Sector outlook:<\/strong><\/h4>\n\n\n\nIndia is one of the leading consumers and second largest producer of sugar after Brazil and is the second largest agro-based processing industry of the country, preceded by the cotton textile industry. Currently, the Indian sugar industry is facing excess supply which has resulted in the sugar price to go below the cost of production. The sugar industry is worth more than Rs 80,000 crore with a total area of 50 lakh hectare of land. <\/p>\n\n\n\n![\"\"\/](\"https:\/\/lh5.googleusercontent.com\/qqMzdjv7sQotB6B7M9CoSceuX4WBBZDfke1QyGT0TLR3TIMPlbbyA3Uy7zGaY3TwH3BvHwRXbgNSufh6oTTzB8IcWr1X2TGebyqEiAzzGbacyz5lFKbDogu16W2fpjn0VceBna4AHx-lkfmvgi0\")
<\/figure>\n\n\n\nNot only this but the industry covers around 7.5% of the country’s total rural population. It provides employment to 50 million rural people and about 4.5 crores farmers are engaged in its cultivation. Though, the industry is highly regulated as the government decides upon the quantity to be sold and exported and also bails out the industry in its bad times. Interestingly, we contribute around 19-20% of the global supply. <\/p>\n\n\n\n![\"\"\/](\"https:\/\/lh5.googleusercontent.com\/vbiMfsa5g3a5hwjH_2sd9G1WgBqfR8iA58plTe5bISm9I1NlnHgz7lM5gHvxB04OQGS-v0QZpdeHwxdhpvDWg5Uj6Lw4EoTWppNjQ8hCbkqnH6IxDK8p6mtG8VC-FRlX0PXHwo_rqGRfXEWmlo8\")
<\/figure>\n\n\n\nThe Indian sugar industry employs around 12% of the Indian rural population in 9 states that includes: Bihar, Andhra Pradesh, Gujarat, Punjab, Haryana, Karnataka, Maharashtra, Tamil Nadu and Uttar Pradesh. As of 31 October 21, Eighty Nine percent of the sugar production is done majorly in Maharashtra, Uttar Pradesh, and Karnataka.<\/p>\n\n\n\n
<\/div>\n\n\n\nThe production process:<\/strong><\/h4>\n\n\n\nGlobally, 80% of the sugar is extracted from the sugarcane and the remaining 20% is extracted from the sugar beet. Now, in India sugarcane is the major source of extraction. The sugar extraction process has by-products which can also be sold \/ processed for additional source of revenue. On an average 1 ton of sugarcane produces 95 kg of sugar and 10.8 litres of ethanol.<\/p>\n\n\n\n
Sugarcane is a \u201cratoon\u201d crop. The straws obtained from the previous crop are used to grow the new crop. Due to this, the crop planted has a multi-year life cycle, and new crops are generally not planted in the same farm area for a few years. <\/p>\n\n\n\n
However, the moment you harvest it, its shelf life starts to fall drastically. Therefore, sugar is most perishable and must be used as soon as you harvest it. As a result, the sugar mill owners locate their manufacturing and crushing plants near agricultural areas. This is done to reduce the time involved between cutting and crushing. So you need to look for companies with huge order value on their books.<\/p>\n\n\n\n
<\/div>\n\n\n\nBut what are the factors affecting sugar realizations in India?<\/strong><\/h4>\n\n\n\nSupply of sugar is too volatile and this volatility affects the sugar prices. Thus to predict the price of sugar, one needs to witness the supply rather than the demand. The supply of sugar depends on the following factors:<\/p>\n\n\n\n
- Lower acreage:<\/strong> This happens due to the droughts which causes the farmers to shift to other crops. This results in a drop-in cane cultivation area in major sugar-producing states which in turn leads to a spike in sugar prices. <\/li>
- Payment arrears:<\/strong> Payment arrears happen when sugar mills run at losses, due to which the mill owners don\u2019t pay the farmers, and these late payments become arrears, and the debt accumulates. As a result, farmers divert to other crops resulting in reduced cane availability for the next crushing season. And this leads to a spike in sugar prices.<\/li>
- Dependency on Monsoon: <\/strong>Poor monsoon results in changes in production estimates, thus decreasing inventory levels. This again leads to a spike in sugar prices. <\/li>
- Governmental policies:<\/strong> Intervention by the Government to control inflation usually stabilizes the sugar prices. This leads to a decrease in sugar prices.<\/li><\/ol>\n\n\n\n<\/div>\n\n\n\n
So what\u2019s the reason behind such growth in the sugar industry?<\/strong><\/h4>\n\n\n\nRemember, how we talked about the by-products of the sugar industry and ethanol was one of them? Till now, we also have some knowledge about how Govt intervention can disrupt the entire market <\/p>\n\n\n\n
Well guess what, the Government of India is making a serious effort to promote ethanol as an alternative fuel option. As per the strategy:<\/p>\n\n\n\n
- First increase the ethanol production.<\/li>
- Gradually blend it with gasoline.<\/li>
- Reduce Oil imports significantly.<\/li><\/ul>\n\n\n\n
Initially the Government plans to achieve a 10% blend rate by 2022 which basically means that 10% ethanol will be blended with 90% gasoline. The Government further intends to increase this to 20% by 2025. By doing so, we may be able to reduce the volatility which is quite pertinent in the sugar industry. <\/p>\n\n\n\n
In 2014, the ethanol blending catered only 1.5% or 38 million liters, but it has increased to 8.5%, or 332 million liters, by 2021. Interestingly, sugarcane currently accounts for approximately 85% of ethanol production, which will be reduced to around 60% in the upcoming years. To meet the 20% blending target by 2025, India will need to produce 10-11 billion liters of ethanol, with sugarcane accounting for 6-6.5 billion litres. <\/p>\n\n\n\n
