CRISIS IN THE INDIAN SUGAR INDUSTRY:

INDIAN SUGAR MILLS ASSOCIATION

Indian sugar industry: contribution to the economy

5 crore farmers and their families directly dependent

Rs.65,000 crore of cane price annually

Direct & indirect employment to 2 mln. people.

Enough sugar production for domestic requirement

Foreign exchange earnings of USD 5000 mn in last 5 years

Green power, surplus of 5000 MW exported to grid

12 mn tons molasses giving 300 cr. litres of alcohol

Incl. 120 cr. litres ethanol to replace 5% petrol consumption

Direct positive impact on rural economy

Annual direct & indirect contribution of Rs.75,000 cr. to the

Exchequer

2

Sugar Production & Consumption

12.7

19.3

28.4

26.4

14.5

19

18.5

18.5

19.9

21.9

22.9

21

10.0

15.0

20.0

25.0

30.0

2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

Sugar Production Internal Consumption

24.4

26.3

25.124.4

28.3

26.0

20.8

22.6 22.8

24.2

25.6 25.6

10.0

15.0

20.0

25.0

30.0

2010-11 2011-12 2012-13 2013-14 2014-15 (P) 2015-16 (E)

Sugar Production Internal Consumption

Infamous cane and sugar production cycle was a

self-correcting mechanism to surplus sugar and

shortages.

High prices of sugarcane has resulted in surplus

sugarcane, which in turn, has caused continuous

surplus sugar production for 6 years in a row.

Million tons3

74.579.5 80.25 81.18 81.18

129.84

139.12145

170

210

220

230

50

75

100

125

150

175

200

225

250

2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16

4Rs. per quintal

Cane Price fixed by Government of India as SMP/FRP

• Steep increase in the cane price fixed by GoI from 2009-10 SS has made cane price

unaffordable.

• Additionally, some State Governments fix an even higher cane price (SAP) further

burdening and making the industry unviable.

FRP of Sugarcane Vs MSP of Paddy and Wheat

10001000 1080

1250

13101360

1410

1298

13911450

1700

2100

2200

2300

1100 1120

12851350

1400 14501525

1000

1200

1400

1600

1800

2000

2200

2400

2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16

Paddy (Rs./qtl.) Sugarcane (Rs./ton) Wheat (Rs./qtl)

5

The steep increase in FRP for sugarcane from 2009-10 onwards was not matched by similar

increase in competing crops.

It has led to 50 to 60% higher returns from sugarcane over other crops resulting in farmers

shifting hugely to sugarcane. With Governments guaranteeing price payments, farmers have

not left sugarcane despite delays.

Average domestic sugar prices have been falling

29,510

27,270

29,510

31,480

29,170

24,920

28,500

22,000

24,000

26,000

28,000

30,000

32,000

2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 (till 5th

Feb)

Sugar Price (Rs./ton )

6

Cost of production vs. Average ex-mill prices7

Rs./quintal

Financial crisis in sugar industry

Surplus sugar continuously for the 6th year depressed sugar prices

Massive losses to sugar industry in last 3 years

Unable to pay cane price of farmers

Unable to service debt, resulting in sickness/BIFR and NPAs

In about 5 years, the debt burden increased 4 times

Debt of private mills Rs.11,500 cr. in Mar’08 to Rs.40300 cr. in Oct’15

Incl. cooperative mills, debt burden much higher at Rs.50,000 crore,

Concessional Soft & SEFASU loans to pay cane price helped

But it also increased debt by over Rs.10,000 crore in 2 years

Repayment due from 2016, but industry unable to repay now

8

8A

Unable to pay both cane price and bank loans

Expected cash flow for next 12 months Outstanding debt as per RBI (Scheduled

and Commercial banks)

UnitApr. to

Jun

July to

Sep.

Oct. to

Dec

Jan to

MarTotal

Rs. Cr)

1Average sugar sales Lac tons 66 62 65 63 256 1

Outstanding as on

31.10.201535800

2Average domestic ex-mill price Rs./ton 29000 2900029000 29000 29000 2

Soft loan (sanctioned upto

Oct. 2015)4500

3 Realisation from sale of sugar Rs.Cr. 19140 1798018850 18270 74240 3 Total Bank Loans 40300*

4 Cane price payable to farmers (@

Rs.275 all India average and

10.3% recovery) Rs. Cr.

