I. Global Scenario
After 2 consistent years of surplus Sugar Production during the years (Oct – Sept) 2017-18 & 2018-19, the Year 2019-20 turned out to be a deficit year owing to the lower Production in all major Sugar producing countries including India, Brazil, and Thailand. The year 2020-21 is also shaping out as a deficit year though a marginal one. The graph of ICE 11 (Raw Sugar) and LIFFE (White Sugar) exchange prices during the last 3 years i.e. April 2018 – March 2021 is given below:-
Chart 1: ICE 11: Raw Sugar Settlement
From the above price graph of 3 years, it can be observed that till September 2019, Sugar prices remained depressed due
to the Year 2017-18 and then 2018-219 being surplus production years. From Oct 19, Sugar prices started improving because of various factors including the fact that the Year 2019-20 and 2020-
2021 are estimated deficit years.
ICE 11 (Raw Sugar Prices)
Raw Sugar prices started from the level of 12.5 cents/pound as on 1st April 2018 attended the high of 18.8 cents/pound during February 2021 and low of 9.2 cents/pound during April 2020. (Though lowering of prices to as low as 9.2 cents during April 2020 was more because of reasons related to COVID, lockdown in a number of countries and was short-lived). The closing level of ICE 11 price on 31st March 2021, is 14.77 cents/pound.
LIFFE (White Sugar Prices)
Similarly, White Sugar prices started from the level of 355 cents/pound as of 1st April 2018 and continued range-bound till Oct/Nov 2019 month touching a low of 300 USD/mt in between. From thereafter LIFE prices increased and touched the peak of 488 USD/mt during Feb 2021 month with price as on 31st March 2021 at the level of 420 USD/mt.
Table 1: Global Balance Sheet
We are analyzing International Sugar price, various factors affecting price during the Year 2020-2021 ( April – March) as under:-
From the above graphs for the Year 2020-21 (April – March), it can be seen that it has been a good year from a Sugar price perspective where price has continuously increased. ICE 11 price started from the level of 10 cents as on 1st April 2020, touched the low of 9.2 cents in April 20 month, high of 18.8 cents in Feb month with a price of 14.77 cents/pound as on 31st March 2021. LIFE price started from the level of 342 as on 1st April 2020, low of 307 USD in April month then reaching to a high of 488 USD/mt during Feb month. The closing price as of 31st March 2021 remained at a level of 420 USD/mt.
Influence factors during the Year 2020-2021 (Oct – Sept) India :
During the year 2020-21 (Oct-Sept), there had been a delay in the announcement of Export quota/export assistance. This year, it was announced at the end of December 2020 whereas last year it was announced in the II weeks of September month. Delay in the announcement of Export assistance helped International Sugar prices to firm up so as to pull Indian Sugar for exports as World needed it.
It was because of improved International Sugar prices that Government could manage with export assistance of ` 6.0 per Kg this year (2020-21) whereas last year assistance was to be given of ` 10.448 per Kg to push exports. Due to lower production in Thailand, the overall deficit in the World balance sheet during 2019-20 and now 2020-21, good demand, India have contracted almost 90% of the overall quota of 6.0 Million MT for the year 2020-21 out of which 2.5 Million MT is estimated to have been exported during Jan – March 2021 and entire quota is estimated to be exported by June / July 2020-2021. With consistent surplus Sugar production, India has become a structured exporter and is consistently exporting Sugar now year after year and creating new records. During the Year 2019-2020, India exported a quantity of 5.95 Million MT which had been all-time high figure and during 2020-21 country is estimated to surpass it and create another record of 6.5 Million MT of Sugar exports
From the above figures, it can be observed that the Diversion of Cane towards Sugar has significantly increased during the Year 2020-21 because of improved prices of Sugar resulting in better price parity in favor of Sugar as against Ethanol.
Because of the higher availability of cane, improved TRS of cane and higher diversion of cane towards Sugar, Sugar production in Brazil CS has increased to 38.46 Million MT from last year’s level of 26.76 Million means an increase by whopping 43.7%. Due to very low levels of Sugar prices during the Year 2018-19 and 2019-20, cane diversion towards Sugar remained very low at levels of 35.21 % and 34.33% respectively as against 46.46% the previous year. Because of the lower diversion of Cane during these 2 years, Sugar production came down to record low levels of 26.51 Million MT and 26.76 Million MT during these 2 years.
