ethanol from diverse sources, including B Heavy molasses, sugarcane juice, and damaged food grains. The convergence of a surplus sugar season and financial incentives to convert excess sugar into ethanol is poised to amplify ethanol production volumes in the years ahead.

Additionally, Indian sugar mills leverage their resources effectively. During the season, they utilize their own bagasse to fuel their operations and generate steam for boilers and turbines. This energy generation powers their facilities, with surplus energy potentially being exported to distribution licensees grids. Moreover, since 2010, trading energy in the form of Renewable Energy Certificates has been permissible, fostering further sustainability in the industrys operations.

With these strategic moves and inherent industry adaptability, the Indian sugar sector is poised to embrace a dynamic and sustainable future.

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Opportunities and Challenges

As a pivotal player in the global sugar supply and a cornerstone of Indias agro-based economy, the Indian sugar industry holds paramount importance. Despite its historical significance, the industry embarked on mechanization later than anticipated, resulting in stable but less dynamic production technologies and processes. The classification of sugar as an essential commodity has somewhat constrained avenues for innovative product development.

In the upcoming years, sugar mills are poised to seize the potential offered by ICT-enabled productivity enhancements. This strategic shift aims to revitalize the industry, enabling it to optimize operations and enhance efficiency. Predominantly reliant on sugarcane cultivation, India experiences the intricate interplay of seasonal fluctuations and climate changes that significantly impact crop yields. This inherent cyclicality reverberates through the entire sugar production chain, impacting mills, farmers, workers, and consumers alike.

Financially, sugar mills hinge heavily on the banking system for their working capital needs. This dependence, coupled with the ebb and flow of demand and supply imbalances, introduces pricing risks that must be vigilantly managed. While data analytics is yet to fully permeate the Indian sugar landscape, its potential is undeniable, and it is expected to gain prominence as the industry prepares for its next transformative phase after mechanization.

The Indian Government has undertaken strategic initiatives to encourage ethanol capacity expansion, aiming to reduce reliance on imported crude oil and channel surplus sugar inventories into ethanol production. This dual-purpose approach is set to catalyze growth in Indias ethanol market. To align with its vision of sustainability, India aims to achieve an ambitious E20 blend by 2030, thereby further diversifying the countrys energy landscape.

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