History

The discovery of sugarcane, from which sugar as it is known today, is derived dates back unknown thousands of years. It is thought to have originated in New Guinea, and was spread along routes to Southeast Asia and India. The process known for creating sugar, by pressing out the juice and then boiling it into crystals, was developed in India around 500 BC.

Its cultivation was not introduced into Europe until the middle-ages, when it was brought to Spain by Arabs. Columbus took the plant, dearly held, to the West Indies, where it began to thrive in a most favorable climate. It was not until the eighteenth century that sugarcane cultivation was began in the United States, where it was planted in the southern climate of New Orleans. The very first refinery was built in New York City around 1690; the industry was established by the 1830s. Earlier attempts to create a successful industry in the U.S. did not fare well; from the late 1830s, when the first factory was built. Until 1872, sugar factories closed down almost as quickly as they had opened. It was 1872 before a factory, built in California, was finally able to successfully produce sugar in a profitable manner. At the end of that century, more than thirty factories were in operation in the U.S.

Sugarcane
India has been known as the original home of sugar and sugarcane. Indian mythology supports the above fact as it contains legends showing the origin of sugarcane. India is the second largest producer of sugarcane next to Brazil. Presently, about 4 million hectares of land is under sugarcane with an average yield of 70 tonnes per hectare. India is the largest single producer of sugar including traditional cane sugar sweeteners, khandsari and Gur equivalent to 26 million tonnes raw value followed by Brazil in the

second place at 18.5 million tonnes. Even in respect of white crystal sugar, India has ranked No.1 position in 7 out of last 10 years. Traditional sweeteners Gur & Khandsari are consumed mostly by the rural population in India. In the early 1930s nearly 2/3rd of sugarcane production was utilized for production of alternate sweeteners, Gur & Khandsari. With better standard of living and higher incomes, the sweetener demand has shifted to white sugar. Currently, about 1/3rd sugarcane production is utilized by the Gur & Khandsari sectors. Being in the small scale sector, these two sectors are completely free from controls and taxes which are applicable to the sugar sector. The advent of modern sugar processing industry in India began in 1930 with grant of tariff protection to the Indian sugar industry. The number of sugar mills increased from 30 in the year 1930 - 31 to 135 in the year 1935-36 and the production during the same period increased from 1.20 lakh tonnes to 9.34 lakh tonnes under the dynamic leadership of the private sector. The era of planning for industrial development began in 1950-51 and Government laid down targets of sugar production and consumption, licensed and installed capacity, sugarcane production during each of the Five Year Plan periods. The targets and achievements during various plan periods are given below.

Global
Brazil and India are the largest sugar producing countries followed by China, USA, Thailand, Australia, Mexico, Pakistan, France and Germany. Global sugar production increased from approximately 125.88 MMT in 1995-1996 to 149.4 MMT in 2002-2003 and then declined to 143.7 MMT in 2003-2004, whereas consumption increased steadily from 118.1 MMT in 1995-1996 to 142.8 MMT in 2003-2004.

The world consumption is projected to grow to 160.7 MMT in 2010, and 176.1 MMT by 2015. According to ISO, the world sugar output is forecasted to reach 145.0 MMT and consumption to reach 147.0 MMT in 2004-2005, resulting in a deficit of around 2 MMT in 2004-2005. Further, since October 2003, nearly 5 MMT of surplus sugar are expected to have been removed from the world sugar balance, reducing the stock/ consumption ratio to less than 42%.

Indian
India is the largest consumer and second largest producer of sugar in the world (Source: USDA Foreign Agricultural Service). The Indian sugar industry is the second largest agroindustry located in the rural India. The Indian sugar industry has a turnover of Rs. 500 billion per annum and it contributes almost Rs. 22.5 billion to the central and state exchequer as tax, cess, and excise duty every year (Source: Ministry of Food, Government of India). It is the second largest agro-processing industry in the country after cotton textiles. With 453 operating sugar mills in different parts of the country, Indian sugar industry has been a focal point for socio-economic development in the rural areas. About 50 million sugarcane farmers and a large number of agricultural laborers are involved in sugarcane cultivation and ancillary activities, constituting 7.5% of the rural population. Besides, the industry provides employment to about 2 million skilled/semi skilled workers and others mostly from the rural areas. (Source: ISMA Website accessed on May 16, 2005.) The industry not only generates power for its own requirement but surplus power for export to the grid based on byproduct bagasse. It also produces ethanol, an ecology friendly and renewable energy for blending with petrol. The sugar industry in the country uses only sugarcane as input, hence sugar Companies have been established in large sugarcane growing states like Uttar Pradesh, Maharashtra, Karnataka, Gujarat, Tamil Nadu, and Andhra Pradesh. These six states contribute more than 85% of total sugar production in the country; Uttar Pradesh and Maharashtra together contribute more than 57% of total production.

Indian sugar industry has grown horizontally with large number of small sized sugar plants set up throughout the country as opposed to the consolidation of capacity in the rest of the important sugar producing countries, where greater emphasis has been laid on larger capacity of sugar plants.

AVERAGE SUGARCANE CRUSHING CAPACITY

Country Thailand Brazil India Avg. Capacity (TCD) 10,300 9,200 3,500

Sugarcane center
In India, major sugarcane growing states are Uttar Pradesh, Maharashtra, Karnataka, Gujarat, Tamil Nadu, and Andhra Pradesh. These six states contribute more than 85% of total sugar production in the country; Uttar Pradesh and Maharashtra together contribute more than 57% of total production.

Sugarcane production data

Sugarcane occupies about 2.7% of the total cultivated area (Source: ISMA Website accessed on May 16, 2005) and it is one of the most important cash crops in the country. The area under sugarcane has gradually increased over the years mainly because of much larger diversion of land from other crops to sugarcane by the farmers for economic reasons. The sugarcane area has, however, declined in the year 2003-04 mainly due to drought and pest attacks. Following table shows area under sugarcane farming and total can production.

STATEWISE SUGARCANE ACREAGE IN INDIA ( 000 Hectares )

STATE ASSAM ANDRA PRADESH BIHAR GUJRAT HARYANA KARNATAKA KERALA MADHYAPRADE SH MAHARASHTRA ORRISSA PUNJAB RAJSTHAN T.NAIDU & POND. UTTARPRADESH REST TOTAL % UP / DOWN

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999-89 -90 -91 -92 -93 -94 -95 -96 -97 -98 -99 00 42 154 127 94 131 240 8 39 158 125 106 126 265 8 36 182 149 118 148 272 8 38 202 145 120 161 285 8 40 171 133 127 134 262 6 36 176 120 128 111 301 6 36 209 123 155 120 345 6 36 214 125 162 144 313 6 36 199 130 166 162 282 6 31 30 214 192 111 107 165 196 120 125 310 339 66 29 231 97 201 133 361 6 51 590 21 108 19 335 2011 32 4225 4.19

40 44 39 39 46 39 53 37 48 45 56 314 383 444 453 404 344 517 580 516 460 530 47 47 49 43 16 13 20 27 23 19 22 97 103 101 109 112 77 83 132 173 129 103 16 16 23 31 24 21 22 28 27 2323 224 1761 30 3329 0 234 1761 28 3438 3.27 236 1856 25 3686 7.21 238 216 252 328 1933 1857 1761 1839 32 31 23 27 3844 3572 3422 3867 4.29 -7.08 -4.20 13.00 329 1974 29 4147 7.24 309 262 324 2111 1963 1975 36 36 36 4174 3945 4055 0.65 -5.49 2.79

STATEWISE PRODUCTION OF SUGARCANE IN INDIA (LACS TONNES)

STATE ASSAM ANDRA PRADESH BIHAR GUJRAT HARYANA KARNATAKA KERALA MADHYAPRADESH MAHARASHTRA ORISSA PUNJAB RAJSTHAN T.NAIDU & POND. UTTARPRADESH REST TOTAL % UP/ DOWN

1988- 1989- 1990- 1991- 1992- 1993- 1994- 1995- 1996- 1997- 1998- 199999 00 89 90 91 92 93 94 95 96 97 98 19 108 55 79 66 187 5 16 255 32 60 7 240 885 16 17 111 67 92 68 212 5 14 340 33 65 7 236 15 15 127 78 106 78 210 5 14 384 35 60 12 237 13 15 151 71 102 90 241 5 16 362 27 69 14 249 17 15 122 60 109 65 225 4 13 309 8 64 11 231 15 14 135 44 102 64 266 4 11 279 8 47 10 262 10 15 160 57 108 70 331 4 14 443 12 51 10 365 13 15 152 55 105 81 249 5 19 467 16 86 14 332 17 15 150 58 114 90 234 6 18 418 13 110 13 261 22 13 12 137 165 50 51 118 136 76 69 283 348 64 21 16 382 471 12 15 73 61 12 11 358 340 22 23 11 187 40 141 74 365 4 21 531 11 68 8 354 23

974 1036 1111 1029 1041 1102 1198 1254 1200 1165 1154

2030 2256 2410 2540 2280 2297 2755 2811 2776 2763 2887 2992 4.48 3.64 11.13 6.83 5.39 10.24 0.75 19.94 2.03 -1.25 -0.47

SUGARCANE AREA AND PRODUCTION FROM 1980-1981 TO 2000-2001 & UPTO 2003-2004
Year 1980-81 Area under hectares) 2.7 sugarcane (Million Sugarcane Production (MMT) 154.3

1990-91 1999-'00 2001-02 2002-03 2003-04 2004-05

3.7 4.2 4.4 4.3 3.9 3.7

241.1 299.2 298.4 281.6 221.2 201.9

From a level of 154 MMT in 1980-1981, the sugarcane production increased to 241 MMT in 1990-1991 and further to 296 MMT in 2000-2001. Since then it has been hovering around 300 MMT until few years. In the season 2003-2004, however, sugarcane production declined to 236 MMT mainly due to drought.

Factors affecting production.