Ethanol has higher margins than sugar, hence this policy will help mill owners to utilize surplus sugar proceeds better and improve their financials <\/p>\n\n\n\n
Another factor is the rising population of the country. It has increased to 140 crores in 2021 from 555.2 million in 1970 and is further projected to reach 152 crores by 2036, thus catalyzing sugar consumption. India\u2019s per capita soft drink consumption stood at around 84 bottles by 2021, which was almost double compared to the per capita consumption of 44 bottles in 2016, a trend likely to sustain sugar consumption growth.<\/p>\n\n\n\n
The confectionary segment where sugar accounts for 20-30% raw material prices is projected to grow annually by 6.35% (CAGR 2021-25). Further the bakery industry in India is also soaring at a growth rate of 9%. <\/p>\n\n\n\n
Sugar industry in a nutshell can be explained with this diagram:<\/p>\n\n\n\n
<\/figure>\n\n\n\nNot only this but the industry covers around 7.5% of the country’s total rural population. It provides employment to 50 million rural people and about 4.5 crores farmers are engaged in its cultivation. Though, the industry is highly regulated as the government decides upon the quantity to be sold and exported and also bails out the industry in its bad times. Interestingly, we contribute around 19-20% of the global supply. <\/p>\n\n\n\n The Indian sugar industry employs around 12% of the Indian rural population in 9 states that includes: Bihar, Andhra Pradesh, Gujarat, Punjab, Haryana, Karnataka, Maharashtra, Tamil Nadu and Uttar Pradesh. As of 31 October 21, Eighty Nine percent of the sugar production is done majorly in Maharashtra, Uttar Pradesh, and Karnataka.<\/p>\n\n\n\n Globally, 80% of the sugar is extracted from the sugarcane and the remaining 20% is extracted from the sugar beet. Now, in India sugarcane is the major source of extraction. The sugar extraction process has by-products which can also be sold \/ processed for additional source of revenue. On an average 1 ton of sugarcane produces 95 kg of sugar and 10.8 litres of ethanol.<\/p>\n\n\n\n Sugarcane is a \u201cratoon\u201d crop. The straws obtained from the previous crop are used to grow the new crop. Due to this, the crop planted has a multi-year life cycle, and new crops are generally not planted in the same farm area for a few years. <\/p>\n\n\n\n However, the moment you harvest it, its shelf life starts to fall drastically. Therefore, sugar is most perishable and must be used as soon as you harvest it. As a result, the sugar mill owners locate their manufacturing and crushing plants near agricultural areas. This is done to reduce the time involved between cutting and crushing. So you need to look for companies with huge order value on their books.<\/p>\n\n\n\n Supply of sugar is too volatile and this volatility affects the sugar prices. Thus to predict the price of sugar, one needs to witness the supply rather than the demand. The supply of sugar depends on the following factors:<\/p>\n\n\n\n Remember, how we talked about the by-products of the sugar industry and ethanol was one of them? Till now, we also have some knowledge about how Govt intervention can disrupt the entire market <\/p>\n\n\n\n Well guess what, the Government of India is making a serious effort to promote ethanol as an alternative fuel option. As per the strategy:<\/p>\n\n\n\n Initially the Government plans to achieve a 10% blend rate by 2022 which basically means that 10% ethanol will be blended with 90% gasoline. The Government further intends to increase this to 20% by 2025. By doing so, we may be able to reduce the volatility which is quite pertinent in the sugar industry. <\/p>\n\n\n\n In 2014, the ethanol blending catered only 1.5% or 38 million liters, but it has increased to 8.5%, or 332 million liters, by 2021. Interestingly, sugarcane currently accounts for approximately 85% of ethanol production, which will be reduced to around 60% in the upcoming years. To meet the 20% blending target by 2025, India will need to produce 10-11 billion liters of ethanol, with sugarcane accounting for 6-6.5 billion litres. <\/p>\n\n\n\n Ethanol has higher margins than sugar, hence this policy will help mill owners to utilize surplus sugar proceeds better and improve their financials <\/p>\n\n\n\n Another factor is the rising population of the country. It has increased to 140 crores in 2021 from 555.2 million in 1970 and is further projected to reach 152 crores by 2036, thus catalyzing sugar consumption. India\u2019s per capita soft drink consumption stood at around 84 bottles by 2021, which was almost double compared to the per capita consumption of 44 bottles in 2016, a trend likely to sustain sugar consumption growth.<\/p>\n\n\n\n The confectionary segment where sugar accounts for 20-30% raw material prices is projected to grow annually by 6.35% (CAGR 2021-25). Further the bakery industry in India is also soaring at a growth rate of 9%. <\/p>\n\n\n\n Sugar industry in a nutshell can be explained with this diagram:<\/p>\n\n\n\nThe production process:<\/strong><\/h4>\n\n\n\n
But what are the factors affecting sugar realizations in India?<\/strong><\/h4>\n\n\n\n
So what\u2019s the reason behind such growth in the sugar industry?<\/strong><\/h4>\n\n\n\n
![\"\"\/](\"https:\/\/lh5.googleusercontent.com\/H4e91AACavA9rJklib2HuRrY3CDQKAwRkRvfsQj2cuYqKxTbvsC6zqWYgNFH2nbP6Nljt_s5JlFYe6mmlGcuRuNb_oPTp9DXm15S5G1GXI06jolm74siAGi-isOjmw6r6JgNSHxc3ZnKxuTWo-g\")
<\/figure>\n\n\n\n