So, the switch of Cane between Sugar & Ethanol plays a very good balancing role to regulate Sugar production not only for Brazil but also for the global balance sheet. From the above table, it can be seen that TRS levels (Sucrose content) are improving year after year and have increased from the level of 136.6 during 2017-18, 138.57 during 2019-20 to the level of 144.72 during 2020-21. Going ahead for the Year 2021-22, there are talks of lower Sugar production in Brazil CS due to poor rainfall affecting yields which also seems to be strengthening Sugar prices.
Wilmar Sugar has been the most pessimistic of all and has predicted that during 2021-22, Brazil’s CS cane crop may reduce to 530 Million MT down by 12.4%, Sugar production to 31 / 33 Million MT and Ethanol production to 23 / 25 million MT. Another research agency Canaplan predicted that cane crush will reduce to 540 – 553 Million MT, Sugar production to 33.1 – 33.8 million mt, and Ethanol production to 24 – 24.5 billion liters due to dry weather. There are certain optimistic estimates as well like one from Archer Consulting with cane crush at 575 Million MT, Sugar production at 35 Million MT, and 24.7 billion liters.
Datagram estimates Sugar production level at 36.3 Million MT during the Year 2021-22.
Stone X, broker, and analyst firm estimates Cane crush of 567 – 578 Million MT with increased diversion of Cane towards Sugar. It is estimated that Mills will maximize cane crush for Sugar for which they extend crushing period by even reducing per day crush so as to produce more sugar and less Ethanol with the prediction of Sugar production not less than 36 Million MT. UNICA announced crop performance during the current year 2021-22 up to 16th April as per which Sugar production is down by 35.75% as compared to the corresponding period last year as under:-
(Performance up to 16th April is just initial tend and is not indicative performance for the whole year). So, it is widely believed that during the Year 2021-22, Sugar production will be lower with wide estimates between 31 – 36 Million MT as against last year’s production of 38.46 Million MT. From above, it can be seen that Brazil’s Sugar Industry, on one hand, is working on Cane quality visible from increasing TRS, on other hand shows the flexibility of increasing/decreasing Sugar production depending upon market dynamics and thus plays a major balancing factor.
Thailand:
Thailand plays a major role in framing the World Sugar market due to its position as a major Sugar exporter in the World. Year after year Sugar production in Thailand is coming down which is due to poor rainfall and also depressed sugar prices in the last 2-3 years and better return on alternate crop options like cassava. Sugar Production in Thailand which was in excess of 14 Million MT during 2017-18 has gone to the level of 8.3 million MT during 2019-20 and further to an estimated level of 7.4 Million MT during 2020-21. The next year 2021-22 it is estimated that it will increase to 9.9 Million MT higher by 33.8% with improved price and conditions. Thailand slippage in Sugar production has thrown open their conventional markets in Asia like Indonesia, Malaysia, Bangladesh to Indian Sugar helping India to export sugar big way.
Crude Oil
Crude Oil plays a major influencing role in Sugar prices as it is one of the major macro factors and secondly higher crude oil prices indicate higher diversion of cane towards ethanol thus in direct proportion to Sugar prices. During the Year 2020-21 (April – March), Crude Oil has also been a big support factor for Sugar prices. Crude oil price (WTI) was at the level of 20.48 USD/barrel as of 1st April 2020 though this was a dismal level because of total demand destruction due to COVID issues. In fact, in between Crude oil prices had gone negative as well and WTI touched the level as low as -40.3 USD. From the level of 20.48, the price increased up to the level of 59.16 USD/barrel as on 31st March, 2021 and in-process also helped strengthen Sugar prices.
Currency Brazilian Real: During the Year 2020-21, Brazilian real appreciated from the level of 5.63 at the beginning of April 2020 to the level of 5.20 by end of March 2021 which means an appreciation of 7.6%.
