Viability of Indian sugar industry

Abstract

Sugar sector was highly regulated sector since its inception with the objective to provide sugar at reasonable price to consumers, timely clearance of cane arrears of farmers and stabilizing open market prices from point of view of producers. This mechanism was successful till liberalization. In liberalization era, with de licensing of sugar industry and sugar under OGL, supply side regulation becomes ineffective. Sugar prices are determined by market mechanism and procurement of sugarcane at SMP/SAP hampers economic viability of sugar industry. The objectives of this dissertation are to analysis economic viability of manufacturing of ethanol from C , B molasses and sugarcane juice to meet MS Ethanol blending target set in the Bio fuel policy of 2008 and overall economic viability of sugar zones. Analysis of relevant data reveals that manufacturing of ethanol from C molasses is an economically viable option in terms of cost of production and revenue realization. However, it has capacity constraints to fulfil blending target of 10%. Alternate economic viable option of manufacturing of ethanol from B molasses enables to meet requirement in full, but will result in reduction of sugar production by 15%.Fortunately, as India produces excess sugar than its requirement, in spite of reduction in production, India would continue to have sufficient quantity to meet its domestic requirement. Sugar industry would stabilize with a profitable venture of diversion of excess sugar for production of ethanol, which either to exported at through away prices subject to International market. With 10% blending, OMC s will be able to generate profit of Rs 2500 crore and GOI a saving of Rs 500 crore per annum on sugar. Sugarcane juice route is presently not an economical viable option, however, efforts needs to be made to increase sugarcane yield per hectare, recovery of sugar to establish ethanol as an independent fuel competitive with gasoline to meet future increased requirement. Analysis of economic viability of sugar zones/ mills varies due to operational parameters and efficiencies which in turn determines variation in structure of cost of production.