CRISIS IN THE INDIAN SUGAR INDUSTRY: INDIAN SUGAR MILLS ASSOCIATION
Indian sugar industry: contribution to the economy 2 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
3 Sugar Production & Consumption Million tons 30.0 28.4 30.0 28.3 25.0 26.4 25.0 24.4 26.3 25.1 24.4 24.2 26.0 25.6 25.6 21.9 22.9 21 22.6 22.8 20.0 19.3 18.5 19.9 19 20.0 20.8 18.5 15.0 14.5 15.0 12.7 10.0 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 10.0 2010-11 2011-12 2012-13 2013-14 2014-15 (P) 2015-16 (E) Sugar Production Internal Consumption 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.
Cane Price fixed by Government of India as SMP/FRP 4 250 Rs. per quintal 225 220 230 210 200 175 170 150 125 129.84 139.12 145 100 75 74.5 79.5 80.25 81.18 81.18 50 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 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 5 2400 2200 2000 2100 2200 2300 1800 1600 1400 1200 1000 1700 1525 1450 1400 1450 1391 1350 1410 1285 1360 1298 1310 1100 1120 1250 1000 1000 1080 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 Paddy (Rs./qtl.) Sugarcane (Rs./ton) Wheat (Rs./qtl) 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 6 32,000 31,480 Sugar Price (Rs./ton ) 30,000 29,510 29,510 29,170 28,500 28,000 27,270 26,000 24,920 24,000 22,000 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 (till 5th Feb)
7 Cost of production vs. Average ex-mill prices Rs./quintal
8 Financial crisis in sugar industry Surplus sugar continuously for the 6 th 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
Unable to pay both cane price and bank loans 8A Expected cash flow for next 12 months Outstanding debt as per RBI (Scheduled and Commercial banks) Unit Apr. to July to Oct. to Jan to Total Jun Sep. Dec Mar Rs. Cr) 1 Outstanding as on Average sugar sales Lac tons 66 62 65 63 256 1 31.10.2015 35800 2 Soft loan (sanctioned upto Average domestic ex-mill price Rs./ton 29000 2900029000 29000 29000 2 Oct. 2015) 4500 3 Realisation from sale of sugar Rs.Cr. 19140 17980 18850 18270 74240 3 Total Bank Loans 40300* 4 Cane price payable to farmers (@ Rs.275 all India average and 10.3% recovery) Rs. Cr. 5* Conversion cost @ average Rs. 3400 per ton of sugar* Rs. Cr. 6 Balance available with mills {3 minus 4 minus 5} 17621 16553 17354 16820 68350 4 Outstanding cane price arrears as on 15th Jan.'16 12000 2244 2108 2210 2142 8704 5 Total current dues of banks & farmers 52300 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
9 Cane price arrears as on 31st March Under current circumstances, it has become difficult to pay cane price of farmers and also service the debt Rs. Crore 18648 20099 12702 8577? 2011-12 2012-13 2013-14 2014-15 2015-16
10 ISMA s requests 1. Financial restructuring of outstanding debt 2. Priority sector lending for bio-ethanol production
11 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
12 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
13 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
14 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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