Indian Rupee: Similarly during the Year 2020-21, INR has appreciated from the level of 76.4 in beginning of April 2020 to level of 73.1 by end of March 2021 which means appreciation of 4.3%. Appreciation of the currency of 2 major Sugar exporting countries i.e. Brazil and India has also helped in firming up Sugar prices.
2021-22 (Oct – Sept) Global sugar surplus: While 2021-2022 is marginal deficit year, Year 2021-22 is estimated to be surplus year.
For the Year 2021-22, Datagro estimates a surplus of 2.74 Million MT owing to production recovery in Thailand, another good crop in India, higher yields in Europe, increase in Russia’s Sugar production by 18%. Datagram has estimated the Sugar deficit for the Year 2020-21 at 1.51 Million MT.
Czarnikow estimates a global Sugar surplus of 2.7 Million MT which is down from an earlier estimate of 3.0 Million MT during 2021-22. Rabobank’s estimate of global sugar surplus for the same period is 1.5 Million MT. The year 2020-21 is a global deficit with varying degrees of estimate between 0.7 – 3.5 Million MT of Sugar. Over a period of time, India has become a structured exporter of sugar, a reliable source of Sugar supply for many destinations with continued Government support.
II. Indian Scenario
Since early 2020, COVID had been spearheading across the Globe to which India is also no exception, badly affecting the Industry, leading to weak macros, overwhelming health infrastructure, weakening demand, joblessness, etc. In India during March 2020, national lockdown had been imposed with tough restrictions all the place. But during the said lockdown, Sugar mills across the country continued with the crushing operation and crushed the entire cane available despite all challenges including availability and transportation of Raw material like PP bags, Sulphur, lime, etc., weakened sale of end products, logistics, Cash flow issues.
There had been major demand contraction of Sugar initially in the month of March / April due to lockdown and closure of all Institutional units consuming Sugar but during the later part of the year, demand recovered and part of the loss of demand was also made up. Total domestic consumption during the Sugar year 2019-2020 remained at the level of 25.3 Million MT as against 25.5 Million MT the previous year. A similar kind of demand destruction was seen in Ethanol supplies as well during the lockdown period. Petrol sales had come down significantly which affected Ethanol demand as well at oil company depots. However, the Industry was able to address this issue by supplying Ethanol to far-flung depots that initially had not been blending Ethanol.
Surplus Production
Last 11 years, the Indian Sugar Industry has continuously been producing Sugar more than what is required in the domestic market barring years 2016-17. Last 4 years, Sugar Production had been exceeding 30 Million MT except for the year 2019-2020 when it could reach the level of 27.4 Million MT. This can be seen from the graphical representation of Sugar Production and Sugar consumption for the last 11 years, as below.
Year Sugar Year (Oct – Sept)
During Year 2019-20, Sugar production remained lower because of a dip in Sugar production in state of Maharashtra and Karnataka. U.P. state continues to remain consistent with its production and this is 4th year in a row when U.P. estimated to produce more than 11 Million MT of Sugar. This gives number-one slot of Sugar production to U.P. state 5th year in a row since the Year 2016-17 followed by Maharashtra which has never happened in past. Though during 2021-22, Sugar production of both the states will be very near to 11 Million MT. While increased Sugar production has given better capacity utilization to Industry and has helped the Industry and Trade in terms of better Sugar recovery and yield, it has also created the problem of excess sugar in the system and also it’s bearing on Sugar prices.
While the Indian Sugar trade had been grappling with the problem of Sugar surplus for quite some time now but over a period Industry has been able to evolve itself so as to convert this problem into an opportunity. “Ethanol” has become the buzz word these days and has come as an opportunity for the Industry where on one hand Industry is able to increase its Ethanol production by diverting excess Sugar for highly ambitious bio-fuel program of Government of India, on the other hand Industry is able to regulate its sugar production. Year after year Ethanol production in the country is poised to increase with the Government including the number of Raw materials including damaged grains, Rice, and giving price in line with its cost. The government has shown a road map by floating Ethanol tender for a period of 5 years during the current year where Quantity and price will be finalized every year.