Sugarcane availability depends on:

Area under sugarcane cultivation: The area under cultivation of sugarcane in the proximity of the mill determines the amount of sugarcane that can be made available. Crop switching from sugarcane to other crops effectively lowers the area under cultivation of sugarcane.

Climate and irrigation facilities: Sugarcane is a tropical crop which requires adequate water and sunshine. In addition, monsoons can affect the crop yield and quality of the crop. The state of UP is supplied water from the Ganga, which along with its tributaries and associated canal system accounts for 34% of the total river water available in the country (Source: Ministry of Water). This available perennial water reduces the state's reliance on seasonal monsoons.

Crop diseases and pests: Crop diseases affect both the quantity and quality of sugarcane. Harvests have been impacted severely by insects and pests (Eg. Wholly Aphid). Several sugar factories are currently investing in research and development in the field of Entomology to control such pest outbreaks.

Sugarcane yield: This is the total sugarcane output per hectare of land. It depends upon several factors like climate, soil, variety of sugarcane, and development measures undertaken by sugarcane farmers, agencies, co-operatives, government,

and sugar manufacturers. Agricultural engineering and extension services, usually undertaken by individual sugar mills, have played an important role in increasing sugarcane yields

Diversion of sugarcane to other products: The sugarcane producers may not supply the sugarcane to a sugar manufacturer and divert the production to other products like gur, and khandsari which are forms of crude sugar.

Sugarcane utilization
Not only has the sugarcane acreage and sugarcane production been increasing, drawal of sugarcane by the sugar industry has also been increasing over the years. In India sugarcane is utilized by sugar mills as well as by traditional users like gur and khandsari producers. In early 1980s, the proportion of sugarcane drawn by the sugar industry was hovering around 35%, which went upto to 50% in 1990s and to as high as 69% in the year 20022003. The sudden growth in 2002-2003 can be attributed to the fact that sugar prices in this year were very low and Gur and Khandsari manufacturers could not effectively compete with the low sugar prices. In the year 2003-2004, percentage drawal of sugarcane, however, declined due to rising sugar prices and more intense competition from the alternate sweeteners - gur and khandsari. Following table gives data on sugarcane purposes

UTILISATION OF SUGAR CANE FOR DIFFERENT PURPOSES

PRODUCTION OF SUGAR CANE (000 YEAR TONNES ) CANE USED FOR (000 TONNES) WHITE SEED,FEED GUR &

% UTILISATION FOR WHITE SEED,FEED GUR &

SUGAR 198485 198586 198687 198788 198889 198990 199091 199192 199293 199394 199495 199596 199697 199798 170319 170648 186090 196723 203037 225569 241046 253995 228033 229659 275540 281099 277560 276254 60049 68560 85184 93910 85669 111116 122287 133999 102971 98052 147598 174169 130379 129188

& CHEWING KHANDSARII SUGAR 20115 20205 22242 23674 24114 26718 28552 26629 27098 27260 32706 32888 32752 32322 90155 81883 78664 79139 93254 87735 90207 93367 97464 104347 95235 74042 114429 114744 35.5 40.2 45.8 47.8 42.2 49.3 50.7 52.8 45.1 42.7 53.6 62.0 47.0 46.8

& CHEWING KHANDSARI 11.8 11.8 12.0 12.0 11.9 11.8 11.9 10.5 11.9 11.9 11.9 11.7 11.8 11.7 52.9 48.0 42.0 40.2 45.9 38.9 37.4 36.7 43.0 45.4 34.5 26.3 41.2 41.5

Sugar production Process

The sugar production process involves three steps: (a) crushing of the sugarcane, (b) clarification of the sugarcane juice and crystallization of sugar and (c) separation. The sugarcane received from the farmers is uniformly fed to the fibrizor to prepare the same for efficient milling. The sugarcane is crushed to extract the sugarcane juice. The juice extracted from the milling plant is mechanically screened. The juice is then heated to about

70 degree centigrade in rapid flow vertical juice heater. The heated juice is limed and sulphited in a continuous juice sulphiter. The treated juice is then heated to approximately 105 degree centigrade and made to enter a flash tank for the removal of gas and air before letting it into a continuous clarifier, where the settling of the mud and other impurities takes place. The clear juice is then sent to the evaporators for concentration. The muddy juice is filtered in rotary vacuum filters and recycled back in to the process while impurities taken out in the form of filter cakes are removed. The concentrated juice known as syrup is further boiled until the sugar crystallizes. Lastly, the mixture of sugar crystals and the syrup is spun in a centrifuge, which separates the sugar crystals (also called plantation white sugar) to produce sugar and molasses. The sugar produced is dried, graded and packaged for storage and marketing. Molasses, filter cake and bagasse (the fibrous residue leftover after crushing sugarcane and extracting its juice), are by-products of sugar production process. The molasses and filter cake are sold in the market to generate revenue.

Demand factors global

According to ISO, the world sugar output is forecasted to reach 145.0 MMT and consumption to reach 147.0 MMT in 2004-2005, resulting in a deficit of around 2 MMT in 2004-2005. Further, since October 2003, nearly 5 MMT of surplus sugar are expected to have been removed from the world sugar balance, reducing the stock/ consumption ratiotolessthan42%.

The world consumption is projected to grow to 160.7 MMT in 2010, and 176.1 MMT by 2015. According to ISO, the world sugar output is forecasted to reach 145.0 MMT and consumption to reach 147.0 MMT in 2004-2005, resulting in a deficit of around 2 MMT in 2004-2005. Further, since October 2003, nearly 5 MMT of surplus sugar are expected to have been removed from the world sugar balance, reducing the stock/ consumption ratiotolessthan42%.

The world's largest consumers of sugar are India, China, Brazil, USA, Russia, Mexico, Pakistan, Indonesia, Germany and Egypt. According to USDA Foreign Agriculture Service, the consumption of sugar in Asian countries has increased at a faster rate, as a direct result of increasing population, increasing per capita income and increased availability.

Sugars prod & supply in India

The sugar industry in the country uses only sugarcane as input, hence sugar Companies have been established in large sugarcane growing states like Uttar Pradesh, Maharashtra, Karnataka, Gujarat, Tamil Nadu, and Andhra Pradesh. These six states contribute more than 85% of total sugar production in the country; Uttar Pradesh and Maharashtra together contribute more than 57% of total production. Following table shows the state-wise sugar production in India for 2002-2003 and 2003-2004.

COMPARATIVE SUPPLY AND DEMAND POSITION OF SUGAR IN INDIA ( lacs tonnes )

1988- 1989- 1990- 1991- 1992- 1993- 1994- 1995- 1996- 199789 90 91 92 93 94 95 96 97 98

1998- 199999 00

OPENING STOCK AS ON OCT 1 PRODUCTION DURING SEASON IMPORTS TOTAL AVAILABILITY OFFTAKE FOR: INTERNAL CONSUMPTION EXPORTS TOTAL OFFTAKE CLOSING STOCK AS ON SEPT 30

24.31 12.29 22.21

33.3

49.02 32.25 30.88 55.98 79.02 65.22 54.04

68.91 182 4.04

87.52 109.88 120.46 134.04 106.09 98.33 146.43 164.51 129.05 128.55 155.41 2.42 20 2 9.35 10.03

111.83 124.59 142.67 167.34 155.11 150.58 179.31 220.49 208.07 203.12 219.48 254.95 99.36 102.15 107.14 112.7 118.75 119.6 122.7 131.26 138.66 148.39 150.35 154.19 0.18 0.23 2.23 33.3 5.62 4.11 0.1 0.63 10.21 4.19 0.69 .22 .66 99.54 102.38 109.37 118.32 122.86 119.7 123.33 141.47 142.85 149.08 150.57 154.85 12.29 22.21 49.02 32.25 30.88 55.98 79.02 65.22 54.04 68.91 100.10

Indian sugar industry has grown horizontally with large number of small sized sugar plants set up throughout the country as opposed to the consolidation of capacity in the rest of the important sugar producing countries, where greater emphasis has been laid on larger capacity of sugar plants. The average sugarcane crushing capacity in India, Brazil and Thailand is given below

Sugar consumption in India

Total Indian Consumption of sugar has grown at a Compounded Annual Growth Rate of 3.6% from 14.7 MMT in 1997-1998 to 18.2 MMT in 2003-2004 (Source: ISMA and CRISINFAC). Apart from white sugar, India also consumes alternate sweeteners - gur and khandsari, which are placed at about 9 MMT per annum. Taking into account all the 3 sweeteners i.e. white sugar, gur and khandsari, on a per capita basis, Indian consumption is more than the world average (See the table below). However, white sugar consumption is much lower than the world average. The consumption of white sugar in India is generally urban based. In rural areas the alternate sweeteners gur and khandsari are consumed in larger quantities. The consumption of sugar in urban areas in some of the Indian states with higher GDP and income levels, matches favorably with various developed countries. The highest per capita consumption of

sugar is in the states of Punjab and Haryana which are adjoining the sugar producing region of western UP. As income levels and GDP rises, it can be expected that there will be a gradual shift from consumption of alternate sweeteners to white sugar. Also, as can be seen from the following table, the total per capita consumption of sweeteners in urban India is higher than total India average by around 5 kg per annum. This clearly implies that per capita consumption of sweeteners in rural India is much lower. It can be expected that this gap will close with increase in urbanization leading to a growth in the total sweeteners market in India.

