A sugar rush

Sugarcane farmers sitting on a dharna at the Baraut tehsil office demanding their dues from sugar mills. The protest began on May 21. (Express photo by Praveen Khanna)

The above 60 per cent increase in sugar output, despite area under cane shrinking, is largely due to Co-0238. Bakshi Ram’s variety, first planted in 2013-14, covers 12.08 lh or 52.5 per cent of UP’s total cane area this season. It has led to average cane yields in the state rising from 61.63 tonnes per hectare in 2012-13 to around 77 tonnes in 2017-18. That’s not all. Co-0238 also gives more sugar from every tonne of cane crushed compared to other varieties. In 2012-13, the average sugar-to-cane recovery ratio for UP mills was 9.18 per cent. This season, it is close to 10.9 per cent.

The production revolution from higher cane yields and improved sugar recoveries — thanks to unsung breeders like Bakshi Ram — is not an unmixed blessing, though.

The sugar economy of India has traditionally been hostage to violent cyclical output oscillations. The typical ‘sugar cycle’ is one of three years of high production followed by two years of sharp decline. Thus, 2000-01 to 2002-03 were good seasons in terms of output, while 2003-04 and 2004-05 were not. The same pattern was repeated over 2005-06 to 2007-08 (good) vis-à-vis 2008-09 and 2009-10 (bad).

However, with advances in plant breeding — SBI and the Pune-based Vasantdada Sugar Institute are field-testing 20 drought-resistant clones in six locations of Maharashtra; these can save seven-eight out of the normal 34-35 irrigations over a 12-month crop duration (and even more through drip/sprinkler systems) — the old cycle of two-in-five bad production years is passé. Instead, we now have one-in-five or even one-in-seven bad, as seen from 2010-11 to 2016-17 (see chart below). Moreover, the recovery from declines is much sharper than before: India’s sugar output this season is projected at a record 322 lt, a 59 per cent jump over the 202.62 lt of 2016-17.

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The effects of moving to a ‘permanently surplus’ situation are already being felt. Sugarcane is relatively profitable to grow. The average returns over cost of cultivation, estimated by The Sunday Express based on interactions with a cross-section of farmers in UP’s Shamli district, work out to around Rs 7,500 per bigha or Rs 1.09 lakh per hectare. The green top leaves from cane take care of the entire fodder requirements of a farmer’s cattle during the crushing months from November to April. Also, it is a hardy crop that can withstand “ola (hail)”, “pala (frost)”, “aag (fire)”, “paani (waterlogging)”, “nilgai (Asian antelope)” and “jungli suar (wild boar)”, to quote a Shamli farmer. Plus, there are no pricing and marketing uncertainties in cane. Mills are required, by law, to pay farmers a ‘fair and remunerative price’ fixed by the Centre — UP has an even higher State Advised Price or SAP — within 14 days from the date of delivery.

But these stable arrangements are bound to collapse in a regime of permanent surpluses. The 320 lt-plus sugar production for the country in 2017-18 will far exceed its annual domestic consumption of 250-260 lt. And with breeding breakthroughs and water-saving technologies practically rendering the sugar cycle redundant, surpluses are set to be recurrent — except in extreme drought years, when even irrigation from canals and groundwater is not possible.

In such a scenario, sugar prices, far from rising, are more prone to falling. We have seen it this season, as ex-factory realisations in UP have collapsed from Rs 36-37 per kg in October to Rs 26-27 levels in May. That has, then, resulted in mills being unable to pay farmers the SAP. In UP alone, mills had bought sugarcane worth Rs 35,103.27 crore at the SAP during the 2017-18 season, as on June 1. Out of that, they were to pay Rs 34,549.28 crore within the stipulated 14-day period, but have so far disbursed just Rs 21,978.37 crore. It translates into arrears of Rs 12,570.91 crore.

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Those dues may come down gradually, as crushing ends and mills sell sugar over the next few months. But the next season from October 2018 — save in the unlikely event of a spectacular recovery in sugar prices — may start with Rs 7,500 crore of cane arrears in UP. Worse, the country as a whole would have opening sugar stocks of at least 100 lt (320 lt production, plus 40 lt carry-forward from 2016-17, minus 260 lt consumption). And going by reports of planting so far, there is every possibility of output in the 2018-19 season going up further to 340 lt.

Simply put, India has too much of sugar today and the situation will only worsen in the coming season. For the Narendra Modi government — already smarting from a defeat in the recent by-polls in UP’s Kairana parliamentary constituency, where ganna payment was the main issue — this could present a major challenge, ahead of the big national elections in April-May 2018. That is also the time when cane arrears usually peak. No ruling party would want that to happen.

Next week, the Modi government is expected to take a few decisions in the hope of propping up sugar prices. On the agenda are the creation of a 30-lt buffer stock from sugar lying with mills (the government will bear the interest and storage costs on this sequestered quantity); the imposition of a minimum price of Rs 30-32 per kg; and fixing of factory-wise monthly sale quotas (what used to earlier be called the ‘release order mechanism’). Whether these can really address a problem of permanent surplus is, of course, a moot point.