India is making new records every year on the Sugar Export front as well where the last year 2019-20 countries exported the highest ever quantity of 5.95 Million MT. This is not all and this year country is poised to surpass last year record and is estimated to export a quantity of 6.5 Million MT Sugar. India has been able to cope up with challenge of excess Sugar production through a continued Sugar export program and diversion of Sugar towards Ethanol. However, all the above would not have been possible without the Government support and policy framework. Thanks to the Government policies and support system which has made it happen. With the above support and policies, the cyclical pattern of Indian Sugar production has become a trend of the past and now is in a position to produce Sugar best to its capacity with excellent yields, recovery and efficiency. We are giving below the graphical representation of cyclical pattern of Indian Sugar Production from the Year 1980-81 till 2009-10 where it can be seen that after every 2-3 years of surplus there is a period of deficit Sugar production which use
to act as a balancing factor for surplus Sugar production.
Year Sugar Year (Oct – Sept)
U.P. state is the consistent performer and has become the number one Sugar producer in country since the Year 2016-17 i.e. last 5 years. U.P. State has consistently been producing Sugar in excess of 11.0 Million MT since last 4 years and has touched the high of 12.6 million MT during the year 2019-2020. This performance is despite the fact that every year the state is increasing its diversion of Sugar towards Ethanol and can now boast of the largest Ethanol producer and supplier in-country. Going ahead, projections are that such excellent performance of U.P. state will continue in years to come as well. Maharashtra has lost the place of number one Sugar producer which was during 2015-16 and before and is now number two Sugar producer in the country. Maharashtra Sugar production is volatile and in between there are large swings in Sugar production. For instance, during the Year 2016-17 there has been a dip of 50% in Sugar production. During 2017-18, normalcy returned to Sugar production with an increase of 155% in Sugar production. Again after 2 years during 2019-20, dip in production by 42% and during 2020-21 estimated increase in Sugar production by 75%. In Maharashtra this fluctuating Sugar production is not new feature which we have illustrated through a graphical representation since Year 1976-77 as below:-
Karnataka state is the 3rd largest Sugar producer in country and being the neighboring state of Maharashtra working in similar conditions, is having fluctuating Sugar production as can be seen from the above Table of State-wise production. Tamil Nadu is the worst hit state in country which has produced Sugar to the tune of 2.5 Million MT earlier is now producing below 1.0 Million MT continuously and has not been able to come out of this dismal performance. 3 states i.e. U.P., Maharashtra and Karnataka are producing majority of Sugar production and their overall share is also increasing. During 2020-21 share of these 3 states is estimated to be 84% which was around 81% in previous year.
The improved Sugar Production levels are on account of improved yields in number of states and improved Sugar recovery mainly in state of U.P. The details of yields and recovery of various states are given below from where it can be seen that how the productivity
in terms of yield and recovery has changed:-
From the above table, the following can be observed:-
– Country continues to produce Sugar higher than consumption and because of good export campaign, is managing to keep Sugar stocks in control.
– From the high of 14.6 Million MT Sugar opening stock during the year 2018-19, it is estimated that it will come down to the level of 9.2 Million MT by end of 2020-21.
– Sugar exports are estimated to rise up to the level of 6.5 Million MT during 2020-21 because of aggressive policy and assistance of the Government.
– Sugar internal consumption (dispatch from Mill) remained almost static from the level of 25.6 Million MT during 2014- 15 to the level of 26.0 Million MT during 2020-21. As per trade, in between, there are certain adjustments in trade pipeline stocks and also some demand contraction during 2019-20 on account of COVID issues.
Till the Year 2010-11, Sugar production was cyclical in nature and this cyclicality in Sugar Production led to the cyclicality of Sugar Exports & Imports. During the years of surplus, the country Exported Sugar and during the years of the deficit country imported Sugar and thus it became a big swing factor for the Global Sugar demand-supply balance sheet as well. From the above graph, it can be seen that till the Year 2010-11, Sugar import and export has been cyclical means after every 2-3 years either country is exporting Sugar or importing Sugar in a big way.