PER CAPITA CONSUMPTION OF SUGAR IN URBAN INDIA

States Punjab Haryana Maharashtra Gujarat Kerala Uttar Pradesh Tamil Nadu Karnataka All India Kgs. Per annum 71.5 68.5 40.9 40.9 41.5 35.2 29.1 23.3 31.5

STATEWISE SUGAR COSUMPTION IN INDIA ( 000 TONNES )

STATE 1984- 1985- 1986- 1987- 1988- 198985 86 87 88 89 90 199091 1991-92

ANDRA PRADESH ASSAM / ARUNACHAL BIHAR MAHARASHTRA GUJRAT KERALA MADHYA PRADESH T.NAIDU KARNATAKA ORISSA PUNJAB HARYANA RAJSTHAN UTTAR PRADESH WEST BEGAL DELHI REST TOTAL

361 143 401 1138 568 281 439 431 354 118 478 220 323 915 460 148 203 6981

372 169 362 1105 526 313 404 464 354 117 396 195 262 850 412 101 179 6581

483 145 461 1252 622 406 471 602 416 157 456 244 351 1062 497 138 202 7965

518 176 512 1482 635 399 524 633 444 168 552 310 414 1208 593 172 209 8949

534

581

616

656 219 578 1834 861 451 673 830 542 203 611 394 519 1635 711 241 267 11225

212 203 190 516 525 523 1605 1582 1710 783 767 804 429 439 446 564 599 640 664 682 726 454 478 499 173 201 187 616 581 660 368 357 378 462 485 539 1370 1384 1487 674 715 709 206 217 233 230 261 279 9860 10057 10626

Sugar industry cycle

Utilization for different The domestic sugar industry typically follows a 5 to 7 year cycle. Higher sugarcane and sugar production results in a fall in sugar prices and non-payment of dues to farmers. This compels the farmers to switch to other crops thereby causing a shortage of sugarcane, causing an increase in sugarcane prices and extraordinary profits. Taking into account the prevalent higher prices for sugarcane, farmers then switch back tosugarcane.

For example, the bumper crops in sugar seasons (October - September) 2001-2002 and 2002-2003 resulted in higher production of sugar and consequently lower prices for sugar. This coupled with rising SMP/SAP in Uttar Pradesh, resulted in large sugarcane arrears leading to harsh times for sugarcane growers. To manage these arrears, mills had to approach the courts to allow them to sell over and above their monthly quota under the release mechanism. The resulting deluge of sugar led to further decline in sugar prices. Taking into account the experience of 2002-2003, many farmers shifted to other crops leading to drop in sugarcane production in the country, as a consequence of which sugar production in 2003-2004 was low. Liquation of accumulated stocks led to increasing prices in 2004-2005. To attract more sugarcane for their factories sugar manufacturers are expected to make higher and prompt payment to farmers during the next season. As shown in the illustration below, the Indian Sugar Industry has entered an up-cycle, which typically lasts 3-4 years.

DOMESTIC CONSUMPTION FOR 2003-2004 (All units in MMT)

Govt. regulation

The Essential Commodities Act (ESA) was amended and the sugar release

mechanism was brought within the direct purview of the ESA. This will bring discipline in the sugar release mechanism by making it legally enforceable.

In the past, the Government permitted only small sized units of 1,250TCD and

2,500TCD. Expansions for 5,000 TCD and above were discouraged. The industry has grown horizontally as a result of this. The Government of India de-licensed sugar sector in August 1998 encouraging entrepreneurs to set up sugar mills without a license but at a distance of 15kms away from existing factories. The de-licensing is applicable not only for new capacity initiatives but also for expansion of existing capacities.

The Government permitted futures trading in sugar and granted approval to three

Companies for setting up Futures Exchange. Consequently, certain sugar Companies floated Public Limited Companies to cater to this new segment. Futures trading will allow sugar companies to hedge and manage their risk better.

The Government of Uttar Pradesh has issued a new UP Sugar Policy. The UP Sugar

Policy recognises the need to attract new private mills because the Government sector and the Co-operative sector may not be able to put up these mills due to constraints of funds. The incentive package under the UP Sugar Policy includes capital subsidies, reimbursement of transportation costs of sugar, etc. For details of the policy and other regulations governing the sugar industry, see the section titled "Regulations and Policies" of this Draft Red Herring Prospectus.

Sugar pricing
The Government has been following a dual pricing policy for sugar, under which, a fixed percentage of the total production is to be necessarily sold by the sugar mills to the Government or its nominees at a pre-determined price referred to as "levy sugar". The sugar so collected is distributed to consumers through Fair Price Shops under the Public Distribution System.

The balance sugar referred to as "free sale sugar" can be sold in the open market. Free sale sugar is also regulated to some extent, by way of a release mechanism, whereby the Government determines the quantum of sugar that can be sold every month. This helps the Government maintain stability in sugar prices, by regulating the supply of sugar based on the underlying demand. Thus, the Government statutorily determines the price of levy sugar, while the price for the free market sugar is market determined, affected to some extent by the release mechanism. As per Tuteja Committee, the Central Government decided, in February 2002, to dispense with the release mechanism with effect from April 1, 2003. However, in March 2003, it was decided to continue with the release mechanism up to September 2005 and to review the position in February, 2005. The Tuteja Committee has also recommended that the Central Government may dispense with the release mechanism for free sale sugar with effect from October 1, 2005.

The levy imposed has reduced from 40% in the 1990s to 10% effective from March 2002. The Tuteja Committee has also recommended continuing with the 10% levy obligation level. The Committee has also recommended that beyond the initial time limit, a maximum of 3 months may be permitted for lifting of levy sugar by the Government, where after, the levy sugar quota would automatically be converted into free sale sugar, without any recurring levy obligation on this portion of levy sugar

World Raw Sugar Price Trend (Monthly Average) (Cents per Pound)
Year 1997 1998 1999 2000 2001 2002 2003 Jan. 11.13 11.71 8.40 5.64 10.63 7.96 8.56 Feb. 11.06 11.06 7.05 5.51 10.26 6.81 9.14 Mar. 11.17 10.66 6.11 5.54 9.64 7.27 8.50 Apr. 11.50 10.27 5.44 6.48 9.27 7.12 7.92 May 11.54 10.17 5.83 7.33 9.96 7.33 7.41 June 12.02 9.33 6.67 8.72 9.80 7.07 6.85 July 12.13 9.70 6.11 10.18 9.48 8.02 7.18 Aug. 12.54 9.50 6.39 11.14 8.77 7.86 7.30 Sept. 12.65 8.21 6.98 10.35 8.60 8.54 6.70 Oct. 12.85 8.24 6.90 10.96 7.15 8.84 6.74 Nov. 13.19 8.79 6.54 10.02 7.80 8.87 6.83 Dec. 12.90 8.59 6.00 10.23 8.02 8.81

Wholesale prices of sugar in Mumbai (As on June 18, 2002)

Year 2002 2001 2000 1999 1998 1997 1996 S-30 1340-1400 1410-1450 1450-1475 1425-1440 1460-1480 1452-1475 1335-1370 M-30 1395-1485 1460-1525 1470-1535 1440-1495 1470-1505 1475-1510 1375-1410

World Refined Sugar Price Trend (Monthly Average) (Cents per Pound)
Year 1997 1998 1999 2000 2001 2002 2003 Jan. Feb. Mar. April. 13.87 13.98 14.05 14.19 13.52 12.78 12.23 11.63 10.99 10.50 9.85 8.79 7.70 7.67 7.83 8.66 11.27 10.65 10.26 10.61 11.88 10.80 10.81 10.09 10.64 11.10 10.51 10.14 May 14.61 12.00 9.13 9.06 11.71 10.28 9.95 June 14.93 11.80 9.93 10.63 12.68 10.02 9.66 July 15.07 11.65 9.47 11.38 12.60 10.23 9.84 Aug. 15.66 11.62 9.04 11.29 12.08 10.33 9.74 Sept. 14.51 10.05 8.28 11.74 10.66 9.68 8.95 Oct. 13.58 10.00 7.85 11.76 10.19 9.72 8.39 Nov. Dec. 13.81 13.64 10.78 10.97 7.73 7.61 11.02/a 10.95 11.27 11.52 10.16 10.25 8.67

LEVY OBLIGATION OVER THE YEARS

Year 1996-1997 1997-1998 1998-1999 1999-2000 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 Levy Sugar: Free sale sugar ratio 40:60 40:60 40:60 40:60 30:70 (wef. January 2000) 15:85 (wef. February 2001) 10:90 (wef. March 2002) 10:90 10:90

As can be seen from the table, while the gap between levy sugar prices and free sale sugar prices had narrowed considerably until 2002-2003, it has since widened due to high free sale sugar prices.

Historical Free sale sugar and Levy Sugar Prices (Rs./ metric tonne)

Overview
The USDA's latest report (May 2005) indicates to a lower sugar production (raw value) at 142.06 million tonne in 2004-05 against 142.29 mn tonne in the previous year. The projection for 2005-06 marketing year shows markedly higher volume at 146.25 mn tonne. Global domestic consumption of sugar which is estimated at 140.63 mn tonnes for 2004-05, is likely to increase further to 142.71 mn tonne in 2005-06. Exports for this period (2004-05) is estimated at 46.04 mn tonne compared with 45.71 mn tonne in 2003-04. The USDA estimate projects a little higher exports for 2005-06 at 46.29 mn tonne. According to the USDA report, between 2002-03 and projection for 2005-06 both India and Brazil witnessed significant changes in terms of production and trading. In 200303 India registered a record production of sugar at 22.14 mn tonne and exported 1.4 mn tonne. For 2005-06 production is estimated at 18.34 mn tonne and imports at 1.0 mn tonne. The closing stocks at end 2005-06 are estimated at 6.07 mn tonne against 6.05 mn tonne in 2002-03. Brazil on the other hand produced 28.15 mn tonne in 2004-05 which is about 2 mn tonne higher than the previous year, accounting for 20 percent of world sugar production. Production in 2005-06 is projected at 29.50 mn tonne. Exports in 2004-05 are estimated at 17.82 mn tonne compared with 15.24 mn tonne in 2003-04. Ending stocks for 2004-05 are estimated at 0.71 mn tonne. According to a revised estimate of the International Sugar Organization (ISO) for sugar year 2002-03 ending September 2003, world sugar production is over 6 mn tonne in excess of global consumption. World production of sugar is now estimated at 147.90 mn tonne (raw value) signifying an increase of 4.5 mn tonne over previous year. On the other hand, world sugar consumption is expected to grow 2.7 percent from the previous year's level. The import demand however is likely to fall by 1.3 mn tonne. According to J. Kingsman report, world sugar production in 2004-05 is projected at 144.2 mn tonnes (raw value) against revised estimate of 141.2 mn tonne for 2003-04. World consumption of sugar in 2004-05 is projected at147.6 mn tonne. The report projects a global sugar deficit of 3.4 mn tonne for 2004-05 almost at the 2003-04 level of estimated 3.4 mn tonne. World sugar surplus however is marginally higher at 2.35 mn tonne compared with 2.40 mn tonne in 2002-03.

