India’s 2019 election : how sugar influences the world’s biggest vote

India election 2019: How sugar influences the world's biggest vote

When Prime Minister Narendra Modi held a recent election meeting in the northern Indian state of Uttar Pradesh, he was compelled to make a promise relating to sugar, a diet staple.

Farmers who grow cane in the politically crucial state ruled by Mr Modi's Bharatiya Janata Party (BJP) were angry because sugar mills had not paid their dues in time. They held protests and blocked railway tracks. "I know there are cane dues. I will make sure every penny of yours will be paid," Mr Modi told the audience.

India's sugar mills are bleeding money and collectively owe billions of dollars to 50 million cane farmers , many of whom haven't been paid for nearly a year. Niti Ayog, a government think tank, says the arrears have reached "alarming" levels. More than 12 million tonnes of unsold sugar have piled up in factories. There is little incentive to export more as India's sugar price is higher than the international price.

Sugar is a serious business in India. Around 525 mills produced more than 30 million tonnes of sugar in the last crushing season, which lasted from October to April. This makes it the world's largest producer, unseating Brazil. A large number of mills are run by cooperatives where farmers own shares proportional to the land they own and pledge their produce to the mill.

That's not all. Some 50 million farmers, tightly concentrated geographically, are engaged in cane farming. Millions more work in the mills and farms and are engaged in transportation of cane.

As with much of India's politics, cane growers appear to be a reliable "vote bank". Uttar Pradesh and Maharashtra, which together produce 60% of the country's sugar, send 128 MPs to the parliament. The price of cane can swing votes in more than 150 of the 545 seats in the ongoing general election, according to one estimate. Sugar is possibly the "most politicised crop in the world”

Indians are also voracious consumers of sugar. The bulk of the supply goes into making sweets, confectionary and fizzy drinks that are beginning to contribute to a rising obesity problem, like elsewhere in the world. 

We need differential pricing for sugar. Cheap sugar should be only provided to people who can't afford it. The rest should pay a higher price

"Otherwise, the industry will collapse, and farmers will die. Even politicians will not be able to save it."

What might the future hold for India's sugarcane industry?

CHARTING THE FUTURE OF INDIA’S SUGAR INDUSTRY

India’s domestic sugar market is in the doldrums, as the international market price of sugar has been falling. With general elections , managing sugar markets and balancing the interests of sugar millers and sugarcane producers is a serious policy challenge for India’s government. Higher sugarcane production in the 2017-18 crop year has only made the problem more complex. As with many so-called political commodities, the fate of the current government may depend on how it handles this policy issue—particularly given the distressing trend of rising numbers of sugarcane farmers committing suicide  due to difficult economic conditions. In Uttar Pradesh, for example, a total of $1.8 billion remained unpaid  to sugarcane farmers as of mid-May.

The government has implemented a number of policy fixes to help sugar mills and cane producers. They fall into two broad categories: Increasing exports and finding alternative markets. However, both options are complex, as increasing sugar exports is not easy when world prices are sluggish. Diverting a significant portion of current sugar stocks to the production of renewable fuels, mainly ethanol, also has its own challenges, including government restrictions on food-based feedstock use on energy production.

In addition, per capita sugar consumption is stable or slightly declining globally, and other technologically advanced major sugar producing countries, including Brazil and Thailand, are formidable competitors, so Indian sugar exporters would face serious challenges in the world market.

Growing sugarcane as a commercial crop venture could be an effective tool for reaching the government goal of doubling farmer income by 2022. But bold policy alternatives are needed to make that a reality. This post aims to shed light on the consequences of the removal of restriction on direct sugar use as feedstock for ethanol production on overall domestic sugar demand.

Fall in prices

According to the World Bank, the world sugar price will hover around $0.37 per kg in 2018, 12 percent below its 2016 peak. India is the world’s second largest producer of sugar, and its domestic sugar mills face downward price pressure in both international and domestic markets. According to the Department of Consumer Affairs, the domestic retail price of sugar dropped by 14 percent to $0.54 per kg in May 2018 from a high of $0.64 per kg in September 2017

The government’s Agriculture Statistics Division is forecasting that in crop year 2017-18 sugar production will exceed 35 million metric tons (MT), 16 percent higher than the previous year. With flat domestic consumption, the 2017-18 sugar stocks are projected to be double that of 2016-17. This will certainly result in a further glut, making it harder for mill owners to pay what they owe sugarcane farmers. Sugar mill owners must pay a government-determined base price of $0.37 to producers. At this rate, it is nearly impossible to maintain any profit margin by selling raw sugar in the domestic market.

Understanding the importance of a stable sugar price for domestic sugar mills and farmers, the government has imposed reverse stock holding limits on sugar mills, restricting the amount of sugar they can stockpile.

Exporting the surplus sugar to the deficit region of the world could be an option here. In anticipation of future growth in the export market for sugar, the government took measures such as doubling customs duties on sugar imports to 100 percent, and reducing tariffs on sugar exports to zero. The government is also negotiating sugar exports to China. However, this strategy faces problems as Indian sugar producers may face tough competition from Brazil and Thailand.

The government should seriously and urgently consider policies and programs that will support sugar mills in developing ethanol production and capacity