However from the year 2010-11 onwards due to consistent higher Sugar Production much more than the demand, the country had been exporting Sugar on regular basis with very few imports in between. Policy initiatives by the Government The task in hand with Government has been to tackle the problem of Sugar surplus in system, ensure that Sugar prices don’t fall below certain viable levels because of excess Sugar, ensure liquidity with Sugar Mills for cane payments. Over the years Government had been aggressively promoting the Export of Sugar, Export quota & assistance, promoting Ethanol as fuel, promoting different raw materials for Ethanol like B heavy Molasses, Cane Juice, Syrup so as to have the diversion of Sugar, maintaining price by defining Minimum Sale Price (MSP) and regulating Sugar supply in the market by
giving Mill-wise domestic monthly release. Both Central & State Government had also been working on improvement in performance parameters of Industry like Sugar recovery, yield, development of new variety, sorting out logistics bottlenecks, trade efficiency, better relations between Sugar Mills & trade, working on all issues for the supply of Ethanol to oil companies for wholesome improvement of Industry.
a) Promoting Exports of Sugar
It was a challenge for Government to increase Export of Sugar from the country in line with requirement of excess Sugar because of highly fragmented Industry, each state having its own problems, coastal and non-coastal states working under different conditions, logistics bottlenecks and lastly price mismatch between International and domestic price. Furnished below is a snapshot since the Year 2018-2019 on Sugar exports where Government motivated the Industry by giving export quotas to Industry and also related assistance in different forms as under:-
The sugar Year 2018-2019
On 28th Sept 2018, Government announced a Mandatory Export Quota of 5.0 Million MT on an All Indian basis to be exported from Oct 2018 – Sept 2019. The mandatory export quota of 5.0 Million MT has split amongst all Sugar Mills in-country basis the Sugar Production of the last 3 years.
On 26th Sept 2018, to boost Sugar Exports and for the purpose of offsetting the cost of cane, Government announced the following financial assistance:-
• Government announced to pay defraying expenses towards Internal transport, freight, handling, etc. to Sugar Mills on Export of Sugar as under:-
– `1.0 per Kg for Sugar mills within 100 km from Port
– `2.5 per Kg for Sugar mills beyond 100 km from the port in coastal states
– `3.0 per Kg for Sugar Mills in Non-coastal states.
• Financial assistance of ` 13.88 per Qtl. of the cane on cane crushed during the Sugar Year 2018-19 subject to Sugar Mills complying with all the directives of Department of Food including exports quota and monthly release. The incidence of this financial assistance worked out to approx ` 8.3 per kg on Sugar exported.
• To facilitate and motivate Sugar exports, Department also decided to give additional Sale quota in domestic market to the ones exporting Sugar and reduce the domestic quota of the Sugar Mills not exporting Sugar. Sugar Year 2019-2020 For the year 2019-20, Government announced a quota of 6.0 Million MT Sugar exports on All India basis with export subsidy details as under:-
• The Central Government agreed to provide assistance @ `10,448 per Metric Tonne for expenses on the export of sugar to the sugar mills in the following manner:-
◊ For marketing including handling, quality up-gradation, de-bagging & re-bagging, and other processing costs etc @ 4,400 per MT.
◊ For internal transport and freight charges including loading, unloading, and fobbing, etc. @ `3,428.0 per MT.
◊ For ocean freight against shipment from Indian Ports to the ports of destination countries etc @ ` 2,620 per MT. Total estimated assistance worked out to the tune of ` 6,268.0 crores by the Central Government for export of 6.0 Million Tonne sugar.
The year 2020-2021
During the Year 2020-21, Government announced Maximum Admissible Export Quantities (MAEQ) of 6.0 Million MT and
the assistance of ` 6,000 per MT as under:-
• For marketing including handling, quality up-gradation, debagging & re-bagging, and other processing costs, etc. @ 1,600 per MT.
• For internal transport and freight charges including loading, unloading & fobbing, etc. @ ` 2,400 per MT.
• For ocean freight against shipment from Indian ports to the port of destination countries etc @ ` 2,000 per MT. Flexibility/facility given by Government to Sugar Mills in exports
• Since Sugar Industry is highly fragmented and there are various small size mills, the Government has allowed for the export of Sugar through Merchant exporters.