Sugar is India's second largest agro-processing industry. Sugar area accounts for 2.2

percent of country's total cropped area. India's sugar year (SY) is October-September. India's domestic sugar market is estimated at Rs. 25,000 crore. About 45 million Indian farmers and their families are dependent on the sugar

cultivation. Uttar Pradesh accounts for 35 percent of India's total sugarcane production but productivity wise the state lags behind the national average of 70 tonne per hectare. Sugarcane production in UP is around 60 tonne per acre. There are 450 sugar factories accounting for 57-60 percent of India's total sugar production. Indian sugar industry's total installed capacity (estimated) stands at 16.5 mn tonne

per annum while actual production stood at 18.5 mn tonne. Production during 2001-02 is estimated at 17.2 mn tonne. Indian federal government has created a two-million-tonne buffer stock for one year ending December, 2003. The outgo from Sugar Development Fund on this account is estimated at Rs 412 crore. To create such facility, the government has already imposed a special levy at the rate of Rs. 90 per tonne. The outgo from the Sugar Development Fund is estimated at Rs. 412 cr. Besides, banks would release another Rs. 374 cr. With effect from February, 2003, to boost up exports, the federal government has granted an ocean freight subsidy of Rs 350 per tonne. The carry-over stocks of sugar in India from the 2000-01 sugar season stood at 10.2 mn tonne. The closing stocks at the end of fiscal 2002-03 is estimated to be lower at 7.8 mn tonne, according to the federal Agriculture ministry. The production in the 2002-03 sugar year (October-September) is estimated at 18.3 mn tonne- up 1.66 percent from 18 mn tonne in the previous sugar year. Exports of sugar from India in the first 8 months (Oct.-May) of current sugar year (2002-03) is provisionally estimated by Indian Sugar Mills Association (ISMA) at 1.36 mn tonne signifying an increase of 6.7 lakh tonne from previous comparable period of 2001-02 sugar year. The year's target is set at 2 mn tonne. The industry is apprehensive of not

reaching the target largely due to higher exports of sugar by Brazil and Thailand. The sugar stock in the first 8 months of current SY is estimated by ISMA at 18.58 mn tonne against previous SY's stock figure of 18.22 mn tonnes. For financial year 2002-03, US has fixed tariff-rate quotas (TRQ) for imports raw, refined and speciality sugar into the country at 1,117,195 tonne (1,231,497 tonne raw value). Of this, India is allowed to export 8424 tonne to US. The total turnover of the industry is around US$ 5 billion or Rs 20,000 crore. The 16-member S.K.Tutleja committee set up to probe into the present state of

affairs of the Indian sugar industry and recommend measures to tone it up, recommended decontrol of free sale sugar. It suggested that the government by October 1,2005, do away with the release-mechanism for free sale sugar. Presently 10% of production dedicated to levy sugar is endorsed. The committee has suggested that a maximum of three months (as compared to only one month now) may be allowed to mills for lifting levy sugar, after which the quota would automatically be converted to free sale sugar without any obligation on the mill to repeat this portion of levy sugar. After Brazil, India is world's second largest sugar producer. The country produced 20.01 mn tonne in SY 2002-03 signifying 1.51 mn tonne increase over previous year's production of 18.51 mn tonne. The 2003-04 production is estimated at around 14 million tonne or about 6 mn tonne lower than the previous year. The shortfall is attributed to drought situation in Maharashtra, Karnataka and Andhra Pradesh. Production in Maharashtra alone is likely to be 3 mn tonne lower than the last year's production of 6.2 mn tonne. India's sugar consumption in 2002-03 is estimated at 18.2 mn tonne against 16.5 mn tonne in 2001-02, according to ISMA. Sugar consumption in 2003-04 is estimated at 18.5 mn tonne. The domestic packaged sugar market is estimated at 40,000 tonne. It is estimated that by 2010 per capita sugar consumption will increase to 24 kg per annum compared to only 18.3 kg now. India is encircled by sugar deficient countries whose annual import of the India is the fourth lowest cost sugar producers in the world after Australia, Brazil commodity is around 2-2.5 mn tonne. and Thailand. India's cost of sugar production is one-fourth of that in Europe.

Sugar industry is awaiting rationalization of statutory minimum price (SMP) for

sugarcane as recommended by the Mahajan Committee. The committee has recommended suitable mechanism for fixation of reasonable and fair sugarcane prices payable to the farmers related to sugar sales realization. Currently, SMP is linked to sugar recovery obtained in the peak period of the previous season. On the recommendation of Commission for Agricultural Costs and Prices (CACP), the government adopts 8.5 percent as the basic recovery for fixing the basic sugarcane price. CACP is reviewing the present SMP structure to rationalize sugarcane prices to give farmers a fair deal while not burdening the industry taking into account the Mahajan Committee recommendations. For 2002-03 sugar year SMP is fixed at higher level of Rs. 64.50 against Rs. 62.05 in the previous year. It is linked to basic recovery of 8.5 percent subject to a premium of Rs. 0.76 (against 0.73 in 2001-02) for every 0.1 percentage point increase in recovery. Sugar cane accounts for 65-70 percent of sugar production cost in India. As on September 30, 2002, the cane price arrears are estimated to be around Rs. For cane, India pays double the price Brazilian sugar manufacturers pay. Australia

1,100 crores, which is almost double the 2000-01 level. pays one-third of Indian price. Prices of cane are higher in India because the federal government fixes the minimum floor price of sugar cane every year. About 3 percent of India's cultivable land is under sugar. According to USDA's provisional estimate, India's sugar stocks at the end of 2001-

02 stood at 12.11 mn tonnes (raw value) which is equivalent to over eight and a half months' domestic consumption. The stock at the end of 2002-03 is estimated to be substantially lower at 10.66 mn tonnes. According to India's federal government norm, 'safe' buffer stock is equivalent to three months' domestic consumption. Some coast-based Indian sugar mills have contracted for 35,000 tonnes of Brazilian India's Sugar Development Fund is financing projects related to bagasse-based raw sugar of much higher polarisation value. cogeneration of power. Currently, 25 sugar mills in India are generating 250 megawatt of

power from bagasse. The on-going projects, on completion, would generate another 700 mw. Out of 450 mills, 300 mills have infrastructure facilities to generate a total of 4000 mw of power from bagasse. There are many other projects. The Indian federal government has imposed a concessional surcharge of Rs. 5.25 per litre on petrol blended with 5 percent ethanol presumably to boost consumption of alcohol which in turn is expected to boost the sugar industry. The Indian federal government has imposed a concessional surcharge of Rs. 5.25 per litre on petrol blended with 5 percent ethanol presumably to boost consumption of alcohol which in turn is expected to boost the sugar industry. 24 sugar mills have taken loans from SDF to set up ethanol projects. Total consumption of ethanol (considering) annual off take of 10 million kilolitres of petrol, is estimated at 500 mn litres. The Indian sugar industry maintains that if ethanol blending percentage is doubled to 10 percent, ethanol consumption would double to 1 bn litres. The sugar industry decontrol process has began with the beginning of the current fiscal year beginning April 1, 2002. It will be implemented in a phased manner. The industry will be totally decontrolled only after futures market in sugar becomes fully operational in the country. Stock-holding limit of registered dealers has been withdrawn. Presently, 85 percent of sugar production is available for sale in the open market. Indian federal government has decided to continue the country's membership of

International Sugar Agreement which has been extended till December 2003. India is a member of ISA since 1937 initially as an importer of sugar and later on as an exporter from 1958 onwards. By virtue of being ISA member, India has access to Common Fund of Commodities Global sugar prices in 2001 averaged at 19 cents per kg. Indian sugar industry to undertake development projects for sugar and sugarcane. witnessed a six-year low in the commodity price in June, 2002. Global prices of raw sugar (New York No. 11. October futures) are ruling at around 5.9 cents per pound or US$ 130 per tonne as on August 18, 2002.

In domestic market, wholesale Indian sugar prices are ruling at six-year low of Rs.

12.5 - 13 per kg as on August 15, 2002. At this rate, Indian sugar mills can import raw sugar without any duty for around Rs. 6.50 per kg. As on May 1, 2003 India's sugar inventory stands at around 16 mn tonne. To make Indian raw sugar price competitive in the export market, the Indian Sugar Mills Association (ISMA), the apex body of mill owners, has demanded a subsidy of US$ 25 (approximately Rs 1,250) a tonne. The subsidy should be paid over and above existing facilities, including internal freight reimbursement, 4 per cent DEPB support and ocean freight subsidy of US$ 7 per tonne, being enjoyed by the industry. With a view to defusing the crisis arising out of of mounting stocks, the sugar industry is seriously considering to have a larger share of international raw sugar market. As current season's sugar production is almost complete, the industry would be chalking out raw sugar export plan for 2004. If planned properly, Indian sugar industry can export raw sugar anywhere between 1.5 million to 2 million tonnes. In fact, raw sugar accounts for about 8085% of the global trade in sugar.

