Friday, January 22, 2016

Reckless control over an industry and its consequences-India's "bitter" sugar story

It is an irrefutable fact that india is one of the top sugar producing countries in the world as well the top sugar consuming country. Whether these achievements are due to the extraordinary skills of the farmer, efficiency of the sugar industry or the proactive government policy interventions, is a tough question that begs for an answer. Another crucial issue is whether this most regulated industry is really healthy providing equity to all the stakeholders, the farmer, consumer and the industry. Though we call India a market driven economy, when it comes to sugar industry it is government driven with neither the industry nor the farmers being truly happy. Some time one feels that sugar is a product that has got more importance that it deserves. Its consumption at high levels has been implicated in a variety of lifestyle diseases like diabetes and obesity and still this is one commodity government considers as an essential one to be included as an item for subsidy under essential commodity basket distributed through PDS! 

Is sugar really an essential commodity? A highly debatable question. Health experts world over point out the havoc sugar has brought about among the population in developed countries like the US. It is an irrefutable fact that two out of three Americans are either over weight or obese and high consumption of sugar has been implicated as the major cause for this epidemic. As against the recommended maximum consumption of  45 grams of added sugar per day for sound health, the present average consumption of almost 180 grams per day proves the point that over consumption is responsible for the health crisis being faced by that country. The US seems to be on a suicidal course as its consumption of sugar and refined wheat flour is incongruously high reported at 60-65 kg each per capita annually. White flour from wheat is equally dangerous as its GI values are even higher than that of white sugar and this flour is the major ingredient in practically all the food products including bread, biscuits and cookies, pastry products, pizza, pasta and noodles and others. Can India learn a lesson from the experience of this country to prevent a catastrophic situation where people with increasing income opt for a lifestyle that is characterized by high sugar and white flour consumption? 

Sugar consumption in India is estimated to be 20 kg per capita per year which works out to about 60 grams per day, considered tolerable from health angles but the average figure hides the real fact that extent of daily consumption can vary enormously with poor segments of the population consuming much less than the average figure while well to do citizens might be taking sugar at a level higher than the average. Similarly taking refined flour (Maida) intake which also contributes to quick boost in blood glucose, the production by roller flour mills is comparatively low More than 65% of the wheat produced in the country is milled in conventional plate mills (Chakkis) and the healthy whole wheat flour (Atta) from them is consumed directly by the households for making many traditional preparations. The 900 and odd roller flour mills just produce about 12 million tons of maida which works out to just 10 kg per capita per year and therefore this is considered to have insignificant adverse impact on the health. Probably the relatively low incidence of life style disorders like diabetes in India can be explained by the lower consumption of sugar and maida by the vast majority of the population. Still any rise in sugar price due to a long term policy of restricting sugarcane cultivation or encouraging fuel alcohol will be good for the health of the consumer and economic well being of the farmer as well as the industry in the long run.

Series of farmer suicides in the sugar belt during the last few years raises the inevitable question whether government should really micromanage the industry or leave it to the market forces to determine the extent of sugarcane cultivation in the country from time to time. It is an anachronism that while the country is facing huge shortages of pulses and oilseeds which are the backbones of nutrition especially for vegetarian population, during the last two decades precious little has been done to shore up their production. The country is watching with dismay shortages of these critical foods in the market and escalating prices that deny many people access to these critical food components in India diet. Billions of rupees worth imports are taking place expending our precious foreign exchange and India has the unenviable position of being the biggest importer of edible oils in the world! As most of the sugarcane cultivation is carried out in areas in 6 states where irrigation facilities have been created to help farmers to grow this crop, pulses are relegated to the background growing mostly as drought crops with meager productivity. Successive governments must answer for this criminal negligence of both pulses and oilseed crops that has condemned the nation to a nutrient starved one. Can this be condoned? 

It is rather amazing that sugar is intricately linked to vote bank politics and  to say that the industry is controlled by a few sugar barons with political power and clout is an understatement!.  Successive governments have played into the hands of the sugar industry by instituting regulatory controls that distort the sugar landscape in the country. It is an irrefutable fact that vast number of people are employed by the sugar industry and tinkering with it may turn out to be disastrous if not carefully planned. What will happen if the sugar industry is totally deregulated leaving it to the pulls and pressures of the market? If sugar prices to day are ridiculously low making the entire industry sick, the responsibility must be borne by successive governments which held it in its vice like grip because of vote bank considerations. Why should the government give unlimited licenses to sugar mills which eventually become sick though those well connected politically prosper because of many reasons?  If such a total decontrol takes place only fittest ones will survive and there may be temporary hike in prices for the consumer which will not be felt especially when food costs are constantly on rise without the consumers raising any serious alarm.

It is said that when India sneezes the sugar world catches the cold! This is because of the influence of surplus sugar lying with sugar mills which are not allowed to be exported beyond a certain limit and naturally if too much is exported the global prices crash and vice versa. With the recent decision by the government to mandate blending of petrol to the extent of 10% with ethyl alcohol the demand from the fuel industry is likely to grow manifold. However has the country enough capacity to produce alcohol from sources like molasses at present?  Probably not and is it not then incumbent upon the government to give priority for more production of alcohol rather than white sugar? Brazil has shown to the world how sugarcane crop can be harnessed to make more sustainable fuels and its example ought to be followed by India. If sugarcane crop is diverted for alcohol production there might be some price hiccups in the market but consumers will not mind it when they are already coughing up Rs 150-200 for a kilogram of commonly used pulses. 

Look at the global scenario vis-a-vis sugar and alcohol. Brazil produces more than 35 million tons (mt) of sugar compared to India's production of 28.5 mt in an year. While Brazil exports 23.8 mt of sugar Indian export is pegged at 2.5 mt reflecting the high control government has on the sugar industry in the country. World wide sugar production and consumption are more less balanced though the industry carries a large stock as a buffer against wide price fluctuations. Brazil is also in the fore front in utilizing sugarcane for alcohol production as recently it has increased the mandatory blending level from 25 to 27%  Interestingly Brazil uses only 40% of its cane production for making sugar while the balance goes for alcohol production. In contrast India has not even been able to enforce effectively the 5% blending policy so far and the reason attributed to this shoddy performance is shortage of alcohol in the country..It is against this background that government has to think of diverting the sugarcane crop directly to produce alcohol instead of relentlessly pursuing sugar production through unnecessary and burdensome subsidization policies. Government does not seem to be worried about the enormous outgo of foreign exchange on import of petroleum fuels and an effective policy to ensure alcohol blending can substantially reduce our petroleum import bills. As added bonus the country will be able to reduce its carbon foot print significantly as ethanol-petrol blend is less polluting compared to petroleum fuels. 

As a part of such a policy the country must incentivize setting up alcohol production units which can directly convert sugarcane juice into ethanol. If the avowed policy of mandating 20% blending by 2017 is to be realized India will need about 4.5 billion liters from the current production base of 1.5 bn liters of fuel grade ethanol. Though the established capacity of 350 distilleries is placed at 1.5 bn liters, they also produce rectified spirit to the extent of 4 bn liters per annum for industrial and other uses. It may be difficult to divert the latter to fuel ethanol production as it will adversely affect the industry which uses alcohol as its feed stock. As increasing biofuel ethanol production solely from molasses is impractical, direct conversion of crushed sugarcane juice seems to the only alternative available to the country. One ton of sugarcane is supposed to yield 70 liters of alcohol and naturally a huge quantity of sugarcane may have to be diverted to direct ethanol production which could limit sugar production to some extent. Sooner the government takes a policy decision on this crucial sector better it will be for the country. .


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