• Since there are mills in non-coastal regions like U.P., Punjab, Haryana, etc. Sugar mills can export Sugar sourced from another Sugar mill (say in coastal region with lower logistics cost) either directly or through Merchant exporters and shall be eligible for export assistance.
• Government simplified the process as earlier Sugar Mills were to complete 100% of their Export Quota and obtain BRC for claiming export assistance. However, since 2019-20, Government allowed Sugar Mills to claim assistance after completing 50% of the quota allotted and were allowed to submit BRC later.
• This year Government allowed the swapping of the Export quota of a Sugar mill with a domestic release quantity of another mill. This scheme got a good response and a quantity of 1.05 Million MT has been swapped so far till April 21 month.
• Government has allowed the supply of Sugar to Sugar refinery either based in (SEZ) Special Economic Zone or other port based refinery as export of sugar and allowing export assistance to Sugar mill.
• Supply of Sugar for export of biscuits, confectionery, any other item containing Sugar is considered as export of Sugar.
• Review of export performance: There is a process where periodically Government reviews the export performance of Sugar mills and the export quota of Sugar mills not exporting Sugar is transferred in a phased manner to those Sugar Mills showing good performance and willing to export more. The overall idea is to ensure that the allotted annual quota gets exported.
• Government allowed priority berthing for Sugar vessels to expedite Sugar loading and savings on demurrage. Timely disbursal of export assistance is a limitation and fast payment of export assistance immediately after submission of documents will further motivate the Industry for exports.
b) Maintaining Sugar Price in market MSP (Minimum Selling Price of Sugar)
Due to high Sugar production resulting in excess Sugar supply in the market, Sugar prices across the country started coming down and had come down below the cost of Production. To arrest falling Sugar prices, Government fixed the Minimum uniform selling price of Sugar at the Mill level, across the country as under:-
• On 6th June, 2018, Government approved fixing of Minimum Price of ` 29.0 per Kg for Sugar below which no
Sugar Mill can sell in the domestic market.
• On 14th Feb 2019, the Government increased the MSP of Sugar from the level of ` 29 per Kg to ` 31 per Kg. During 2020-21, there had been various recommendations including the Group of Ministers for increase in MSP of Sugar by 2.0 per Kg to ` 33.0 per kg but final approval of the same is yet to come. Industry body ISMA seeking price increase from existing `31 per kg to `34.5 per Kg.
c) Monthly Sales release mechanism
On one hand, Government fixed the Minimum Selling Price of Sugar, on the other hand, Government, imposed a Reverse stock limit on Sugar Mills to restrict the supply of Sugar in the market so that Sugar Mills are able to realize MSP / viable prices. On 7th June 2018, the Government imposed a reverse Stock limit on Sugar Mills stating that all producers of Sugar by vacuum pan process shall hold such quantity of Sugar (White or refined) at the end of each month as may be specified by the Central Government for each month.
To arrive at the figure of stocks which Sugar Mills were required to carry at the end of each month, Sugar Mills were given Monthly Sales Release Quantity above which Sugar Mills cannot sell in domestic market. The purpose of above order was to regulate supply of Sugar in market which is in excess due to consistent surplus production and thus to maintain the Prices.
d) Discouraging Sugar Imports
Since International Sugar Prices are lower than domestic prices and to avoid any Sugar Imports which country don’t need, Government increased import duty on Sugar with details as under:-
– In July 2017, Government increased the import duty on Sugar from the existing rate of 40% to 50%.
– In Feb 2018, Government increased import duty on Sugar from 50% to 100% to completely rule out any
import of Sugar.
