The Indian sugar sector used to be a wildcard in the sugar market where periodic swings in output would tip the global sugar price one way or the other. Some stability was brought when the market arm of the sugar policy was decontrolled. However, the transformative impact on the sugar industry in the recent past has been the introduction of the high yielding cane variety C-0238. In 2015/16 India produced 27.4 million tonnes raw value (mtrv). This catapulted to 35.3 mtrv in 2017/18 – less from expansion in acreage but rather increase in productivity both in the field and factory. Surplus production of over 8 million tonnes, a good part of it destined for the export market clearly pressured the global supplies. The new normal persuaded policy makers to address the challenge.
India – Sugar production during 2012-21 (million tonnes raw value)
Source: FO Licht
The Government was fast in responding, turning a challenge into a great opportunity. In the short-term, measures such as balancing sugar supply and demand in the domestic market by release systems, focussing on exports, creating buffer stocks etc. were implemented to ensure payment to the farmers for their cane. These visible and obvious measures were, however, only a beginner’s warm-up for a long race.
In 2018, through new biofuels policy, the Government addressed sucrose surplus plus clean energy and energy security. India imports 80 percent of its fuel requirement from other countries and is rated amongst the lowest in air quality index. An ethanol program could meet both ends. India flirted with the ethanol blending program in the past too, but the concern of weather-related production swings over-rode a long-term effort. Now, with rising production and stagnant consumption growth in sugar, things are different.
The biofuels policy was followed by a differential price mechanism whereby higher prices were stipulated for sugar-rich B-Molasses or sugarcane juice ethanol to compensate for sugar sacrificed. This was a visionary move which has led to sugar dedicated for ethanol increasing from 0.9 million tonnes in 2018-19 to 2 million tonnes in 2020-21., Further, the Government incentivised the sector – the state control on ethanol and molasses movement were relaxed, new ethanol projects were encouraged through an interest subvention scheme; policy and procedure for approvals were relaxed. Ethanol blending which was 0.38 billion litres in 2013 is expected to cross 3.25 billion litres this year, a 9-fold increase in 9 years. Today, ‘fuel ethanol’ in India is the fastest-growing ethanol program in the world.
The relative success of the programme has persuaded the Government to bring the original targets forward. The program’s earlier target was to introduce 20 percent ethanol blending by 2030. This has now been brought forward to 2025.
The government has a broader plan for this sector. Ethanol requirement is expected to be 12 billion litres by 2024-25 – 9 billion litres for ethanol at 20 percent ethanol blending and 3 billion litres for other sectors.
The current ethanol capacity is 4.26 billion litres (1.02 billion litres from grains). New capacities of around a billion litres are expected to come on stream in 2022, increasing the total capacity to 5.2 billion litres next year. Plans are to increase ethanol capacity to 6.60 billion litres from sugarcane and 5.4 billion litres from grains by 2025 to meet the anticipated demand of 12 billion litres.
To achieve the ambitious ethanol blending target of 20 percent, new capacities must be added. To this end, the government has given a big push for ethanol production this year. The government has also included grain-based (damaged grains – rice, maize, sorghum etc) ethanol plants under the interest subvention scheme. This will give a further impetus to the grain ethanol program. India has a stable rice production with exports at around 10 million tonnes every year. An ethanol push shall be very beneficial as surplus rice and grains will be used gainfully for domestic use and to provide clean energy.
To ensure certainty of demand, the oil manufacturing companies (OMCs) have agreed to sign long term contracts for ethanol. New plans to increase the ethanol blending rate, 10 percent now, are under discussions. This will continue to increase the demand for producers.
The government’s focused, systematic and incentivised drive has certainly informed the rapid expansion in ethanol output. The push will have to continue for few more years to reach zero sugar surplus. The global sugar market doubtless awaits the reset and relative calm before any unexpected developments upset structural exporters.
Ravi Gupta, President, Shree Renuka Sugars