SECTORWISE DISTRIBUTION OF EXISTING SUGAR MILLS 2004-2005. JOINT STATE SECTOR NORTH BIHAR SOUTH BIHAR EAST U.P WEST U.P CENTRAL U.P PUNJAB HARYANA ANDHRA PRADESH TAMIL NAIDU MAHARASTRA GUJRAT MADHYA PRADESH KERALA RAJASTHAN KARNATAKA PONDICHERRY GOA REST TOTAL PUBLIC SECTOR 13 23 17 20 7 3 17 18 5 3 1 1 16 1 8 152 12 3 20 7 9 CO-OP SECTOR

6 3

3 1 3

2 70

TOTAL 25 3 8 51 6 30 18 47 15 22 10 13 18 41 16 37 129 134 22 22 3 9 1 2 1 3 18 37 1 2 1 1 4 14 271 493

Growth of India's sugar industry

Year 1950-51 1955-56 1960-61 1965-66 1973-74 1978-79 1985-86 1990-91 1995-96 1999-2000 2000-01 2001-02 2002-03 2003-04 (Estimated)

No. of factories in operation 139 143 174 200 229 299 339 377 415 423 437 433 453 461

Installed Capacity (Lakh tonne) 16.7 17.8 24.5 32.3 43.1 59.1 72.7 98.5 127.6 161.8 168.2 176.8 180.0 185.0

Actual sugar production (In lakh tonne) 11.0 18.9 30.2 35.4 39.5 58.4 70.2 120.5 164.3 182.0 186.0 185.3 201.0 170.0

Statutory minimum price of Indian sugarcane & actual price paid

Year 1975-76 1980-81 1985-86 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04

SMP linked to 8.5 percent (Rs./Quintal) 8.50 13.00 16.50 23.00 26.00 31.00 34.50 39.10 42.50 45.90 48.45 52.70 56.10 59.50 62.05 69.50 73.00

Price Paid (Rs./Quintal) 13.25 19.00 23.00 41.00 45.00 46.00 58.00 66.00 71.00 72.00 75.00 80.00 85.00 90.00 95.00 -

India: Sugar Production, Consumption, Import, Export and Year-end Stocks (In '000 tonne, raw value basis)

2000-01 Production Import Total Supply 20480 (0.74) 0 31190 (10.87) 1360 (4700.0) 17845 (1.06) 11985 (15.77)

2001-02 20475 (-7.80) 100 32560 (-0.91) 1130 (29.16) 19760 (5.26) 11670 (-2.29)

2002- 2003- 2004-05200503 04 E 06 E 22140 15180 13770 (-4.28) ((-9.28) 31.43) 10 18340 (33.18)

550 2000 1000 (5400) (263.63) (50)

33820 28160 24870 25390 (-2.23) ((-11.68) (2.09) 16.73) 1410 250 20 (17.64) ((-92) 82.26) 19980 18810 18800 (3.26) (-2.0) (-0) 20 (0) 19300 (2.65)

Export Domestic Consumption Ending Stocks

12430 9100 6050 6070 (((-33.51) (0.33) 11.96) 26.79)

India: Supply and Demand of sugar ( 2003-04 to 2005-06)(In million tonnes)

2003-04 Opening Stocks Production Imports Total Availability Domestic Consumption Export Total Consumption Closing Stocks 11.6 14.0 0.55 26.15 17.45 0.2 17.65 8.5 8.5 12.5 2.0 23.0 18.05 18.5 4.5

2004-05 (E) 4.5 17.5 1.5 23.5 19.0 19.0 4.5

2005-06 (E)

STATEWISE SUGAR PRODUCTION IN INDIA. (000 TONNES)

STATE ANDRA PRADESH NORTH BIHAR SOUTH BIHAR GUJRAT HARYANA KARNATAKA KERALA & GOA MADHYA PRADESH

1988- 1989- 1990- 1991- 1992- 1993- 1994- 1995- 1996- 1997- 19981999-00 99 89 90 91 92 93 94 95 96 97 98 507 317 2 578 280 702 22 63 566 333 1 667 336 796 23 72 701 413 2 831 375 843 460 2753 489 751 345 847 19 60 540 328 -826 308 647 230 343 874 394 -759 1130 453 859 382 -967 490 871 20 86 772 362 -782 1113 1182 368 1141 477 1577 29 103 6503 421 14 1768 1843 1210 1503 61

299 258 890 1025 382 403 959 1372 16 68 30 82

942 1032 18 103 26 128

831 1225 1263 10 37 28 70 32 125

MAHARASHTR 5337 A 2629 3923 4119 4213 3360 2746 5025 5394 3445 3847 PUNJAB RAJSTHAN T.NAIDU & PONDICHRY U.P CENTRAL U.P EAST U,P WEST REST 245 14 1058 620 33 295 12 275 23 384 37 409 24 311 16 319 18 633 31 613 24 331 311 29 23 1774

925 1231 1327 1021 1122 1921 1671 1083 1266 703 30 769 39 953 56 787 878 48 677 1012 1043 1058 34 58 99 89

972 1264 1176 1497 1192 1055 1455 1777 1632 1600 1552 881 783 64 82 710 1042 1030 1204 983 1142 1559 1393 1441 1394

TOTAL

8752

1098 1204 1340 1060 1464 1645 1290 1285 1553 9833 18200 8 7 4 9 3 1 5 5 9

MAJOR SUGAR PRODUCING COUNTRIES (000 MT, RAW VALUES)

NAME OF COUNTRY MEXICO UNITED STATES CUBA BRAZIL COLOMBIA FRANCE GERMANY F.R UNITED KINGDOM POLAND RUSSIAN FEDERATION UKRAINE SOUTH AFRICA TURKEY CHINA INDIA INDONESIA PAKISTAN PHILIPPINES THAILAND AUSTRALIA

1995-96 4667 6698 4460 15190 2046 4564 4155 1326 1714 2237 3804 2123 1548 6770 17943 2158 2685 1853 6323 5632

1996-97 4840 6567 4320 14636 2132 4594 4569 1605 2435 1863 2935 2507 2074 7339 14093 2159 2601 1905 6098 5766

1997-98 5492 7148 3285 18042 2133 5134 4397 1728 2286 1478 2280 2533 2582 8745 13923 1869 3864 1866 4325 5818

1998-99 4987 7526 3851 21401 2226 4637 4378 1565 2236 1383 2038 2587 3159 9708 16862 1623 3846 1682 5478 4744

1999-00 4983 8272 4134 16364 2208 5002 4787 1683 1957 1615 1772 2584 2184 7436 19791 1727 2636 1685 5814 5239

Sugar Import

To remedy the current sugar shortage, the Government of India initiated measures to support imports of raw sugar by the mills against future export commitments. Presently, almost all of the sugar imported into India is raw sugar imported by the mills for processing into refined sugar under the 'Advanced Licensing Scheme (ALS)'. Indian mills are finding it advantageous to import raw sugar to process and sell in the domestic market, as domestic sugar prices are currently well above the international prices, even after accounting for processing, transportation, and distribution costs, and future export obligations. Under the ALS, mills are allowed to import raw sugar at zero duty against a future export commitment. The mills can refine the imported raw sugar and sell it in the domestic market, but must re-export 1.00 ton of refined sugar for every 1.05 ton of raw sugar imported within a specified period, which is currently 36 months

Trade sources report that about 1.35 million tons of raw sugar was imported from October 2004 through March 2005, at prices ranging from $200 to $255 per ton CIF at Indian port, mostly from Brazil and South Africa. With the recent strengthening of international prices, imports are expected to slow as compared to the first half of the marketing year, and SY 2004/05 imports are expected to reach 2.0 million tons.)

India imposes an ad valorem duty of 60 percent on the CIF value, plus a countervailing duty (CVD) of Rs. 850 ($19.50) per ton, on 'general' imports of raw and refined sugar (tariff code 1701). The CVD is in lieu of the local taxes and fees on the domestic sugar (central excise tax of Rs. 340 ($7.80) per ton, additional excise duty of Rs. 370 ($8.50) per ton and cess of Rs. 140 ($3.22) per ton. The imported sugar is also subject to non-tariff barriers like the 'levy sugar obligation', the market quota release system, and other local regulations applicable to domestic sugar. The high import duties and other non-tariff barriers preclude imports of refined sugar by traders.

Sugar Export
Exports of sugar from the country have been de-canalized since 1997, enabling sugar mills to undertake exports on their own and to compete directly in the international market. Further, exports from a mill do not form part of the quota under the market quota release

system. Despite this, India has not been a consistent exporter of sugar in the past. It has been exporting sugar occasionally in periods of sugar surpluses. In the last five years it exported 4.07 MMT sugar. In these years, India had an average exportable surplus of 6.23milliontoneseveryyear. As against this, on an average, the sugar exported was only 0.81 MMT or 7.69% of the total exportable surplus. This is primarily because domestic prices have remained higher than international prices. However, should quotas for LOME / APEC for India increase; there will be enough incentive for Indian manufacturers to export.

