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Sugar: An overview - Views on News from Equitymaster
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  • Jul 2, 2004

    Sugar: An overview

    A large part (nearly 65%) of the Indian populace is dependent on the agrarian sector for employment as well as survival. The sector contributes nearly 23% to the country's GDP. Given this backdrop, in this article, we take a look at the Indian sugar industry that plays a major role as far as growth in agricultural sector is concerned.

    Currently, nearly 4 M hectares of land is under sugarcane cultivation (nearly 4% of the cultivable land) with an average yield of 70 tonnes per hectare. India is the largest consumer and the second largest producer of sugarcane, next only to Brazil. Of the products, nearly one-third of the sugarcane production is utilized in the khandsari and gur (jaggery) sectors. India is the largest producer of khandsari and gur (K & G) with an annual production of 26 MT, which is by far, higher than the second largest producer, Brazil, with an annual production of 18.5 MT. Being in the small scale industries segment, the K&G sectors are completely free from controls and taxes which are applicable.

    The sector as a whole is highly fragmented, thanks to the licensing policy adopted initially. This policy resulted in a cap on capacity addition as well as setting up of new capacities. Initially, the mills were allowed to set up a maximum capacity of 1,250 TCD (tonnes crushed per day), which was raised to 2,500 TCD at a later stage, while capacity expansion limits were raised from 3,500 TCD to 5,000 TCD. These policies were finally done away with in 1990. However, this resulted in horizontal growth with an all India average per unit capacity of 2,500 TCD, while on the other hand, there has been consolidation and move towards larger capacities, the world over.

    The below mentioned table gives a clear picture with a country-wise basis:

    Country No of units Avg. crushing/day
    Avg. prod/day
    Thailand 45 10,307 140,540
    Australia 28 9,216 183,321
    Brazil 213 9,168 64,018
    South Africa 13 6,877 137,769
    Mexico 67 4,749 71,015
    Colombia 10 4,590 214,900
    Cuba 156 4,229 45,538
    India 507 2,527 35,000

    Source: www.indiansugar.com

    The government currently supports the industry in multiple ways. A levy of Rs 14 per quintal of sugar was provided under the sugar development fund. This amount is used to provide loans to the sugar mills for modernization and grants for research projects undertaken in the industry. The sugar mills have to contribute nearly 10% of the produce at government notified prices for distribution through the public distribution system (PDS), while the rest is allowed to be sold freely in the open markets.

    The sugar industry employs nearly 8% of the rural population and is one of the fastest growing sectors as sugarcane production is more profitable as compared to major crops being cultivated in the country. The below mentioned graph indicates the production and consumption trends of sugar in the country:

    Source: www.indiansugar.com

    The above graph clearly indicates that while consumption is steadily on the rise, production is largely suffered on account of erratic monsoons and other natural disasters such as earthquakes in the regions under sugarcane cultivation. However, the growing demand for sugar has resulted in higher prices for the produce. The government has now allowed private entrepreneurs to enter the business without restrictions on capacities. With the profitability as compared to other crops, sugarcane business is likely to witness immense capacity addition, going forward. With the government's thrust on the rural sector likely to fructify in the current budget, this sector may be one of the emerging growth stories.



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