17621 1655317354 16820 68350 4Outstanding cane price

arrears as on 15th Jan.'1612000

5* Conversion cost @ average Rs.

3400 per ton of sugar* Rs. Cr.2244 2108 2210 2142 8704 5

Total current dues of banks

& farmers52300

6 Balance available with mills {3

minus 4 minus 5}

Rs. Cr. -725 -681 -714 -692 -2814 * Above is regarding private sugar

companies. There will be additional loan

of another Rs. 10,000 crore for

cooperative banks etc. to cooperative

sugar mills.

Note:

* Conversion cost (excluding interest on working capital) taken as per Tariff Commission Report

(2012) @ Rs. 6500/ton (deducted Rs. 3100/ton towards revenue from by products). Conversion

cost includes salaries/wages, power, chemicals, repair & maintenance, factory overheads etc.)

1 Mills have to pay the following loans:

(a) Outstanding term loans of Rs. 35800 crore

(b) Working capital loans taken with interest taken during the current 2015-16 SS

(c) SEFASU loan with interest from March/April 2016 onwards (Rs. 732 cr., Rs. 671 Cr., Rs. 655 cr. and Rs. 640 cr., respectively in 4 quarters)

(d) Soft Loan taken in 2015 will become due from 1st October, 2016. Mills have to repay Rs. 680 cr. in Oct - Dec.'16 qtr. And Rs. 596 Cr. in Jan-Mar'17 qtr.

2 Current cane dues of Rs. 12000 crore will also need to be cleared from above cash flows only.

3 Therefore, as per row (6) of above table, mills will not have funds to service the above debts

Cane price arrears as on 31st March ……

8577

12702

1864820099

?2011-12 2012-13 2013-14 2014-15 2015-16

Rs. Crore

9

Under current circumstances, it has become difficult to pay

cane price of farmers and also service the debt

ISMA’s requests

1. Financial restructuring of outstanding debt

2. Priority sector lending for bio-ethanol production

10

1. Financial Restructuring under 5:25 flexible

structuring scheme

Cement, steel, natural gas, coal, crude oil, fertilisers, refinery

products & electricity included as “core industries”

On grounds that these act as catalyst for overall socio economic

development of nation

Sugar industry is the largest rural based industry

5 crore farmers, incl. their families, as also employment in rural areas

Produces and supplies green power/electricity, fuel grade ethanol to

replace petrol, organic manure

Catalyst for the socio-economic development of Indian villages

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Include sugar under 5:25 for restructuring

Sugar industry should justifiably be included as a core

industry for 5:25 flexible structuring scheme

However, due to the peculiarities of sugar, being an agri based

foodstuff

Working capital should also be part of restructuring

Right to Recompense (ROR) may be waived

A detailed paper on this could be presented by the sugar

industry

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2. Bio-ethanol has several benefits for the country

Fuel grade ethanol is a renewable bio-fuel, made out of by-product

of sugarcane viz. molasses

Reduces environmental pollution and improves fuel mileage

Extra oxygen of ethanol burns petrol much better in the engine

Better revenue from value addition to molasses results in healthier

sugar industry and better remuneration to farmers

At 5% blending, reduces net annual oil import bill by Rs.4500 cr.

To achieve 10% or more blending, distillation & storage

capacities need augmentation

But funding not easy

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Priority Sector Lending (PSL) for bio-ethanol

Almost all banks are unable to fulfil PSL targets every year

Eligible categories under PSL was expanded recently

To include ethanol projects under PSL (add another category):

a) Under Agriculture category, under sub-section ‘Agri Infrastucture’

create a new category for bio-ethanol projects

remove the upper limit of Rs.100 crore bank lending to a company

b) Under MSME category, under sub-section ‘Renewable Energy’,

create a new category of bio-ethanol projects

increase the upper limit of Rs.15 crore to Rs.100 crore or completely

remove it

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Thank you