STATEMENT SHOWING SUGAR STOCK,PRODUCTION,CONSUMPTION AND EXPORT OF SUGAR IN INDIA (LACS TONNES)
SEASONS OPENING PRODUCTION IMPORTS
TOTAL AVAILABILITY

TOTAL

CLOSING OFFTAKE STOCK

STOCK

INTERNAL CONSUMPTION

EXPORTS

1960-61 1961-62 1962-63 1963-64 1964-65 1965-66 1966-67 1967-68 1968-69 1969-70 1970-71 1971-72 1972-73 1973-74 1974-75 1975-76 1976-77 1977-78 1978-79 1979-80 1980-81 1981-82 1982-83 1983-84 1984-85 1985-86 1986-87 1987-88 1988-89 1989-90 1990-91 1991-92 1992-93 1993-94

7.42 14.82 12.56 3.27 3.31 8.5 11.87 5.24 4.34 13.04 20.84 14.07 5.92 8.41 8.28 12.07 8.32 15.75 32.89 20.86 6.45 9.15 32.7 45.87 23.74 15.79 19.06 26.53 24.31 12.29 22.21 33.3 49.02 32.25

30.21 27.29 21.39 25.73 32.32 35.41 21.54 22.49 35.58 42.62 37.37 31.08 38.73 39.48 47.92 42.62 48.4 64.57 58.42 38.58 51.47 84.36 82.3 59.17 61.43 70.16 85.01 91.1 87.52 109.88 120.46 134.04 106.09 98.33

1.63 1.53 0.77 0.94 11.87 16.19 9.53 0.71 2.42

20

37.63 42.11 33.95 29 35.63 43.91 33.41 27.73 39.92 55.66 58.21 45.15 44.65 47.89 56.2 54.69 56.72 80.32 91.31 61.07 59.45 94.28 115 105.98 97.04 102.14 113.6 118.34 111.83 124.59 142.67 167.34 155.11 150.58

20.87 26.01 25.02 23.26 24.46 27.92 26.01 22.1 26.09 32.61 40.24 37.9 35.14 35.22 35.11 36.87 37.56 44.9 62.09 52.32 49.7 57.43 64.88 75.65 80.93 82.72 86.87 93.85 99.36 102.15 107.14 112.7 118.75 119.6

1.94 3.54 5.66 2.43 2.67 4.12 2.16 1.29 0.79 2.21 3.9 1.33 1.1 4.39 9.02 9.5 3.41 2.53 8.36 2.3 0.6 4.15 4.25 6.59 0.32 0.36 0.2 0.18 0.18 0.23 2.23 5.62 4.11 0.1

14.82 12.56 3.27 3.31 8.5 11.87 5.24 4.34 13.04 20.84 14.07 5.92 8.41 8.28 12.07 8.32 15.75 32.89 20.86 6.45 9.15 32.7 45.87 23.74 15.79 19.06 26.53 24.31 12.29 22.21 33.3 49.02 32.25 30.88

1994-95 1995-96 1996-97 1997-98 1998-99

30.88 55.98 79.02 65.22 54.04

146.33 164.51 129.05 128.55 154

9.35 5

179.21 220.49 208.07 203.12 213.04

122.7 131.26 138.66 148.39 150

0.63 10.21 4.19 0.69

55.88 79.02 65.22 54.04 63.04

World Sugar Production, Consumption, Exports, Imports, Ending Stocks (In thousand tonne, raw value)
Year 1995-96 1996-97 1997-98 1998-99 1999-2000 2000-01 2001-02 2002-03P 2003-04 2004-05 2005-06 Beginning Production Imports Stocks 22520 122229 32182 26437 122546 32772 26463 124939 32653 26901 130880 36032 32338 136603 36123 36918 130632 38748 38723 134566 38056 35928 148807 39945 40565 141955 39122 39008 142066 41395 35789 146252 41183 Total Supply 174894 178711 181282 193813 204964 206298 211345 224680 221642 222469 223224 Export 34219 35816 35426 37357 41471 37680 40872 46139 45258 46041 46290 Domestic Ending Consumption Stocks 116275 26437 119476 26463 122778 25851 124193 32263 127422 36071 129895 38723 134545 35928 137976 40565 140191 36193 140639 35789 142711 34223

Country wise Sugar Production, Import, Export, Ending Stocks (In '000 tonne, raw value)
Country Year

1998- 19992000-01 99 2000 Argentina Production 1830 Imports 1 Total Supply 2031 Export 189 Domestic 1520 Consumption Ending 322 stocks Australia Production 4997 Imports 4 Total Supply 5254 Exports 4076 Domestic 995 Consumption Ending 183 Stocks Brazil Production 18300 Imports 0 Total Supply 18860 Export 8750 Domestic 9100 Consumption Ending 1010 Stocks China Production 8969 Imports 543 Total Supply 12027 Export 572 Domestic 8907 Consumption Ending 2548 Stocks Colombia Production 2199 1670 1 1993 200 1530 263 1540 2 1805 189 1470 146

2001-02 2002-03 2003-04 2004-05 1600 1 1747 135 1450 162 1650 1 1781 270 1440 71 1925 10 2011 215 1560 236 1740 5 1981 285 1570 126

200506 2050 10 2305 530 1610 165

5448 5 5636 4123 995 518

4162 5 4685 3056 995 634

4610 5 5249 3607 1020 622

5350 5 6012 4219 1050 743

4994 5 5661 3950 1200 511

5500 5 6016 4159 1200 657

5324 10 5765 4261 1150 354

20100 17100 0 0 21110 17810 11300 7700 9100 9250 710 860

20400 0 21260 11600 9450 210

23760 0 23970 14230 9640 100

26400 0 26670 15240 10140 10300

28370 0 29660 18100 10300 1260

29500 0 30210 18800 10850 560

7525 6849 687 1083 10760 9783 433 129 8476 8650 1851 1004

7872 1392 10268 647 8698 923

9488 540 11170 510 9122 1538

10730 1220 13971 60 11600 12180

11240 1200 14751 50 12180 2521

10910 1300 14158 50 12000 2108

2330 2225

2300

2450

2635

2645

2420

Imports 7 Total Supply 2270 Export 960 Domestic 1238 Consumption Ending 72 Stocks European Union Production 17818 Imports 1867 Total Supply 22686 Export 5329 Domestic 14250 Consumption Ending 3107 Stocks India Production 17436 Imports 1075 Total Supply 24361 Export 10 Domestic 16977 Consumption Ending 7374 Stocks Indonesia Production 1492 Imports 1702 Total Supply 3714 Exports 6 Domestic 2800 Consumption Ending 908 Stocks Mexico Production 4982 Imports 41 Total Supply 6014 Exports 524 Domestic 4549

10 2412 959 1393 60

25 2310 965 1305 40

7 2347 990 1315 42

56 2565 1109 1410 46

45 2751 1300 1405 46

55 2746 1270 1440 36

50 2557 970 1525 62

19498 18520 1786 1839 24391 24089 6138 6607 14523 14420 3730 3062

16230 2018 21668 4200 14190 3278

18664 2100 22695 5403 14529 2763

16506 2065 22303 4616 14431 3256

19684 2370 26753 4374 17662 4717

20445 2257 28041 5363 17789 4889

20219 20480 438 0 28031 31190 25 1360 17296 17845 10710 11985

20340 30 31365 900 18455 13000

20100 20 31790 1700 20750 9340

15450 500 28380 300 19580 8500

13590 1800 23890 20 19170 4700

18340 1000 25390 20 19300 6070

1690 1949 4547 17 3200

1800 1591 4721 6 3300

1700 1500 4615 0 3400 1215

1755 1600 4740 0 3400 1340

1730 1500 4570 0 3400 1170

1950 1350 4470 0 3500 970

1800 1800 4720 0 3800 920

1330 1415

4979 37 5957 318 4576

5220 43 6326 155 4623

5166 54 6768 403 5065

5038 100 6424 100 5266

5330 299 6823 51 5523

5690 21 6960 12 5594

5623 101 7642 12 5574

Consumption Ending 941 Stocks Pakistan Production 3791 Imports 8 Total Supply 4302 Export 540 Domestic 3210 Consumption Ending 552 Stocks South Africa Production 2646 Imports 62 Total Supply 3128 Exports 1355 Domestic 1213 Consumption Ending 560 Stocks United States Production 7597 Imports 1655 Total Supply 10775 Export 209 Domestic 9079 Demand Ending 1487 Stocks

1063 1548

1300

1058

1249

1354

2056

2595 280 3427 0 3300 127

2648 1100 3875 0 3450 425

3453 32 3910 0 3450 460

3670 0 4130 300 3500 330

4047 0 4844 214 3600 1030

3662 0 4692 214 3650 828

4250 0 5665 215 3800 1640

2685 155 3400 1410 1460 530

2895 260 3685 1580 1650 455

2542 263 3260 1235 1575 450

2930 270 3650 1550 1595 505

2560 298 3444 1071 1467 906

2371 306 3583 1300 1645 638

2495 260 3520 1200 1655 665

8203 7956 1484 1143 11174 11412 112 128 9049 9287 2013 1997

7172 1396 10565 98 9292 1175

7620 1510 10292 141 8699 1452

7843 1598 10951 268 8953 1730

7718 1478 10926 181 8986 1759

7385 1443 10046 181 9176 689

INTERNATIONAL SUGAR INDUSTRY

Demand Supply Brazil and India are the largest sugar producing countries followed by China, USA, Thailand, Australia, Mexico, Pakistan, France and Germany. Global sugar production increased from approximately 125.88 MMT in 1995-1996 to 149.4 MMT in 2002-2003 and then declined to 143.7 MMT in 2003-2004, whereas consumption increased steadily from 118.1 MMT in 1995-1996 to 142.8 MMT in 2003-2004 as shown in Exhibit 1 (Source: FO Licht World Sugar Balance). The world consumption is projected to grow to 160.7 MMT by 2010 and 176.1 MMT by 2015 (Source: FO Licht, 2005). The worlds largest consumers of sugar are India, China, Brazil, USA, Russia, Mexico, Pakistan, Indonesia, Germany and Egypt. According to USDA Foreign Agriculture Service, the consumption of sugar in Asian countries has increased at a faster rate, as a direct result of increasing population, increasing per capita income and increased availability. EXHIBIT 1: Production and Consumption for Major Countries (Data shown for Sugar Year 2004-05)

World Sugar Balance (Data shown for Sugar Years - September August) (000 metric tons)

03-04
Opening Stocks Production Imports Exports Consumption Ending Stocks Ending stocks as % of consumption 69,327.3 143,701.9 48,190.3 52,062.7 142,766.9 66,389.9 46.50%

02-03
62,040.0 149,405.2 48,593.2 51,339.9 139,371.1 69,327.3 49.74%

01-02
62,063.3 137,982.6 45,261.1 47,759.7 135,507.3 62,040.0 45.78%

00-01
62,223.6 132,200.0 43,573.9 44,212.9 13,1721.2 62,063.3 47.12%

99-00
57,611.7 134,753.9 41,226.3 42,720.6 128,647.7 62,223.6 48.37%

According to ISO, the world sugar output is forecasted to reach 145.0 MMT and consumption to reach 147.0 MMT in 2004-2005, resulting in a deficit of around 2 MMT in 2004-2005. Further, since October 2003, nearly 5 MMT of surplus sugar are expected to have been removed from the world sugar balance, reducing the stock/ consumption ratio to less than 42%. Sugar Prices

As can be seen in Exhibit 3, world sugar prices fell steadily from 1994-1995 till 1998-1999 and have been almost stable at those levels. The trend seems to have now reversed and refined sugar prices have increased by 30% in the last 5 quarters - from 9.16 cents per pound in January, 2004 to 12.02 cents in March, 2005 (Source: USDA Foreign Agriculture Service). The declining world stocks (as a percentage of consumption) as seen in Exhibit 2 also have an impact on the price of sugar.

