Ebbing sugar rush: The fall of Indian sugar industry

By Gaurav Sharma

The world's largest sugarcane producing nation and the second largest sugar producer after Cuba stares itself in the pit of a downward spiral, a debacle of its own making. Unlike common distresses facing other sectors of the food economy such as crop failure owing to climatic factors and poor irrigation facilities, the sugar industry ails from a mix of market related problems.

Factor this: Almost 90 per cent of the sugarcane producing regions in the country are well irrigated as compared to less than 50 per cent of the land in other cash crop growing regions.

Yet cane arrears have crossed the Rs 20,000 crore mark. The highest arrears have been reported from the traditional output leaders Maharashtra and Uttar Pradesh, followed by Karnataka, Punjab and Tamil Nadu.

The plight of farmers

Farmers have begun taking the suicide route to end their misery. Here Uttar Pradesh and Karnataka lead the gory way. According to Indian Express, this year itself there have been 294 incidents of farmer suicides in Karnataka, including the most fertile region of Mandya-Mysore belt.

One reason for the farmers resorting to the last resort of suicide is the time and effort sugarcane takes to mature.

Still farmers remain persistent in growing the crop mainly due its inherent strength and easy accessibility to irrigation facilities. The known enemies of a crop such as hail, frost, fire, jangli soar (wild boar) are but a passing phenomena for sugarcane and are unable to shake its sturdy foundation.

And yet the sugar industry is on a downward spiral.

Reason behind this downfall

The main reason behind the fall-down of the sugar industry is the failure to keep the supply in line with the demand. Last year, India outran its production output in comparison to domestic consumption demand. The following year is also expected to result in a record sugar output.

Due to unhindered overproduction, domestic sugar prices have dropped to Rs 22 per kg in Uttar Pradesh and Rs 19 in Maharashtra. Mills do not have the capacity to pay either the Centre or the state at fair remunerative prices. Arrears to farmers have soared.

When domestic demand slips, it is a natural response by the country to look at foreign avenues as prospective markets. But this is where the government finds itself in a catch-22 situation. Global sugar prices have plummeted to record lows.

Is the government doing anything about it?

The government had a small window of opportunity earlier this year, but it squandered the chance to fill its coffers. The Rs 4,000 crore corpus announced by the government as export subsidy was announced much after the season began and therefore, consignments could not be shipped out.

This is not to suggest that the state government is short of cash on its hands. The bi-product of sugarcane, alcohol, alone fetches about Rs 120 on a 750ml bottle of country liquor in Uttar Pradesh. Considering that from every tonne of sugarcane about 45 kg of molasses (from which ethanol is produced) is produced, it can be verily testified that the state coffers are well and flourishing.

To preserve government's monopoly over desi daaru, each mill is forced to reserve at least 15 percent of the molasses output for the liquor business.

This makes it all the more astonishing why the government, in spite of being cash surplus, has chosen to be mute observer to the cataclysm facing the sugar industry. Have the state officials become so callous so as to turn a blind eye to the plight of the farmers? Is there a solution in hand or is the decline in sugar prices a free falling abyss?

According to official data, the outlook for September 2015 sugarcane outlay is expected to touch around 9 million tonnes, exceeding the consumption demand by 3-4 tonnes.

Earlier the Indian Sugar Mills Association (ISMA) had suggested that the government should buy the 3 million tonnes as buffer stock. But it has now emerged that the government has other plans up its sleeve; to barter the surplus produce with other nations. The primary target identified for exports is Indonesia though other names such as Australia, Canada and Middle-East nations have also propped up among the prospective export destinations.

However, even if the government is able to strike such a remarkable deal, at current prices it would fetch anywhere between Rs 8,000—Rs 10,000 crore, less than half the amount of total sugar arrears. Going by the thick of things, it can be at most a win-lose bargain for India. (The possibility of a win-win exchange is now passé)

Is there any hope left?

The only viable alternative for stemming the deflationary flow of sugar price is to allow the sugar mills to produce molasses freely without government caps and other restrictions. At the same time, production of sugar has to be brought down in line with the demand. This calls for a calibrated approach whereby the two measures are undertaken in tandem.

The country finds itself at a historic setting. To stall the already escalating crisis, a more proactive approach is required, one that aims to prune the arrears and gradually transform it back into a profit generating industry.