Why the Sugar Industry in India is a Sweet Spot for Investors- Find Out Now!

India is the sweetest country in the world! What does it mean? You may wonder. Well, we rank at the top regarding the production and consumption of sugar… Guess who plays the key role here? The sugar industry in India!

Simultaneously, the investors have been brainstorming on the best sugar stocks of India to gain profits. This leads to an obvious question- Why the sugar industry in India is a Sweet Spot for investors? Let’s find out!

(A) Sugar Industry in India: A Brief Overview

The sugar sector is the second largest agro-based industry in India. To the uninitiated, let me tell you that agro-based industries use raw materials from agriculture to produce goods. For example- cotton, jute, beverages, dairy products, the leather industry, etc. including the sugar industry that utilizes sugarcane juice to produce sugar.

Before proceeding further, let’s look at the current scenario of the sugar industry in India-

(A.1) Sugar Production

India is the world’s second-largest producer of sugar. Really? Yes! We produce about 20% of the world’s sugar. In the year 2023-24, we produced around 34 million metric tons of sugar. Hence, India became the largest sugar-producing country in the world. In previous years, Brazil was crowned with this title.

Here is the production volume of sugarcane across various states of India in FY22-

In the market year 2023-24, Uttar Pradesh ranked at the top of the list of sugarcane-producing states. 

(A.2) Livelihood & Employment

The sugar industry in India provides livelihood to millions of people and contributes to the development of the nation. Here’s how-

• Farmers: The sugar industry impacts the livelihood of around 5 crore farmers and their families.
• Mill Workers: The sugar industry employs more than 5 lakh workers in the sugar mills.
• Rural Development: Sugar mills are located in rural areas and hence contribute to the development of rural India.
• Byproducts: The Sugar Industry produces byproducts like molasses, bagasse, ethanol, paper, and electricity, which contribute to economic growth.

(A.3) Sugar Industry and artisan sweeteners

India’s sugar consumption includes a large proportion of artisan sweeteners like gur and khandsari, which are made from evaporated cane juice.

(B) Why the Sugar Industry in India is a sweet spot for investors?

In the previous section, we discussed the overall sugar industry of India. Now, we will look at the factors that make the sugar industry in India, a sweet spot for investors-

(B.1) Steady Demand

Sugar is in constant demand for use in drinks, medicines, and sweets. Let’s look at the data related to the rising demand for sugar in India-

• Consumption Volume: India’s sugar consumption has been increasing gradually since 2019-20, reaching 30.51 million metric tons in 2023-24.
• Export Estimates: India’s sugar exports for 2024-25 are estimated to be 3.7 million metric tons.
• Demand Drivers: The rise in demand is mainly due to increased consumption of sugar-rich products like ice cream, baked goods, confectionery, and processed foods and beverages.
• Price Impact: Higher demand has led to rising sugar prices. The average market price is Rs.40 per kg.  

(B.2) Global Leadership

India is a world leader in sugar production. We have already explained it in the previous section “Sugar Industry in India: A Brief Overview”. Let me briefly explain here. India is the second largest producer of sugar after Brazil. However, last year 34 million tonnes of sugar ranked at the top. Also, India’s sugar exports for 2024-25 are estimated to be 3.7 million metric tons.

(B.3) Boosting various Industries

India makes a variety of sugary products, including jaggery and Khandsari. Do you know Sugar production is linked to other industries, such as alcohol and energy? 

Some of the sugar products that boost various industries in India include

(B.4) Strong Infrastructure

India has 524 sugar factories that can handle demand both domestically and internationally. Some of the major sugar factories are-

• Balrampur Chini Mills: It is a large integrated sugar producer and also produces ethanol. They have a strong presence in Uttar Pradesh.
• Shree Renuka Sugars: It is an agribusiness and bioenergy company that produces sugar and bioenergy.
• Triveni Engineering & Industries: A leading sugar manufacturer that produces refined crystal and pharmaceutical-grade sugar. They have seven production sites in Uttar Pradesh and produce 61,000 tonnes of sugar every day.
• EID Parry: It is one of the top five sugar producers in India. It is also involved in nutraceuticals segment.
• Dwarikesh Sugar Industries: A company that manufactures sugar and other related products like power, ethanol, and alcohol.
• DCM Shriram Industries: It has several sugar mills located throughout North India. It manufactures a variety of goods like sugar, molasses, and alcohol.
• Mawana Sugars: It is India’s sixth-largest sugar manufacturer that operates two mills in Uttar Pradesh.
• Simbhaoli Sugars: it mainly operates in Uttar Pradesh. It produces sugar, ethanol, and power.
• Ponni Sugars (Erode): It is a sugar factory at Erode that has a capacity to crush 3500 tonnes of sugarcane per day.

