Ben Eastick Written by Ben Eastick

India becomes world’s biggest sugar producer: but at what cost?

Indian Council of Agricultural Research Assistant Director-General, R.K. Singh, has declared that India have overtaken Brazil to become the world’s largest sugar producing nation. However, it has brought into the focus the country’s number one sugar-based issue – overproduction. In this blog, I’ll look at what this means for the Indian sugar industry and consider how a system of co-production could be applied to tackle the issue.

Surplus of sugar

The announcement that India have outscored Brazil in sugar production can’t be seen as wholly positive. It is estimated that India will produce 35 million tonnes of crystalline sugar this year, but with domestic demand sitting at 26 million tonnes, the market is oversupplied. Indian exports of 3.4 million tonnes have also fallen short of the country’s 5 million tonne target, further compounding the issue. And these are just the figures for the past year. When we consider these alongside total surplus from previous years, we can estimate that India has a total stockpile of 14.5 million tonnes of sugar.

Consequently, sugar mills are beginning to close and farmers losing their source of income. Approximately 35-50 million Indian people depend on sugar cultivation as a means of survival, which is why the government cannot allow the sector to collapse. As they also do not have a way of finding these unskilled farmers a different means of employment, they need to act quickly to make the sugar industry profitable again.

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Is ethanol the answer?

One approach to this problem could be the adoption of a system similar to the one used in Brazil. This system centres on the co-production of both sugar and ethanol from sugar cane. According to AB Sugar, 94% of Brazilian mills produce both sugar and ethanol. Therefore, this means that producers can react to changes in the international market. If the price of sugar increases, mills produce sugar, if it falls, they produce ethanol.

The Brazilian government have supported this system by imposing a range of measures to encourage the co-production of sugar and ethanol. For instance, the state-controlled company Petrobras provides a minimum price for blended ethanol. Similarly, the National Bank for Social and Economic Development has set up a sugar-ethanol support programme to help finance ethanol storage. Measures such as these have helped drive the recent expansion of Brazil’s ethanol industry, which in turn benefits the wider sugar supply chain.

As the sugar and ethanol industries are commercially interdependent, any support offered to one can benefit the other. In addition, it means sugar farmers have a contingency plan if one product fails.

Should India follow Brazil’s lead?

Mr. Singh has called on Indian sugar factories to adopt the Brazilian model, which will help the industry diversify and provide Indian sugar farmers with additional security when sugar prices fall. It is hard to disagree with Mr. Singh. The implementation of the co-production of sugar and ethanol is a must for Indian sugar factories if they are hoping to survive in this current economic climate. Ethanol production could effectively counter the sugar surplus and keep workers in the states of Uttar Pradesh and Maharashtra employed.

However, the problem now will be the implementation of co-production. To do so, the Indian government will need to impose initiatives which encourage the production of ethanol – otherwise it will be hard to convince factory owners to move into the ethanol industry. That is the challenge facing the Indian government, but it is one they should address if they are to solve the sugar surplus problem.