private association of sugar mills. The procurement of sugar for exports is done by inviting tenders from the mills on an fob port delivery basis. Since this system started, exports of sugar have mainly come from Maharashtra and Tamil Nadu. The total export quota is determined annually by the government, based on its estimate of the likely exportable surplus after considering the requirement of the domestic market and stocks. This quota is distributed among different mills in proportion to their production in the previous season, and any losses or profits on exports are shared in these proportions. In the 1980s until 1994 the export prices negotiated were lower than the domestic free market prices, and so this system in effect distributed the loss borne by the exporting mills over the whole industry. At least part of these losses is because the size of the export quota is uncertain, and because it is allocated only 3 to 4 months ahead of delivery, thereby preventing exporters from making firm future commitments. For both of these reasons it is reported that international traders are not willing to offer Indian mills terms as favorable as they would were India a reliable long term supplier.<sup>1 5</sup>

# _Molasses and molasses policies_

In terms of its sale value, molasses is the principal by-product of sugar cane milling.'<sup>6</sup> The quantity extracted varies between a third and a half of the quantity of sugar, and if both the sugar and the molasses are valued at world prices, the molasses will usually account for between 5 and 10 percent of the sales of a typical mill, depending on the quantities extracted and relative prices. The quantity of molasses produced in the khandsari process is higher than in sugar mills, and the khandsari molasses has a higher sugar content and has a higher value in the domestic free market. Other by-products of sugar milling are bagasse and press mud or cake. In India as elsewhere most of the bagasse is burned as fuel in the mills. Some excess bagasse is sold to the paper industry, and there are some small sales of press mud as fertilizer. In addition to these, huge quantities of cane tops and trash result from sugar cane harvesting, some of which are used as cattle feed and compost.

Data S4 presents the Indian and world production of molasses since 1965. Average annual world production during 1990-94 was about 41 mln MT, of which recorded Indian production was approximately 5 million tons or 12 percent of world production. The Indian share of world production would be higher, however, if khandsari molasses were not excluded from the official Indian statistics. According to the All India Distillers Association,<sup>1 7</sup> in the early 1980s about a quarter of the cane used for gur and khandsari was used for khandsari, and would have produced about a 1.1 million tons of khandsari molasses in these years, equivalent to a third to a half of officially recorded production.

The molasses extraction rate (per MT of cane) of sugar mills varied from 4.1-4.5 percent over the past two decades in India, versus a world average of between 3.8 and 4.4 percent. The

> **_15_** This point was made by a number of the industry groups that testified for the Ministry of Commerce _Extreme Focus Group_ report.

> 6For a general discussion of the by-products of the sugar industry see James Fry (1985). **17** All India Distillers' Association (1986).

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