Indian Sugar Industry analysis.docx - The Indian Sugar...

This preview shows page 1 - 3 out of 5 pages.

The Indian Sugar Industry – Is it sweet enough? Question 1. Assess the attractiveness of the Indian sugar industry using Porter’s five forces model. Discuss the impact of the following factors on its attractiveness: a) Relative bargaining power differences between farmers and sugar producers; b) Government regulations; and c) Global sugar producers. 1. Barriers to Entry and exit (Moderate): The Indian Sugar Industry is characterized by modest entry and exit barriers. Integrated business model and increasing capital requirement in the industry restrict new entrants. The incentives to set up new plants have been withdrawn and the new sugar units are required to comply with the levy quota regulation from the first year of operations. The GOI has also put a restriction on setting up of two sugar factories within the radius of 15 km. 2. Threat of substitutes (Low): Being an essential commodity the demand for sugar is not elastic. Alternate sweeteners to refined sugar in India are gur and khandsari. But with increased per capita income and easy availability of sugar at competitive rates, use of gur and khandsari is seeing a downward trend and is mostly confined to rural areas. Hence, the threat of substitute is low in the industry. 3. Buyer bargaining power (Low): Indian sugar market is highly regulated by the Govt. influencing distribution, a purchase price of levy sugar and the free sale quota releases for sugar. Hence, buyer’s power is highly restricted in this sector. 4. Supplier bargaining power (Moderate): Allocation of the area from where the sugarcane can be procured is allocated by the government. The Sugar mills have no choice but to purchase all the Cane sold to them, even if it exceeds their requirement. Sugar producers are not allowed to own cane fields in India. Though recent sugar de-control is likely to give higher pricing power to the mills, the government still can influence the prices with its PDS system. 5. Industry Competition (High): Competitiveness among Indian sugar players is high. With more than 650 units engaged in the production of sugar, the industry is highly fragmented. Private Individual players have a bigger market share as compared to earlier. Cooperatives account for about 38% of the industry’s production. a) Relative bargaining power differences between farmers and sugar producers To ensure steady cane supply to the mills and a fair price to the farmer, GOI made it mandatory for every designated mill to purchase cane only from farmers within a radius of
15km of the mill. This however reduced the bargaining power of farmers who were forced to sell even if there were payment arrears from the mill.

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture