WITH yet another year of record cane harvest, India’s sugar crisis is worsening, as the retail price of the sweetener continues to plunge. The world’s largest consumer of sugar and the second-largest producer after Brazil, India has been grappling with the crisis for the past few years.

Top leaders of the National Democratic Alliance (NDA) government have been busy meeting state chief ministers and other stakeholders besides the prime minister in a bid to resolve — or at least ease — the crisis. Cane has in fact become a bane for many farmers across large states such as Uttar Pradesh and Maharashtra — two of the biggest producers — as they are unable to get their arrears cleared from sugar factories, or get a good price for the produce.

A water-guzzler, cane is increasingly being grown even in rain-shadow regions of Maharashtra — where this is little irrigation — and farmers are paying a heavy price in terms of damaged soil and the inability of the fields to rejuvenate. Farmer distress due to sugarcane crops is growing, yet there seems to be some kind of an addiction to the crop.

According to estimates, land under cane cultivation in India is expected to increase by more than 100,000 hectares in the new season to top 5m hectares. In the past, whenever sugar prices declined, farmers would cut down on cane production, but over the past few years, they have been raising the crop irrespective of the market price.

The glut in sugar production has coincided with an abundance of supplies globally. According to the International Sugar Organisation, London, this will be the fifth year in a row when there will be a global surplus of sugar. There will be an excess production of 620,000 tonnes over demand by the end of September, says the ISO. And sugar stockpiles are soaring around the globe, almost touching the 80-million tonnes mark.

India’s sugar stockpile will touch 9m tonnes by the end of the sugar year (which is from October to September), as against 7.5m tonnes last year. For the 2014-15 crushing season (which got over in March) sugar production rose by nearly 12pc.

According to the Indian Sugar Mills Association (ISMA), the country had produced 24.72m tonnes of sugar by the end of March, about 2.84m tonnes more than in the previous year. For the sugar year ending September 30, India’s production would add up to 27m tonnes, the highest in nearly a decade. Domestic consumption is less than 25m tonnes.

In Maharashtra, sugar production is expected to top 10m tonnes for the first time, and almost a third more than last year. Sugar prices though have been tumbling, both globally and in India. In Maharashtra, for instance, sugar prices have dropped from Rs2,800 a quintal to Rs2,100.

At the retail level, while production cost is more than Rs30 a kg, sugar is being sold at between Rs21 and Rs24 a kg, leading to huge losses for the producers.

The problem for sugar mills, however, arises because the central government determined fair and remunerative price — which they have to pay growers — has been climbing sharply; it has shot up by more than 55pc over the past six years, and is today priced at Rs2,200 a quintal.

Consequently, sugar mills all over the country have failed to clear their arrears. According to Ram Vilas Paswan, the union minister of consumer affairs, food and public distribution, arrears to be paid to farmers adds up to a hefty Rs210bn (about $3.3bn). He says the government has received several proposals from state governments including providing financial assistance to the mills, incentives for raw sugar exports and creation of a strategic buffer stock.

LAST week, the government relaxed the export norms, allowing any trader or entity to supply sugar to the European Union and the US under the quota system, thus enjoying low tariffs. Before the latest move, only the Indian Sugar Exim Corporation — set up by two sugar associations — could export the commodity to the EU or the US.

However, the low tariffs are valid only till the quotas are met — 10,000 tonnes in the case of the EU and 8,000 tonnes for the US. The government also provides a subsidy of Rs4,000 a tonne for the export of raw sugar of up to 1.4m tonnes, but with a sharp decline in global prices, even that is not helping Indian exporters.

Sugar mills are demanding that the government raise import duties from 25-40pc to protect domestic producers. ISMA has warned that if the government does not help the ailing sugar sector, it would be difficult for the industry to survive.

Last month, a group of ministers led by Paswan decided to recommend a hike in customs duty on sugar to 40pc to curb supplies and check falling prices. The import duty was raised last year from 15pc to 25pc, but it has apparently failed to check the fall in prices.

Many state governments have also been urging the centre to create a buffer stock of 3m tonnes of sugar, besides encouraging the use of ethanol. Abhinash Verma, director-general ISMA, notes that at present just 3pc of ethanol blending takes place. If this is raised to 10pc, it would lead to a demand of 1.3bn litres of ethanol, reducing the sugar surplus by almost 2m tonnes.

ISMA has also demanded that the 12.5pc excise duty on ethanol should be removed to encourage its use with petrol.

Resolving the crisis, however, is a tough challenge as sugar is not a simple commodity. In states like Maharashtra, most of the cooperative factories are owned by top politicians, who are able to resist demand from farmers. But the farm lobby is equally powerful and is able to compel the central and state governments to raise the support price every year, irrespective of the demand-supply situation and the market price of the commodity.

A delegation of the powerful Maharashtra State Federation of Cooperative Sugar Factories recently met finance minister Arun Jaitley and urged him to direct state-owned Food Corporation of India to buy 2.5m tonnes of sugar from factories at a price of Rs3,100 a quintal, against the current market price of Rs2,100 to Rs2,300.

Published in Dawn, Economic & Business, May 4th, 2015

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