(B.5) Cultural Significance

Sweets are an important part of Indian traditions and festivals, ensuring a constant sugar demand. Some of the significant cultures are-

• A gesture of hospitality
• Sweet cuisines
• All festivals 
• Religious rituals

(B.6) Rising Consumption Patterns

As more people can afford processed foods and treats, the demand for sugar is increasing. India’s per capita sugar consumption has been stagnant at around 19 kilograms per year, which is lower than the global average of 23 kilograms.

In a 2021 survey, 69.3% of seniors in India reported consuming one serving of sugar or less per day, while 43% of young adults reported consuming two or five servings per day.

India’s high consumption of sugar and sugar-sweetened beverages (SSBs) may contribute to the country’s high prevalence of overweight, obesity, and type 2 diabetes.

(B.7) Government Support

The government has several implemented policies and initiatives to support the sugar industry in India. Some of the major ones are-

Fair and Remunerative Price (FRP)

The government sets the FRP of sugarcane before the harvest season to ensure a guaranteed price for sugarcane growers. Are there any specific criteria for that? You may wonder. Well, the FRP is based on the CACP (Commission for Agricultural Costs and Prices) recommendations, in consultation with state governments and other stakeholders.

Minimum Selling Price (MSP)

As you all know, the government introduced the MSP of sugar to ensure that the industry receives at least the minimum cost of production. The MSP is based on the FRP of sugarcane and the minimum conversion cost of the most efficient mills.

Financial assistance

The government has provided financial assistance to sugar mills to help them increase ethanol production capacity, maintain buffer stocks, and clear farmers’ dues.

State Advised Prices (SAP)

Some state governments publish SAPs, which often exceed the FRP to provide further support to sugarcane farmers.

Lifting Cap on Sugar Diversion for Ethanol Production

From 1st November 2024, the union government will lift the cap on sugar diversion for ethanol production. This act will allow the usage of cane juice, syrup, and various types of molasses for ethanol production. Also, the distilleries can purchase up to 2.3 million metric tons of rice from the Food Corporation of India for ethanol production.

Apart from all these stuff, many companies are investing in R&D to improve efficiency and reduce costs for sugar production in India.

(C) Top Sugar Stocks in India- 2024

Here are the top five sugar stocks in India based on market capitalization-

Before investing in these stocks, you must be aware of the risks associated with them. Various factors can impact the performance of sugar stocks viz.-

• Supply & Demand: Crop yields, weather conditions, and global demand for sugar, etc. affect the supply and demand for sugar which in turn affect the sugar stocks.
• Regulations: Government policies, tariffs, and subsidies can affect sugar stocks.
• Technological Advancements: Innovations in farming and processing techniques can heavily impact sugar stocks.
• Market dynamics: Global trade and competition from alternative sweeteners can affect sugar stocks.
• Financial performance: Like other stocks, financial aspects like revenue growth, profit margins, and debt levels are responsible for the performance of sugar stocks as well.
• Public Policy: The Indian government’s support for the sugar industry through various policies and funding offers a good setting for sugar companies to run and grow.
• Global Inventories: This impacts the daily price of the contract.

(D) How the Sugar Stocks have performed so far?

The Indian Food Minister has highlighted that the Sugar Stocks in India saw a significant uptick in intraday trading on 27th October 2024. He is quite optimistic about the sugar production for the period 2024-25 season that will begin in October. 

Following this, several sugar stocks experienced significant gains viz.-

• Shree Renuka Sugars: 8% increase
• Balrampur Chini Mills: 6%
• Mawana Sugars: 5.6%
• KM Sugar Mills: 5%
• Dhampur Sugar Mills: 4%-5%

So yes, that’s how the sugar industry in India is a sweet spot for investors. What do you think about this? Share your thoughts in the comments section below!