There has been no import of Sugar in last 3 Sugar years since the Year 2018-2019 and no possibility in near future because of high import duty and rightfully also as a country don’t need import of Sugar in current period of surplus.
e) Buffer Stock/subsidy
Government had allowed a buffer stock of 4.0 Million MT starting from 1st Augus, 2019 till 31st July, 2020. The government allowed a buffer subsidy of 13.5% per annum which included Interest of max 12% per annum or actual as charged by bank (whichever is less) and Insurance including storage charges of 1.5% per annum. The government had not allowed the extension of buffer subsidy after the expiry of the same in the month of July 2020.
f) Rationale in fixing Cane Price State Advised Price (SAP)
Government showed rationale in fixing Cane price looking into the excess Sugar supply / depressed Sugar prices, improved yield, etc. Sugar year 2020-21 had been 3rd consecutive year in a row when the Cane SAP in state of U.P. remained unchanged at level of ` 315 per Qtl. for common variety of Cane, ` 325 per Qtl. for Early variety of cane and ` 310 per Qtl for rejected variety of cane. Last increase in SAP was during the year 2017-18 when the SAP was increased by ` 10 per Qtl. Fixed & Remunerative Price (FRP): For the Sugar Year 2020-21, Central Government had increased the Cane FRP by 10 per Qtl from the level of `275 per Qtl. to `285 per Qty. linked with 10% Sugar recovery.
For every 0.1 percent increase in Sugar recovery above 10 percent, a premium of `2.85 per Qtl will be paid by Sugar Mills. Also, the government has made a provision for reduction in FRP by `2.85 per quintal for every 0.1 percentage point decrease in recovery, in respect of those mills whose recovery is below 10 percent but above 9.5 percent. However, for mills having recovery of 9.5 per cent or below, the FRP is fixed at `270.75 per quintal.
g) Ethanol-pricing / Feedstocks
The government is continuing to aggressively promote Ethanol as a fuel as it is a non-fossil biofuel, a big curb on vehicular pollution, and also saves foreign exchange required for the import of crude oil as the country is a net importer of crude. Government has plans to increase Ethanol blending percentage to 20% by the Year 2025 which means an annual supply of 9.0 billion liters as against this year’s estimated supply of 3.0 billion liters.
Further due to surplus Sugar Production, Government is targeting Ethanol as an alternative to Sugar which can be made from Cane-like in Brazil which on one hand will provide an adequate supply of Ethanol under Government ambitious bio-fuel policy on another hand will be used to regulate Sugar Production and thus take care of excess Sugar in the system.
h) Summary Ethanol Price fixed by the Government
Government focus is on increasing Ethanol supplies for which on one hand Ethanol price has been increased so as to make it viable for Sugar Mills in line with cost, on other hand Government allowing other raw materials usages for Ethanol supplies.
During 2020-21, C Ethanol price has been increased from `43.75 per liter to ` 45.69 per litre means increase of 4.4 %, B Heavy Molasses Ethanol from ` 54.27 per litre to ` 57.61 per liter means an increase of 6.15% and Cane juice Ethanol price from `59.48 per litre to ` 62.65 per liter means an increase of 5.33 %. Taking cognizance of the cost of Ethanol from different Raw materials, the Government has allowed different prices of the same product “ETHANOL” basis the Raw material used as above.
This on one hand will boost the availability of Ethanol which is a Green bio- fuel and part of the Government’s ambitious bio-fuel policy, on another hand usage of raw materials like B heavy Molasses and Cane Juice will help in reducing Sugar surplus. For promoting Ethanol supplies from B heavy and Cane Juice, Government not only giving higher price for Ethanol but has also prioritized Ethanol made from Cane Juice and B heavy Molasses over C Molasses Ethanol in a particular state. However, first priority is given to suppliers within a state and if suppliers in state are not able to meet the requirement, supplies will be procured from other states. For any Oil company depot at the time of allotting order within in the state, the first priority is for Cane Juice Ethanol, followed by B heavy Molasses Ethanol then C Molasses / damaged Grain Ethanol.
During the Year 2018-19, as per estimates, 0.5 Million MT Sugar has been diverted towards Ethanol in form of B heavy Molasses, 2019-20 this figure has reached reach 0.8 Million MT which during the Year 2020-2021 is estimated at the level of 2 Million MT. The government is continuing with the policy of restriction on Imported alcohol for blending purposes.
i) Ethanol supply
For the Year 2020-21 (Dec-Nov), the Government floated a tender for a quantity of 457.60 crore liters against which LOI has been issued for a quantity of 325.93 Crore Litres and a quantity of 302.53 crore liters has been contracted. It is estimated that total contracts by end of current year will reach 350 crore litres. Till April this year, the country has achieved blending percentage of 7.36% while 11 major states Uttar Pradesh, Maharashtra, Karnataka, Uttarakhand, Bihar, Haryana, Punjab, Delhi, Goa, Gujarat, and Himachal Pradesh have achieved even higher blending percentage of up to 10%. further new Ethanol manufacturing capacities are added every year for which Government also disbursing soft loans.
