Sweet sugar! Bitter Cycle!

Like the proverbial story about a dog’s tail, which couldn’t be straightened  in spite of innumerable number of efforts,  India’s sugar Industry, refuses to come out of a five year cycle of Excessive production-low price-shortages-high price-Excessive production. As far as I remember, this cycle has been continuing for last thirty to forty years. Numbers of economists have tried to analyze it, have written research papers on it. Government machinery keeps on issuing advisories to the farmers and sugar producers, keeps tinkering with policy guidelines, levy sugar quantities and prices. All this has been of no avail. This bitter cycle of sweet sugar, keeps on repeating

India, even though second largest producer of sugar in the world, happens to be the largest consumer of this sweetener. Indians consume 23 million tons of sugar each year. Two years back, i.e. in 2007-08, Indian sugar mills produced 28 million tons of sugar. Since this was in excess of domestic demand, India started exporting sugar. This year(2009-10), sugar production is expected to be between 14 to 17 million tons only, making India a net importer of sugar.

Since India turns, alternatively net exporter and importer of sugar, International prices of sugar, fluctuate widely, depending upon sugar production in India. When Indian sugar mills produce sugar in excess of domestic demand, the world price for sugar crashes and touches rock bottom. Sugar producers in India loose heavily since Indian sugar price tracks the International price. When there is shortage in sugar production, world prices reach the sky and the consumers in India have to pay through their nose.

In India, the northern state of Uttar Pradesh is the largest producer of sugar cane. Just two years back, a drive through rural Uttar Pradesh was enough, to see the huge sugar cane fields spread like a sea. If one takes the same drive today, he would certainly see sugar cane fields, however intermittently spaced with other crops like rice. Two years back, when sugar cane production was very high, mills paid very poor price to the farmers because of low international sugar prices. The farmers naturally shifted to other crops to avoid future losses. The effect of this shift in plantation is being felt now, as sugar cane crop takes at least 18 months to ripen. Sugar cane crop needs heavy amounts of water to ripen. This year, because of poor monsoon rains, the crop is expected to be delayed further.

When the International prices of sugar reach the sky, mills would pay substantially higher prices to the farmers for whatever quantity of sugar cane that is available. Because of the lure of these high prices, farmers bring larger areas under sugar cane plantation. This crop would be ready only in 2 years time, when international sugar prices would again crash in expectation of a bumper harvest in India. The bitter cycle of sugar would have turned once again.

Planning, regarding the acreage that is  brought under sugar cane cultivation each year on the national scale , is the only real and long-term measure, to break this cycle. It is easier said than done, as the farmers take their individual decisions, regarding areas to be brought under sugar cane cultivation, based purely on their own perceptions.

Sugar cane farmers in Brazil, the top sugar producer in the world, should benefit immensely because of this Indian sugar cycle, at least in theory. In practice, Brazilian farmers are more interested in ‘Ethenol’ production than sugar, as it is more profitable.

For millions of hard-working poor Indians, a small cup of Tea mixed with enormous quantities of milk and sugar, is the only source of instant energy. With this cup of energy, they can put in long hours of hard labour without any difficulty.

The price of Sugar therefore remains to be the most sensitive subject for India.

16 September 2009