Sugar in India: The feast to famine story

Sanjay Gujar’s family has raised sugar cane for generations. But last year, after sugar prices fell by more than 40 per cent, he replanted his two and half  hectares of land with bananas.

A year later,  after Gujar and thousands of other Indian farmers abandoned sugar, prices are surging. The price of refined sugar on international markets has jumped 60 per cent since the end of last year, even as other food commodities have stabilised or fallen.

While all commodities move in cycles, sugar in India is a case study in feast-to-famine swings in which bountiful crops are followed by anaemic harvests every two or three years.

Volatility is aggravated — some analysts say caused — by government efforts to control prices to balance the interests of farmers and consumers. When prices were rising, for instance, policymakers restricted exports, which helped create a glut. By the time the government reversed course and subsidised exports, many farmers like Gujar had switched crops.

“Sugar is a political commodity,” said National Federation of Co-operative Sugar Factories President M.R. Desai. The government is not ready to let go,he added.

Even as India rushes toward a future as a technology and services powerhouse, there has been slow, halting progress in its agrarian economy, which still sustains more than half of its 1.1 billion people. Hobbled by small farm sizes, an intense reliance on fickle monsoon rains and extensive government control, Indian farmers are less productive and more vulnerable than their peers in other developing countries like Brazil and China.

India, of course, is far from alone in its attitude toward  sugar control . The United States restricts imports and uses subsidies to help producers maintain domestic prices at about twice the level of world prices. Europe also protects its sugar industry. In 2006 the European Commission began changing the way it controls the commodity and started paying high-cost manufacturers to stop making sugar.

Sugar policies in the West are typically intended to bolster the incomes of politically powerful farmers and factory owners, but here in India, policymakers try to walk the line between helping farmers and consumers. An estimated 28 per cent of Indians still live below the poverty line.

Moreover, sugar is an Indian culinary and cultural touchstone. It is liberally mixed into everything from syrupy tea to dense sweets.  Even now with sugar prices up sharply, demand is growing, because India’s population is growing, said ICICI’s  Direct.com, an analyst Sanjay Manyal.

To meet that demand, India will probably import 20 to 30 per cent of the sugar this fiscal year. Less than two years ago, the country exported 20 per cent of the sugar.

How it started

To understand India’s sugar problems, industry officials say it is important to consider what happened in 2006 when the government banned exports to bring down prices. Those efforts were almost too successful. Within a few months prices began falling as it became clear that farmers had planted too much cane.

Farmers said conditions were so bad in 2007 and 2008 that sugar mills, which usually arrange to have cane harvested, did not even bother to send out crews. Many farmers, including Gujar, burned their crop in the field.

“Government policy, well-intentioned though it may have been, seems to have aggravated the cycle,” said Indian Sugar Mills Association and a mill owner President Samir S Somaiya .

The government then tried to help by subsidising exports. At the same time, farmers began switching to other crops. The ground was being laid for the current shortage.
Industry officials and analysts say the recent rise in prices has lured some farmers back to sugar cane, but India will not produce enough to satisfy domestic demand until at least 2011.

Officials at India’s Agriculture Ministry, which regulates sugar, declined to answer questions. In addition to controlling international trade, policymakers decide how much sugar each mill can sell every month, set the minimum price paid to farmers and require factories to sell 10 per cent of their product at below-market prices for distribution to the poor. Recently, policy makers also banned futures trading in the commodity.

Study in contrasts

Some officials have recommended easing control over sugar, but politicians are reluctant to do anything that might be seen as driving up food prices. Brazil, the world’s largest sugar producer, offers an interesting contrast to India’s volatile industry. That country has steadily increased production and exports, and now stands to benefit from India’s shortage.

In recent years Brazil has used more than half of its harvests to produce ethanol, which, when blended with gasoline, has become a profitable fuel. Brazilian factories and farmers grow sugar cane on plantations of hundreds or thousands of hectares, while Indian farmers have an average of under 1 hectare. The small scale makes it prohibitively expensive for most Indian farmers to invest in efficient irrigation systems or mechanised harvesters.

Some industry officials here say they are trying to do what Brazil has done on a smaller scale. Factories are installing distilleries to make ethanol from molasses, a by-product of sugar, to sell primarily to liquor companies and, to a lesser extent, for use as fuel. Demand for ethanol-blended fuels is low because the price of regular diesel and gasoline is subsidised by the government.

Also, India does not require the use of blended fuels, as Brazil and the US do.Sugar factories are also investing in power plants that are fuelled by the fibre, or bagasse, left over after juice is squeezed out of the cane. Electricity can fetch high prices because of India’s chronic energy shortage, said  Jamkhandi Sugars Director Rajiv S Kadapatti, which owns a factory in the southern state of Karnataka.  “Two years ago sugar gave us no profit,” he said. “It was power generation that kept us afloat.”
Farmers are also diversifying, growing bananas, vegetables and other unregulated cash crops. Residents of Loni Kalbhor, a village about 23 kilometres from the city of Pune, are eyeing other opportunities.

Gujar, the banana grower, expects that he will be able to farm for another decade before his land is swallowed up by the urban sprawl around Pune, which is home to many growing manufacturing and technology companies.

 Many of his relatives have already quit farming, and his teenage son and daughter have no interest in growing bananas or sugar cane. “They won’t do this,” he said. “They will change.”