SUGAR PRODUCTION AND AVAILABILITY DURING CURRENT SEASON

• 259lakh tons of sugar has been produced till 31^st July 2012 in the current sugar season.  With 23 sugar mills still crushing sugarcane, it is certain that by 30^th September 2012, more than 260 lakh tons of sugar would get produced.  ISMA had estimated over one year back that 260 lakh tons of sugar would be produced in 2011-12.
• With Government releases of 210 lakh tons and exports of 35 lakh tons during the season, the closing balance for the year will be about 15 lakh tons more than the opening balance, which was around 55 lakh tons on 1st Oct. 2011.
• The closing balance as on 30^th September 2012, will be not only adequate to meet the sugar demands for the festival season in October and November 2012, but enough  to meet the demands upto January, 2013, by which time the sugar from the new season would also be available in the market.

ESTIMATED SUGAR PRODUCTION DURING 2012-13 SUGAR SEASON

• As per the first advance estimates of Ministry of Agriculture, Government of India, the area under sugarcane for 2012-13 sugar season is 52.88 lakh hectares which is around 4% higher to the cane acreage of 50.96 lakh hectares during the current season. 
• Cane acreage in Maharashtra for 2012-13 season is reported to be 9.45 lakh hectares, slightly less than the 10.28 lakh hectares in the current season.  Lower rainfall in the State is expected to impact the yields.  Considering this, the sugar production estimate from Maharashtra has been lowered from 89.5 lakh tons in current season to 76 lakh tons (a reduction by 15%) in next season.  It is important to remember that the area in 2010-11 season was 9.64 lakh hectares when 90.5 lakh tons of sugar was produced.
• ISMA has taken a conservative yield of 76 tons per hectare in the next season. The yield in Maharashtra since 2005-06 has been in the range of 75 to 85 tons per hectare. Even in the drought year of 2008-09, the yield was 79 tons.
• Area under cane next season, in Karnataka, is estimated at 3.8 lakh hectares, slightly lower than 4.32 lakh hectares in 2011-12.  Considering deficit in rainfall, the yield has been taken on a lower side as compared to the current season (85 instead of 90 tons per hectare). Accordingly, ISMA estimates that the sugar production will reduce by 21% from 38 lakh tons of sugar in 2011-12 to 30 lakh tons in next season.
• The lower sugar production from these two States will be partially compensated by higher sugar production in Uttar Pradesh and Tamil Nadu.
• The area under sugarcane in U.P estimated for 2012-13,is higher by 2 lakh hectares i.e. 8%more, than the current season. With significantly high sugarcane price being paid during the last two years and better drawal of sugarcane by the sugar industry, the ISMA estimates sugar production in U.P at 78 lakh tons, as compared to about 70 lakh tons in the current sugar season. 
• Similarly, in case of Tamil Nadu, with an increase in acreage by 11 % from the current season, the sugar production is estimated to increase from 22.5 lakh tons to 25 lakh tons.
• Accordingly, considering the rainfall and the acreage under sugarcane in various States as of now, including the above 4 important sugar producing States, ISMA’s estimates of sugar production for 2012-13 sugar season is 250 lakh tons.
• There will certainly be surplus sugar production in the next season too. India will need to continue to be a net exporter of sugar in 2012-13 season to ensure that mills get reasonable return on their sugar sales and timely cash flows to pay adequate cane price to farmers on time.
• There is no reason to be concerned about adequacy of sugar availability now or even during the next sugar season.  There could be some who put their sugar production estimates at below 250 lakh tons, but the most conservative estimate also will confirm that the country will still have surplus production over the domestic requirement.
• With satellite mapping results, carried out by ISMA and NFCSF, being available and after the monsoon season gets over in another month or so, the picture would be clearer and, if required, ISMA will then carry out a review of the sugarcane and sugar production estimates for next year.  However, there does not seem to be any reason whatsoever to believe that next year will not be another surplus sugar production year. The only doubt which will remain,is whether the surplus will be 10 lakh tons or 30 lakh tons or anywhere in between.

COST OF PRODUCTION DURING 2011-12 & SUBSTANTIAL REDUCTION IN SUGARCANE ARREARS

• Due to losses being incurred by the industry, the cane price arrears had reached a historically high level of Rs.10,000crore in March 2012, which as on 30^th June, 2012 was still Rs. 4600 crore.
• It is, therefore, important to sustain the ex-mill price at above the cost of production, which only then will ensure that the farmers get their payments on time and the industry is able to sustain the current level of production to meet fully the domestic demand from indigenous production. 
• In fact, with the recent improvement in ex-mill prices, the mills could clear a large part of the cane price arrears.  From Rs.3100 crore of cane price arrears, in case of U.P. alone, as on 15^th June 2012, the mills could reduce the arrears to Rs. 1650 crore by 31^stJuly, 2012.
• With very high sugarcane price being paid by the sugar mills, some due to high SAPs fixed by States and some due to States' announcement of another price higher to the FRP of the Central Government, the cost of production has been high during 2011-12 sugar season.  In the northern part of the country where SAPs have been fixed, the cost of production of sugar is Rs. 33-34 per kilo, which in the case of Tamil Nadu is Rs. 31-32 per kilo and in the case of Maharashtra where the recovery is slightly better, is around Rs. 30 per kilo.
• During the last 9-10 months of the current sugar season, the ex-mill prices have been substantially below the cost of production and the mills have had to incur substantial losses on the sale of sugar.  The current ex-mill sugar prices are just about allowing the sugar mills in the northern part of the country to break even and in the southern part of the country to make a very small margin, which is still not adequate to cover the losses incurred by them in the last 9-10 months. 
• The Central Government has recently increased the FRP for next sugar season starting from October 2012 by 17% from Rs. 145 in the current year to Rs. 171 per quintal of cane.  This has been the highest ever increase in one year by the Government, which will have an impact on the input cost of sugar mills.
• To sustain the high input cost and also the current sugar production levels and at the same time ensure payment of remunerative price to the farmers, the ex mill prices need to cover the costs of sugar production.

CONCLUSION

• There is sufficient sugar in the country now and would continue to be adequate throughout the next sugar season too.                  
• The country will need to continue to export sugar next year too to dispose of surplus sugar, generate cash flows and pay to the farmers on time.
• The recent improvement in ex-mill prices are only allowing mills to break even or recover their cost of production, which is only helping them to clear the huge cane price arrears, which got built up during the season.  Such prices need to be sustained to ensure that farmers continue to grow sugarcane in 2013-14 season and thereafter.