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Major Sugarcane Producing Nations and Analysis of their Key Operating Criteria

Sugarcane is a diverse crop with a complex demand structure. The profitability of producers mainly depends on the revenue from three by-products: sugar, ethanol and energy which are derived from this highly versatile crop. The major producers and exporters of sugar are Brazil, India and Thailand and all these nations have a varied economic structure. There is also a significant disparity in governmental regulations, payment mechanism for farmers, etc. All of these have a bearing on the profitability of sugar producers. Thus, the mechanism in the sugarcane industry incorporates a complex and diverse matrix of innumerable factors, each temporary and dynamic, but nonetheless imperative to the overall profitability.

In the last few years, global sugar consumption has increased from 1.7% to 2%, while the demand from the developed economies is dwindling gradually. This decline has been compensated by the increase in demand from emerging markets, where the population growth is high and at the same time the per capita consumption is also rising.

The key sugar producing nations such as Brazil, India and Thailand are witnessing a sluggish investment in new capacities, leading to weakening of the supply situation. This along with cyclical reasons and adverse weather conditions have led to a slow-down in the global supply and has resulted in a gradual increase in the sugar prices. This decline in production was further affected by the increased use of sugarcane for ethanol in Brazil to benefit from high ethanol prices. Further, reducing the supply of sugar from the major producer.

The graph below depicts sugarcane produced and sugarcane yield for Brazil, India and Thailand. It is clearly evident from the graph that Brazil is the largest sugarcane producer in the world. Moreover, it is because of the prevailing adverse weather conditions, the sugarcane yield and TRS displays a declining trend.

Source: FAO, GAIN USAD

Once sugarcane is harvested it cannot be stored because storing will decrease the molasses content and hence it will affect the overall sugar and ethanol production. In the below graph, Televisory has analysed the sugar and ethanol production in Brazil, India and Thailand. 

Source: FAO, GAIN USAD

In the year 2011 because of strong international demand for sugar, the average selling price of sugar was highest and all the three countries focused on sugar production rather than ethanol. Although, the sugarcane production, yield and TRS have declined in the past few years. The trend has shifted from sugar production to ethanol production due to higher profitability and shorter cash conversion cycle.

Furthermore, analysis of companies in the respective regions divulges that Brazilian companies are fully integrated in terms of sugarcane production and power generation. On the other hand, Indian companies are forward integrated in terms of power generation and companies in Thailand only focus on sugar and ethanol production. 

Source: Televisory Research

The sugarcane industry is highly labour intensive and sugarcane milled per employee does reflect the employee productivity and mechanisation of operations.  The graph above shows and supports the fact that Brazilian companies are more mechanised than their Indian and Thai equivalents. This is due to the integration of Brazilian companies in terms of sugarcane production, hence, the cash OPEX per tonne sugarcane milled of Brazilian companies is least in comparison with Indian and Thai companies.

Source: Televisory Research

The average EBITDA per tonne sugarcane milled of Indian companies is the lowest. On the contrary, the Brazilian companies have less revenue realisation compared with Indian and Thai companies. They enjoy higher profitability because of the lower cost of production.  

Also Read About :- Key coffee growing nations – key operational criteria analysed 

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