What does the Indian sugar market look like?
Introduction - Indian Sugar Industry
The Indian sugar industry is the second largest producing market in the world after Brazil and is also the largest consumer. More than 50 million farmers and their families get benefitted out of the sugar industry. In today’s scenario, the Indian sugar industry’s annual output is worth approximately Rs.80,000 crores.
Sugar has more to it than meets the eye; a variety of diverse properties make sugar perfect for many types of food preparation. It is used to produce structure, texture, and functions as a natural preservative in addition to boosting the taste of food.
Market Driver
After two years of pandemic-related disruption, the world is currently dealing with even more serious difficulties, which impacted sugar industry stakeholders and its integrated industries. Some of the market key drivers are:
• Increasing Utilization of Sugar in Processed Food and Beverages
• Increasing Demand for Sugar Confectionaries
• Numerous applications in the skincare and pharmaceutical industry
Sugar Production
According to the Indian Sugar Mills Association (ISMA), a leading sugar organization in India, sugarcane production accounts for most of the sugar output. It is estimated that output would grow by roughly five lakh Tonnes throughout the next season (October 2022 to September 2023). The area under sugarcane has already increased by around 4% this year. ISMA is expecting that sugar production will go up to 399.97 lakh Tonnes next season against 394 lakh Tonnes this sugar season.
The Indian Sugar industry is broadly distributed over two major zones of production Uttar Pradesh, Punjab, Haryana, and Bihar in the north and Karnataka, Tamil Nadu, Maharashtra, and Andhra Pradesh in the south. Among these states, Maharashtra is the sugar-producing state in the country. 80% of the production of sugar is from sugarcane extraction and the rest 20% is from the sugar market. The success of the sugar industry is the result of the combined and synchronized efforts of the Central and State Governments, farmers, sugar mills, and ethanol distillers, as well as a supportive economic environment in the country. The encouragement of sugar mills to divert sugar to ethanol and export surplus sugar had a significant influence on the Indian sugar market. COVID-19 had an influence on the sugar business not only in India but across the world. According to ISMA, almost 70000 cores are locked in unsold sugar and ethanol stockpiles in sugar mills, while ethanol demand has declined to owe to a drop in gasoline usage.
COVID-19 impacted the sugar industry, not only in India but all over the world. According to ISMA, nearly 70000 cores have been stuck in unsold sugar and ethanol inventories in sugar mills, and the demand for ethanol decreased due to a dip in fuel consumption. Commodities like ice cream, drinks, and confectionery were produced less during this period. Other market segments like catering and hotels, which are the largest consumers of sugar, were severely impacted by the national lockdown as all restaurants, bars, and food shops were closed. Sugar consumption in India is estimated to be 65% of total domestic sugar sales. The pandemic impacted domestic sugar consumption by 1.0-1.5 MT.
Thus, reduced demand and consumption have significantly dropped sugar prices all over the world. As we know, exports are not that attractive globally right now. The recent decision made by the Indonesian Government allowed India to export large quantities of sugar to Indonesia. It allowed 600 ICUMSA sugar at a concessional import from India, Australia, and Thailand. ISMA and the sugar mills are hoping to make up for the accumulating losses. According to the Directorate General of Commercial Intelligence and Statistics (DGCI&S) data, India exported sugar worth USD 1.97 billion in 2019-20, which rose to USD 2.79 billion in 2020-21. In 2021-22 (April-February), India exported sugar worth USD 769 million to Indonesia, followed by Bangladesh (USD 561 million), Sudan (USD 530 million), and U.A.E (USD 270 million). Many sugar mills have started the production of alcohol-based hand sanitizers, and with the rising demand for them, sugar millers are playing a significant role in fulfilling this requirement of alcohol-based sanitizers. Sugar exports have increased from the previous year. The growth was achieved despite logical challenges posed by the pandemic in the form of high freight rates, container shortages, etc.
The Indian Sugar Market Outlook
Indian sugar exports are expected to increase to 9 to 10 million Tonnes in 2022, because of lower production in Brazil due to its adverse weather conditions and delayed harvesting. Hence according to reports, India’s share will rise to 15%. Sugar is highly volatile in the market. Despite its instability, the sugar industry contributes to the nation’s GDP and also generates income for the state and federal governments. Initiatives taken by the government have resulted in the expansion of the sector and job opportunities by producing and mixing ethanol with sugar to provide a cleaner energy source. Some recent developments taken by the government include: The Fair and Remunerative Price (FRP) increased to Rs 290 per quintal of sugar season 2022, as sugar export surpassed the 5-million-ton mark in August with Indonesia its biggest buyer.
Some recent developments taken by the government are that in National Bio-fuels Policy, 2018, it is mandated 10% blending of ethanol into motor fuel by 2022 and 20% by 2030. For the current SS2021, more than 20 LMT (lakh metric Tonnes) of sugar is likely to be diverted toward ethanol production whereas, in the next SS2022, about 35 LMT of sugar is estimated to be diverted toward the same, with a plan to divert about 60 LMT of sugar by 2024-25. The industry body Indian Sugar Mills Association (ISMA) has been pressurizing the government to increase the Minimum Support Price (MSP) for sugar to possibly ₹35/kg from ₹31/kg. The procurement of sugarcane, which contributes 70-75 percent of sugar mills’ costs has seen a continuous rise in its price. On the contrary, the MSP of sugar had remained static for more than 30 months (though FRP for cane was increased by ₹10 a quintal during the SS2021). The increase in MSP, as per ISMA, would be adequate to cover the increase in cane FRP and the cost of producing sugar.