Historical Sugar Prices

(All prices in Cents per lb.)

World Sugar Trade World trade in raw sugar is typically around 22 MMT and white sugar around 16 MMT. Exhibit 4 shows the total exports of sugar for top exporting nations. Brazil is the largest exporter, followed by EU, Thailand, Australia and Cuba. The largest importers are Russia, Indonesia, UK, South Korea, Japan, Malaysia, the Middle East, and North Africa.

Major Exporting Nations for 2003-2004 (All units in 000 metric tons)

WORLD SUGAR MARKET REVIEW

International Sugar Organization has estimated a higher global sugar surplus of 5.8 million tonne for the year 2006-07. The ISO had in August pegged the surplus at around 2.2 million tonne. In its quarterly report recently released, the ISO said global sugar output is estimated at 158.3 million tonne against a consumption demand of 152.5 million tonne. Brazil is expected to increase its output by 700,000 tonne on year to 32.9 million tonne while, Indias production has been pegged at 24.5 million tonne, by the organization. Thailand is expected to see a 1.42 million tonne increase in its output to 6.5 million tonne. The rise of world prices at the end of 2005 and the first half of 2006 has encouraged a strong production response in both exporting and importing countries, the organization said.

EU and WTO situation

Within the EU-25, certain northern member states such as France and Germany are reasonably efficient producers and certain Mediterranean states, such as Greece and Italy, are inefficient producers (Source: USDA Foreign Agriculture Service). While the EU sugar regime is supposed to be self-financing through a series of producer levies, several parts of the regime are funded through the EU budget, mainly the subsidized export of white sugar

and production refunds for sugar used by the chemical industry. According to USDA Foreign Agriculture Service, these subsidies amount to roughly 1.7 billion a year (US$ 2.1 billion). These subsidies encourage even the inefficient producers to manufacture more sugar, which is dumped on the global markets. On April 28, 2005 the World Trade Organizations highest court issued a final ruling that orders the European Union to stop dumping subsidized sugar illegally on global markets or face trade sanctions. The decision by the WTOs Appellate Body in Geneva gives the EU up to 15 months to bring itself into compliance with global trade rules. Last year, a panel of WTO experts found the EU exported about 4 MMT of sugar in 2000-2001, the period under investigation, or about 3 times more than the rules allow. The WTO court ruling can be expected to reduce the amount of exports from EU thereby raising global sugar prices. The reduction in EU exports can be expected to lead to a benefit in terms of market share for non-EU white sugar producing countries.

IMMINENT DECONTROL SUGAR MARKET AND FUTURES MARKET FOR SUGAR

The Indian Sugar Industry is one of the last few industries to be tightly controlled by the Government. However, this control is now being gradually lifted and in light of the recommendations of the High Powered Committee set up under Mr. B.B. Mahajan, former Food Secretary, it is likely to be completely liberalized shortly. Under the scenario the Sugar Industry has to sell now only 10% of its production to the Govt. as levy sugar at price which is substantially below cost, and the balance 85% is sold in the free market. The free market sales are governed by the Monthly Release Mechanism where the Ministry of Food releases a specific quantity to each Mill to sell in the free market. In the event of total control, the Mahajan HPC has recommended that the Release Mechanism, as in vogue currently, should continue. At the same time, one cannot completely rule out the possibility of a change in this policy, as the Government may, in course of time like to minimize its interference in the affairs of industry - and do away with release mechanism. Future market in Sugar tool to manage decontrol With the impending decontrol of the sugar industry in India and the huge carry over stock of sugar, a future market in sugar, can reduce, sharp fall in prices of sugar in a post decontrol situation with no release mechanism. Mills have an option to hold to the stocks for sale at a future date at a price known today. The sugar will be sold spread over six months and hence will reduce pressure on spot prices. Future market would help as a price discovery mechanism for sugar, where prior to fixing of cane price for the season, mills would have an idea of the price at which the sugar could be sold and hence will, also, help the mills and the Government to agree on a reasonable cane price.

The Ministry for Consumer Affairs & Public Distribution has agreed to allow Futures Trading in sugar and the Finance Minister in his budget speech also mentioned the Govt.s intention to do away with the controls and to make it irreversible, Future Trading in sugar will be allowed. The important point to be noted is that the mills are not likely to trade their entire quota in the forward market. It may be used for a part of the overall quota. Therefore, it should not be difficult for any sugar mill in the country to operate in the forward market over a period of next six months. The Govt. as a precursor to Future Trading, has announced its intention to make 6 months release mechanism as against quarterly at present and also announced mill wise releases also on six monthly basis. The Futures exchange would be responsible for conducting and governing trading in sugar futures. It will also be responsible for delivery of such future contracts which become due for delivery (i.e. not settled). At a later stage the exchange could also govern and regulate Transferable Specific Delivery Forward Contracts.

CONCEPT FUTURES CONTRACT

What is a Future Market A Futures market in its very basis term is a market place which provides a market price for a commodity for nearby and future months based on which a producer can sell his product, a buyer can buy and trader can trade at a price for delivery at a later date. It is important for both producer and user to know how much this commodity will cost at a later date. The buying and selling is done on a Future Exchange. Salient features are :

The Futures contract is a price discovery mechanism evolved at the Future Exchange which provides a platform as a meeting point for producers, consumers, traders and speculators.

None of the participants on the exchange know each other. Nor does any transaction take place between them The transaction is to/with the exchange who is a "third party" to the transaction i.e. it is a buyer for the seller and seller for the buyer.

It is not a physical delivery trade it is only a `Paper Sale or `Purchase to determine price for physical delivery contract and this is reversed by `Paper Purchase or sale when independent of above, a physical delivery contract is made between two known buyers and sellers. More than 95% futures contracts are squared up before the delivery is due in the Gur exchange at Muzaffarnagar there is hardly any physical delivery.

It is the exchange management, which conducts the transaction.

The participants on the exchange will be Mills, Bulk consumers, Wholesalers, Sugar Agents and Speculators i.e. the people not in sugar business. They will participate to make profit out of price fluctuations. The price delivery, strangely, (A win win game) most of the time is determined not by producer or consumers but by speculators who have little interest in physical commodity per se. (In todays market consisting of only producer and consumers their limited trading and no transparent price discovery as buyers could always ask for less price and a seller high price which in the event of market imbalance can get distorted). Speculation the word in itself does not give a comfortable feeling. Speculation in Future Exchange provides price discovery. The speculation in physical trade, on the other hand leads to taking risk taken by buyers and sellers where one could gain the other could loose as vice versa. Even today Mills speculative i.e. to sell or not to sell the trade speculates to buy or not to buy where absence of sale or excessive sales results in artificial prices based on market behavior no information and price discovery would most of the time it is a loose win situation. "Thus on a Futures Exchange sellers and buyers safeguard their business by hedging their risk of the market fluctuation to speculators who accept this risk to make profits out of price fluctuation on the exchange". Therefore the role of

speculators on the exchange is constructive to provide price determination to enable the producer and consumer to price their sale/purchase all for a delivery at a later date. It is the participation of such speculators who have no intention of physically trading in a commodity, that drives the market as they enter and exit to book profits or end losses. The success of the exchange will depend on the liquidity i.e. daily trade it has to be at least 2-3 times than the physical trade the liquidity means where one can enter or exit when one wants. It is this volume of trade that derives the price discovery and low transaction cost. Internationally sugar is hedged at New York Exchange for Raw Sugar where volume traded could be 8-10 times the physical volume and white sugar is traded at London where volume is 2-3 times the physical trade. The New York Exchange is more speculative driven with heavy participation of funds and day traders whereas the London exchange is used by producers/exporters for hedging with reduced level of participation of speculators. In Indian context the Gur Exchange traders 1.5 times the physical trade and is close to the ratio at London White Sugar Exchange. Guidelines Futures Contract : In order to restrict speculation, it is intended that the exchange is used more for hedging purposes which can be regulated by way of registration of members and fixing different open position limits for mills, bulk consumers, wholesalers, sugar agents and different limit for speculators. The proposed guidelines will take care of manipulations of the market by speculators see Annexure.

FORWARD SALES WITH AND WITHOUT FUTURES

Mills produce in 6/8 months and the sugar has to be sold in 14/16 months assuming that under the decontrol situation the release mechanism still stays then mills will get the six months release i.e. they would know in advance what they would need to sell monthly in the next six months. In the next stage it is presumed that once the Future Exchange is in place mills could make forward sales for next six months as and when they wish to sell depending upon the prices. The forward month price on the exchange will be an indicator as to how Mills forward -months prices will be. This will throw open opportunity mills to enter into forward delivery commitments with buyers who intend to purchase sugar at a fixed price for delivery in forward months like physical delivery contracts spread over 12 months. However in all other sugar producing countries the mills, the buyers and exporters as well as importers cover their risk of price fluctuation by participating in sugar futures trade i.e. safeguard against the market fluctuation in prices i.e. if price goes up at the time of delivery mills would loose (buyer will gain) and if the price goes down (the mill will gain) and the buyer will loose it is a loose win or win loose situation. The following illustrations will examine the difference of forward trading with or without hedging on futures.

Assumptions :

Futures allowed for six months at a time. Thus every month, the immediate month will close and next forward market will open.