In order to boost Ethanol supplies from alternate feedstocks, the Government is also pushing 2G Ethanol which will be manufactured from cellulosic waste. Public Sector Oil companies are in process of setting up their own 2G Ethanol plants for the generation of Ethanol for their requirement of blending with Petrol. While, GST of all Alcohol Products is 18%, on Ethanol meant for blending with Petrol, GST has been reduced to 5% which was done during July 2018. Now, Government needs to increase the blending percentage from the existing level of 10% to 12-15% on an immediate basis so as to accommodate the increased supply of Ethanol nearer to the source for which the understandably Government is working.
j) Soft loans for Ethanol
As per Government note August 2020, Government has allowed soft loan to the tune of `18,600 crore to 362 projects for purpose of establishing new Distilleries, installation of Incineration boiler, dual feed Distillery, etc. Out of 362 projects, 349 are Sugar mills and 13 are standalone distilleries involving interest subvention of ` 4,045 crore. The interest subvention is allowed @ 6% or 50% of bank rate whichever is lower for a period of 5 years with one year moratorium period.
The above soft loan has served the purpose of
a. improving liquidity of sugar mills by way of revenue from Ethanol
b. Achieve 10% blending target of EBP
c. Reduce sugar inventory by the usage of B heavy / cane juice for ethanol manufacturing. Government had further opened the window for taking soft loans for Ethanol capacity on 15th September 2020, and then on 14th January, 2021 where further loan sanctions have been done.
Number of projects were stuck up because banks were not ready to lend money because of weak balance sheets / stressed assets. Government pushing the banks to lend money to such stressed assets as well where they have initiated a process of tri-partite agreement between Distillery, Banks and Oil companies for such purpose.
k) IDR Act / State Excise fees & Procedures on Ethanol
There had been an amendment in IDR act, 1951 as per which State Government can control, levy taxes/duties on liquor meant for human consumption only. Denatured Alcohol, Industrial Alcohol not meant for human consumption will be controlled/legislated only by Central
Government. It means Ethanol and denatured spirit should come out of the purview of State Govt. with no power left to regulate or impose any fees/taxes/duties on Ethanol. With active efforts of the Government, Oil Marketing Companies, and Industry Associations number of states scrapped/started scrapping State Excise fees on Ethanol and relaxing their control on distribution, storage of Ethanol. Karnataka has been the first state to surrender their control on Denatured Ethanol and free it from State Excise Fees and permissions.
Some of the states have followed Karnataka in scrapping state fees and relaxing / waiving Excise control are state of Gujarat, Chattisgarh, Punjab, Haryana, Goa, Maharashtra, Delhi, M.P., U.P.. Industry is taking up the matter with various State Governments including Rajasthan prominent buyer for U.P. Distilleries to give up control on denatured Ethanol and other spirits in line with the IDR amendment / new GST rules and reasonably good progress is continuing on the subject.
Hope this article was helpful!
Happy Investing.
Suyog Dhavan
Join Me On My Telegram Channel Where I Share Much More Value Adding Knowledge Of Investing/ Trading: Click Here
Also, Don’t Forget To Follow Us On Our Social Media Accounts:
Facebook: https://www.facebook.com/strategicalpha/
Instagram: https://www.instagram.com/strategicalpha/
Twitter: https://twitter.com/suyog_dhavan
YouTube: https://bit.ly/2IIqztO
Very important note: The objective of this blog is to share knowledge and info about multi-bagger ideas/opportunities. Neither is this trading website nor an analyst website nor a Buy/Sell call website. For stock market success, always do your homework, own analysis, and make your own decisions.
