The domestic sugar consumption would be approximately 28.5 million tonnes in 2017. With high cost of imports and the strategic importance of food security, India would need to target its sugar production in excess of domestic consumption. The sugar sector would need to produce a total of 32 million tonnes sugar by 2017. This has been revealed by a recent report made by KPMG.
The sector has the potential to improve sugarcane yields by 10 percent and also improve the recovery by 50 basis points by 2017. This would enable the sector to produce additional 4.1 million tonnes of sugar. Assuming constant drawal to meet the targeted demand, the area under cane would need to increase by 0.2 million hectares. This would be possible by better utilization of existing cane demarcated areas. This would also ensure minimal impact on other crops. A higher drawal or greater increase in farm productivity will also enable the target demand to be met, without any increase in cane acreage. In order to crush the additional cane, the crushing capacity would need to increase by 0.23 million tcd by 2017. This can be met through expansion of the existing units rather than new mills being established. Encouraging efficiency at the mill side, quality improvement at the farm side and strengthening the farmer-miller relationship would be the key policy imperatives. Greater investments in research and development of seed varieties and adoption of improved farm practices will be key imperatives for improving farm productivity, the report pointed out.
The report says that the sector also has a significant standing in the global sugar space. The Indian domestic sugar market is one of the largest markets in the world, in volume terms. India is also the second largest sugar producing geography, after Brazil. India remains a key growth driver for world sugar, growing above the Asian and world consumption growth average. Nearly 75 percent of the total non-levy sugar is consumed by industrial, small business and high-income household segments. The sector supports over 50 million farmers and their families, and delivers value addition at the farm side. In general, sugarcane price accounts for approximately 70 percent of the ex-mill sugar price.
According to the report, the sugar sector is impacted by induced cyclicality, since high sugar and sugarcane prices lead to increase in production at the cost of other crops. The resulting low prices for sugar impact the ability of mills to pay the farmers, thus leading to creation of arrears. High arrears lead to a significant fall in cane cultivation in the next year, leading to high sugar prices and increased attractiveness of cane. Cyclicality management is the opportunity to minimise arrears, thereby reducing the need for any financial support from the government. The removal of arrears would also remove induced cyclicality; thereby reducing the incidence of surplus and deficit production phases. Economically, this would translate into reducing the incidence of excess inventory build up in surplus phases and the need for potentially costly imports and government support during deficit phases. Acceptability as a credible exporter will provide the Indian sector an alternative set of markets for diverting surplus production. Similarly, in case of deficits, raw sugar imports could help bridge the supply gap. India has the potential to export to major Indian Ocean markets, due to freight competitiveness with respect to key competitors, Brazil and Thailand. With EU exports reducing by 4.5 million tonnes, world prices per tonne of sugar are expected to increase in the range of $50-100. This could potentially make exports more viable for India. The target markets are estimated to import 10 million tonnes of sugar by 2017.
The policy environment would need to protect farmers and enable mill viability and sector attractiveness. It would also need to align protection of consumer interests with the existing consumption pattern. To facilitate the realisation of the opportunities, the evolved policy environment would need to ensure level playing field, ensure efficient usage of resources - incentivise efficiency and yields, strengthen farmer-miller relationship, reduce cyclicality and ensure better management of downturns, ensure better sugar price risk management instruments, enable greater linkage with international market, the report suggested.
Source : www.fnbnews.com