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