STRUCTURE ORGANISATION OF SUGAR FUTURES EXCHANGE

There are various structures that one can adopt while setting up of a Futures Exchange One option as suggested by the FMC is to make sugar a part of the Multi Commodity "National Commodity Exchange", which is proposed to be set up in the near future. In this case the NCE would be set up by an independent company which would be professionally managed and be responsible for the operations of the Exchange. Although this is a good proposal, we are led to understand that it may take a very long time to set up especially in view of Exchanges for other commodities which have been set up in the recent past at very high cost. Those other exchanges are opposing the setting up of an NCE on the grounds that they would loose business to this exchange. Another alternative could be for a representative body of the sugar industry to promote an exchange or exchanges. We already have a body within the industry which in effect represents both ISMA as well as NFCSF, that is ISIEC. ISIEC has been involved in the exports of sugar, imports when necessary, and the international trade of bye-products and has expertise in the area of general trade. In addition to the above it also has adequate financial resources to undertake such a venture. ISIEC would promote an independent company which would set up the exchanges and manage and regulate their operations. To cater to the widespread nature of the sugar industry as well as the consumers of sugar it is proposed that exchanges may be opened in the Metropolitan cities as well as some of the larger trading centers in the country like Delhi, Mumbai, Calcutta, Chennai, Bangladesh and Ahmedabad etc. This company can have tie ups with existing futures exchanges in the various cities to utilize their infrastructure and back office facilities. Some of the futures exchanges which exist are the Bombay Oil and Oilseeds Exchange, Vashi, the Coffee Exchange, Bangalore etc.

ROLE OF EXCHANGE The Futures exchange, like stock exchange, are Membership Organizations to provide location for Trading Futures for buyers and sellers and through auction process discover a price and

While it represents a commitment between buyer and seller The buyer and seller dont deal directly with each other Nor do they even know each other.

The actual transaction is conducted by clearing house which deals with only clearing firm and sellers all transactions at the end of each trading day. In turn, clearing member firm settles the account of each client at the end of the day.

Of the trade executed Net margin money status Net variation margin status Receive payment/payment/reimbursable instructions. Advise clearing House the status of each customer.

BROAD RESPONSIBILITIES: Clearing House * Match Trade * Guarantee Trade * Collect Margins * Variations

* Regulate payment delivery of forward contract Clearing Member Firm * Receive Orders * Place Orders * Inform Customer * Order Execution * Margin Money requirement * Registration of forward delivery contracts * Inform clearing house of - Order - Margin money settlement for each client * Timely delivery against contract

Co-generation
The power produced by co-generation is used in internal industry processes, and excess power is sold to State Utilities/ Distribution Companies. Long-term Power Purchase Agreements (PPAs) are signed with these buyers based on terms and conditions as decided by the State Electricity Regulatory Commissions (SERCs). Co-generation of power by sugar mills in India began in the year 1993-1994 with the Ministry of Non-conventional Energy Sources (MNES) formulating its guidelines for fixation of the rate of power produced from non-conventional sources including by the sugar mills and supplied to the Electricity Boards. With a small beginning by 8 sugar mills generating 50 MW power, today, 48 units have set up their co-generation plants generating 680.0 MW power. According to information currently available, an equal number are in the process of putting up power plants to produce another 700 MW, taking the total generation to about 1400.0 MW. The assessed potential for power by sugar co-generation is more than 5000 MW for One of the objectives of the National Electricity Policy issued by the Government is to promote co-generation and generation from renewable sources of energy. The urgent need to promote generation of power from such sources of energy, and the significant potential for co-generation in the sugar industry is well observed. There has

been appreciable growth in this segment and this trend can be expected to continue in future as well because of growing demand for power in the country.

Benefits
Since co-generation can meet both power and heat needs, it has advantages in the form of significant cost savings for the plant and reduction in emissions of pollutants. Major benefits of co-generation can be listed as below:

Provides economic competitive advantages through a maximized return on investment by utilizing the same fuel to provide heat and electricity; Environment friendly because of reduced air emissions of Green House Gases, sulfur dioxide, nitrogen oxides, and particulate matters; A reliable source of power and process steam or heat; Onsite electricity generation can reduce transmission and distribution losses; and Low gestation period.

Sugar Industry Must Reform, Grab Opportunities: Pawar

Shri Sharad Pawar, Minister of Agriculture, Consumer Affairs, Food and Public Distribution today asked the sugar mills to improve efficiency and spread modern technological tools to farmers to make the fullest use of opportunities thrown up by new developments in food and energy sectors. Inaugurating the 72nd Annual General Meeting of the Indian Sugar Mills Association (ISMA), Shri Pawar said that sugar industry has the potential to generate 7000 MW of power and of 1.3 billion litre petrol the requirement for which would further go up next year as the government intends to increase 10% doping of ethanol with petrol as against 5% at present. He reminded the industry that countries such as Brazil have exploited this potential while Indian sugar mills have lagged far behind. Shri Pawar stressed the need for improving efficiency through better management of resources. Sugar mills must help farmers in improving yield and judicious use of water. They must use modern technologies for improving sugar recovery from cane, co-generate power and produce value-added bye-products. They should make use of incentives and facilities such as Sugar Development Fund, he said. Responding to the demand from ISMA for decontrol of sugar, lifting of ban on sugar exports and increasing the distance for setting up of new units from 15 kms to 25 kms, the Minister asked the industry to analyze these issues in a holistic manner and put fourth workable solutions. He assured the industry that the Government would look into the issues keeping in mind the interest of farmers, consumers and the sugar industry. Sugar is one of the oldest commodities in the world and traces its origin in 4th century AD in India and China. In those days sugar was manufactured only from sugarcane. But both countries lost their initiatives to the European, American and Oceanic countries, as the eighteenth century witnessed the development of new technology to manufacture sugar from sugar beet. However, India is presently a dominant player in the global sugar industry along with Brazil in terms of production. Given the growing sugar production and the structural changes witnessed in Indian sugar industry, India is all set continue its domination at the global level.

The report provides a comprehensive picture of the Indian sugar market. The status of Indian sugar industry has been compared with the rest of the world in terms of raw material availability, crushing period, size of the sugar mill, production cost and prices in the report. The advantages that Indian sugar mills have over others in cost terms have been emphasized too. Indian sugar industry is highly fragmented with organized and unorganized players. The unorganized players mainly produce Gur and Khandari, the less refined forms of sugar. The government had a controlling grip over the industry, which has slowly yet steadily given way to liberalization. The report provides comprehensive analysis about the structure of Indian sugar industry by explaining the above facets. Besides the classification of sugar products and by- products like molasses, their uses too have been extensively covered. The production sugarcane is cyclical in nature. Hence the sugar production is also cyclical as it depends on the sugarcane production in the country. The report provides extensive information on the production of sugarcane, sugar and other sweeteners in the country in the recent years along with trends and analysis. This also includes a discussion about existing capacities in the country, trends in capacity additions, imports and production of by-products of sugar (molasses and cogeneration of power). The report features a detailed demand analysis discussing the actual demand for sugar and other sweeteners, gur and khandari and their per capita consumption in India. This includes a trend analysis in demand in various regions of the country. The role of exports in the sugar industry has also been discussed. The report gives an exhaustive cost analysis along with the pricing practices. Dual Pricing System is adopted in the Indian sugar industry, which includes sugar price in Public distribution system and the free sale sugar price. An analysis has been provided on the relationship between Indian and international sugar prices.

As the industry is a fragmented one, even leading players do not control more than 4 percent market in India. However, the situation is changing and players offlate are striving to increase their market share either by acquiring smaller mills or by going for green field capacity additions. Another notable trend is the shift from Gur and Khandsari to sugar in the rural areas. This should further increase the per capita consumption of sugar in India (currently around 15.6 kg). Besides the Indian urban market is slowly moving towards branded sugar. The potential in this segment seems to be very high. These trends along with the other trends like increase in the production of by-products have been captured in detail. The market shares of the leading players and financials of following players are given in the report. Balrampur chini mills ltd, Bajaj Hindustan Ltd, Andhra sugars ltd, Thiru Arooran Sugars Ltd and Dhampur sugar ltd The major revenue drivers like change in the governments policies and increasing per capita consumption have been comprehensively pictured in the report. The reports ends with outlook for the sugar industry both at the Indian and international level.

Time to free sugar from controls: Pawar

Agriculture minister Sharad Pawar said on 13th December, 2006 that the time had come to consider decontrol of sugar in view of an expected production of 22.7 million tonnes this year. This will enable farmers to get a better price for their produce," Pawar said on the sidelines of the 72nd annual general meeting of the Indian Sugar Mills Association (ISMA). The sugar industry has been seeking the end of a ban on exports, an end to the mandatory procurement of 10 per cent of sugar production as levy sugar for governmentadministered distribution and the raising of the minimum distance between two mills from the current 15 km to 25 km. Earlier, the agriculture minister urged the sugar industry to align themselves with global trends. He said due to historical factors the Indian sugar industry has been mostly inwardly looking and has not been able to exploit its full potential. Making a case of modern use of sugar plants to generate other products, the minister pointed out that sugarcane had now emerged as one of the most energy-efficient crops for conversion of solar energy into biomass. Pawar called upon ISMA to undertake a thorough study of various facets of the industry and put forward suggestions which would meet social and economic needs of the country while adding value to all stakeholders, such as farmers, industrialists and consumers. The study should consider the efficacy of the current regulatory regime governing sugar industry and suggest changes and alternative mechanisms to ensure benefits to all, he said. ISMA president CS Nopany expressed serious concern over the continued ban on sugar exports which was imposed suddenly on July 22 with retrospective effect. He saw no justification for such "unreasonable and harsh" measures without valid grounds. In support, he pointed out that in keeping with the increase in sugarcane prices by 12 per cent, a small increase of 5 per cent in the price of sugar should not be a matter of concern for the authorities.