After battling months of hyper-food inflation of vegetables like tomatoes and onion, legumes, rice, etc., India is faced with another food problem – sugar. The low rainfall in August, especially in the sugar-growing areas, resulted in a drought-like condition and the government announced that it will ban sugar exports for the first time in seven years. Major producing states like Maharashtra reported a 14% drop (lowest in four years) in production.
World over, sugar experts were watching the Indian monsoon and Cyclone Biparjoy. As it was destroying Kharif sowing, speculators around the world were hedging on sugar prices. That India may ban sugar exports only added to their fortunes, as sugar prices had already jumped 30% from last year.
To understand the global market better, let’s look at another major producer – Brazil. The United States Department of Agriculture recently predicted a 6.5% increase in production due to favourable weather and higher sugar prices, but it is uncertain how much actual sugar will reach the international market as Brazil diverts its surplus sugar for bio-fuel and ethanol. Brazil’s commitment to the Global Biofuel Alliance started at the G20 in New Delhi also signals that Brazil is not leaving her bio-fuel industry on the simmer any time soon. Especially as Brazil’s sugar and bio-fuel industry are deeply tied to the US. Brazil is the second-largest recipient of the US sugar tariff-rate quota with an allocation for “FY 2023 TRQ of 196,440 metric tons, raw value”.
Apart from its usual international customers, Brazil also exported its raw sugar to Russia, Iran and other African countries. The Indian sugar export ban creates a big opportunity for Brazil to keep her farmers happy. Keep in mind, Thailand has also had bad year and there will be additional demand for Brazilian sugar from many Indian buyers too, if the prices are not checked. With limited supply, the sugar market may very well be a sellers’ and commodity traders’ dream scenario.
Indian sugar ban
Before the public panic over sugar began, policymakers were quick to ban the export of the sugar because the Indian government cannot afford further food price inflation. Branching off to understand the government’s knee-jerk policy, let us see the tomato crisis. The remedy measures for stabilising the tomato, onion and vegetable fiasco already shed a bad light on agrarian policy and state efficiency. Loss of forex is an additional burden. The result was that prices stabilised after a few months, but with the new harvest of tomatoes, prices have crashed for farmers again. Reportedly farmers are once again only receiving under Rs 4-5/kg for their tomatoes.
I dare say, if such flip-flop happens with sugarcane farmers and the industry, it will be a disaster. Hence the government after the export ban also put additional measures. This time all stocking limits have to be declared by retailers, traders, big processors, whole sellers, etc. and all stock quantities have to reported to the government portal on a weekly basis every Monday. The government says that these steps are taken to “combat hoarding and curb unscrupulous speculation” in the sugar market.
Now this also presents two other problems – one electoral and the second agrarian cum international. We will begin with the latter. India led the Global Biofuel Alliance from the front. Whenever this Alliance becomes an incarnated entity, it would require India to have a healthy bio-fuel industry too. Without sufficient and cheap supply of raw material or sugar, it would be very hard to encourage the bio-fuel industry in India.
If the government continues to oscillate between good and bad years on sugar policy, no serious players would be interested in investing in the market. What I mean by that is – imagine India has a mid-sized sugarcane based ethanol industry built upon raw material clusters in the country. Now like 2023, if again because of one or two bad rains the sugarcane production diminishes and the government bans sugarcane for ethanol? In all likelihood, whether BJP or Congress, they will follow the electorate logic and divert sugarcane for sugar before ethanol production. This will put the fate of the biofuel industry, like with the case of the sugar industry, in the hands of political masters. Sugar in India is also a very political crop, involving co-operatives, politicians, mills, industry and the government. And no new-age venture capitalist or fund will place money on a project contingent on political whims, especially when the production can dwindle any time.
Without stabilised sugarcane production, biofuel is an expensive and impractical dream. The current situation has exhibited this quite well.
Now comes the electoral problem. The Indian consumers may get to the boiling point, because sugar is critical for the Indian thali. And more pressure to rob the thali of sugar may be perceived by electorate (including farmers) as a direct attack. And speaking of farmers, due to the hyper inflation – rising fuel to vegetables costs, dampened production and bad weather, rural India will demand higher MGNREGA rates and MSP. For sugarcane, the state sugarcane prices would have to be increased to please voters in these politically active regions adding to the sugar price rise.
From the look of it, the government and people appear to be in a sugary mess. The government needs to tread very carefully if it wants to avoid a sugar crisis.
Indra Shekhar Singh is an independent agri-policy analyst and writer. He was the former director, policy and outreach, at NSAI. He also hosts The Wire’s agriculture talk show, Krishi ki baat/Farm Talks. He tweets @indrassingh.
