1. I NDIA & THE G LOBAL S UGAR D YNAMICS - A MANUFACTURER ’ S P ERSPECTIVE Mahesh Deshmukh Lokmangal Sugars 1

2. C URRENT S CENARIO Opening Stock ProductionConsumptionExports - Imports Ending Stock 2010-11 42421 34 2011-12 42621 36 2012-13 62522.5 9.5 2013-14 9.524 27.5 2014-15* 7.52824.5 110 * For Year 2014-15, expected numbers for Exports/Imports and consumption have been assumed 2

3. I NFERENCES FROM B ALANCE S HEET Continuous Bumper production for last five years. Including near record production for 2014-15. Increased Carry Forward stock every year. (Piling pressure on industry as a whole) Less than expected exports (Current structure of government policies not enough to support industry) 3

4. P ROBLEMS ? Sugar Cane cost ~ Rs 2400 Sugar Production Cost ~ Rs3200 Sugar Selling Price ~ Rs2200 “Cane Pricing is not rational” If the sugar selling price is based on normal Supply Demand fundamentals, Then so should be the cane purchase price. Current Cane pricing structure is skewed and harms the industry in the long run 4

5. M ORE P ROBLEMS … YearSugar Price Change Sugar Cane Prices Sugar Cane Price Change 2010-112641-9.7%1390+ 7.7% 2011-122910+10.2%1450+3.57% 2012-133150+5.8%1700+17.2% 2013-142885-6.3%2100+23.5% 2014-152200-23.7%2200+8.3% 5 This considerable difference in cane price & sugar price change puts extreme pressure on millers. Sugar Price change to Sugar cane price changes over last 6 years Though, the sugar prices have fallen over the years. But, Cane prices have consistently risen over the last years Source:ISMA

6. M ORE P ROBLEMS … Supply – Demand Distortion The Indian consumption is at around 24.5 million MT, while we have sugar availability of around 35 million MT, with negligible exports happening. Thus, More pressure on industry. Exports Conundrum Brazil is the biggest producer and seller of sugar in the world. For last one year, Brazil’s sugar prices have plummeted at an astonishing rapid rate compared to Indian sugar prices. But Brazil’s sugar industry is not facing any problems. Reason being their devalued currency. 6

7. W ORLD SUGAR BALANCE SHEET 7 ProductionConsumptionEnding Stock 2011-12 173.5168.839.7 2012-13 177.5165.744 2013-14 175.7168.745 2014-15* 174.317042. Production: Overall world sugar production is consistent. Consumption: We see a roughly 1% increase YoY in sugar consumption.

8. W ORLD MARKET TO I NDIA ’ S S UGAR MARKET FACTS World sees consistent production, While, India is seeing a consistent rise and near record production in 2014-15 During Excess production years, India tends to export 2-3 mn MT of sugar. In 2014-15, India produced near record 28 mn MT sugar with Excess availability of 10mn MT this year. But, We are unable to export even the stipulated 1.4 mn mT subsidized raw sugar. Questions:  Why have India been unable to meet even the 1.4 mn MT exports?  Even after huge domestic consumption, still the sugar availability in India’s is very high. 8

9. R EASONS : L ITTLE TO NO E XPORTS Source: XE.com 9

10. 10 Not just the Brazilian “Real”, almost every currency depreciated against USD, except the INR

11. E FFECT OF STRONG CURRENCY ON EXPORTS Reason: For same Dollar of sugar in international market now, India is getting 30% less money than Brazil, If compared. Brazil’s currency is cheaper, Thus they receive more Brazilian Reals for each Dollar. While in India, We are getting less rupees for each dollar, compared to Brazil. Brazil sugar manufacturers are selling at even $ 350. While Indian sugar manufacturers cannot meet even the cane payments with current sugar prices. 11

12. S OLUTIONS - I MMEDIATE TO S HORT T ERM Increase the Quantum & Quantity of export subsidy Current quota for only 1.4 million MT sugar is not sufficient. As, we are still long way off from exporting 1.4 mn MT raw sugar. Rs 4/Kg subsidy needs to be revised upwards. Government Support to FRP payments to farmers Deposit the FRP subsidy directly to farmers account to ease their pain. Government purchase sugar or buffer stock Buying of sugar by the govt can diffuse the unbalanced supply demand scenario instantly. A 10% purchase by govt from the millers at cost prices. Quick & Easy Export Documentation Each export contract should not be required to be registered with the DGFT. 12

13. S OLUTIONS (L ONGER T ERM ) Farmers Farmers should diversify their crop portfolio. Rather than planting cane in all their area, they should also go for planting other alternate crops in addition to sugarcane. Reduce the water usage by switching over to drip irrigation. Increasing the cane yield/Hectare. 13

14. S OLUTIONS (L ONGER T ERM ) Government Government needs to announce the export subsidies ideally before the crushing begins. Otherwise, there is hardly any advantage to the industry. Rationalize the FRP for Sugarcane: A thorough revision to the FRP structure is required. Rangarajan committee has given a fair solution to this problem and the formula needs to be adopted Stabilize the sugar market: We can follow China, where Government purchases the sugar from manufacturers when the prices are low, and sells in the market when prices start rising. 14

15. S OLUTIONS (L ONGER T ERM ) Government Fixed pricing of ethanol is a very good decision been taken by the Govt. Decision to exempt the excise duty on ethanol is a welcome move 15

16. S OLUTIONS (L ONGER T ERM )– C ONTD. Consumers Per capita consumption of sugar in India is 20 kg/year. An increase of Rs 4-5 /Kg will have negligible impact on the household food budget. Comparison of Sugar Price change to other commodities price change 16 YearSugarWheatBarleyChana 2010-11-9.7%-3.6%28.36% 17.50% 2011-1210.2%+7.2%1.1% 55.01% 2012-135.8%+25.9%3.1% -8.64% 2013-14-6.3%-6.2%2.6% -19.59% 2014-15-23.7%+9.9%4.1% 21.22% Total Price change in last 5 years -25%+25%+42.9%+62.2% Source : http://www.ncdex.com & http://agmarkweb.dacnet.nic.in/SA_Month_PriMar.aspxhttp://agmarkweb.dacnet.nic.in/SA_Month_PriMar.aspx

17. S OLUTIONS (L ONGER T ERM )– C ONTD. Manufacturer Time to educate the general public about the issues being faced by the Industry. H&T advances. Look towards diverting B-Heavy molasses to ethanol production. Going for cogeneration of power and distillery. Emphasis on quality of sugar. Care for the Environment. 17

18. L OOKING A HEAD – I NDIAN S UGAR CYCLE Source: Google 18

19. L OOKING A HEAD – C ONTD. Looking Ahead Expecting to see favorable policies & support, We expect the Indian sugar industry to bounce back in the coming years. Once everybody understands the fundamentals of the situation, only then, India’s sugar balance sheet will lighten up and industry would look to rebuild it’s next cycle. The need of the hour is to understand and remove this problem phase that impacts the farmers, Industry & Consumers in whole. 19

20. T HANK Y OU ! 20