India's perpetual sugar glut needs ethanol and export support

Households have reduced spending on the food item for two decades now, but its production keeps increasing

There is a supply crunch for it this season but sugar will be among the food commodities that will be in surplus in the country until 2047-48, as per recent projections.

The projections, made in a report by a working group of the NITI Aayog, said that sugar supply overtook demand by 3 million tonnes in 2011-12 and will continue at that level till 2035-36. By 2047-48, sugar and related products' supplies will outstrip demand by nearly 6 million tonnes.

The NITI Aayog's assumptions are based on a 'Business as Usual' scenario where overall food demand grows at an annual rate of 2.44 per cent by 2047-48. Demand is projected to expand to 3.07 per cent if economic growth accelerates.

"Production of sugar and its products is expected to remain higher than their demand throughout, leaving a surplus of 3 million tonnes in 2030-31 and 6 million tonnes in 2047-48. The surpluses can be exported or used for ethanol production for blending with diesel and petrol," said the report.

Declining per capita consumption of sugar in the country is one reason that supply will overtake demand. According to the recent Household Consumption Expenditure Survey of 2022-23, rural Indians' expenditure on sugar and salt was 2.60 per cent in 1999-2000 and dipped to just 0.93 per cent in 2022-23.

A similar trend is visible in urban India as well.

India's annual per capita sugar consumption, according to some industry players, of around 21 kg, is modest compared to other major economies. The United States' consumption is around 33 kg, Brazil's 40 kg per, Russia's 34.18 kg and Mexico's 34.15 kg. Most sugar in the developed and western world is consumed in the form of beverages, energy drinks, fruit juices and confectionery.

Steady production

While demand is dipping, sugar production is increasing except for occasional seasonal dips. Data shows that between 2016-2017 (October to September season) and 2022-2023, India's gross sugar production increased from 21 million tonnes to 36 million tonnes.

As Indian households started spending less on sugar in 1999, the commodity's production in just seven years (from 2016-17 to 2022-23) increased by almost 72 per cent.

"A decade ago, the cyclicity of sugar production had been the bane of the Indian sugar sector. Generally, 3-4 years of higher production were followed by a drop in sugar production for 1-2 years and so. In the years of surplus production, there were gluts leading to crash of domestic prices resulting in accumulation of cane price arrears of farmers," said a recent report by the Parliament Standing Committee on Consumer Affairs, Food and Public Distribution.

"Due to delay in getting payment, the farmers feel demotivated to plant sugar cane in subsequent years, resulting in lesser cane availability and, thereby, a drop in sugar production. Thus prices further jumped, and liquidity of mills improved to clear the cane dues in time, and farmers further increased cane cultivation, and the cycle moved accordingly," it said.

Since the 2010-11 season, the problem of cyclicity has eased, and the industry is producing sugar that's more than enough for domestic requirements and leaves a sizable quantity for exports. (Production fell only in the 2016-17 season due to a drought in the major sugar-producing states of Maharashtra and Karnataka.)

"Because of the improved variety of sugar cane, the production of cane and sugar would likely remain surplus in coming seasons also. Thus, the cyclicity in sugar production has been almost eliminated," said the standing committee's report.

Sugar and ethanol

The government's ethanol blending programme is a prime driver of a policy to absorb surplus.

Sugar production is also unlikely to fall, as recent data shows that sugarcane, by far remains the most profitable crop for the average Indian farmer.

The latest report of the Commission for Agriculture Costs and Prices (CACP) said that sugarcane gives 100 per cent relative average gross return over its A2+FL cost of production. (A2+FL is a formula to calculate the actual costs incurred along with the implicit costs in the form of family labour.)

It is more than every other crop, either taken in isolation or in any possible combination, be it with wheat, paddy, gram or cotton.

The ethanol blending programme has not only helped the sugar sector to improve cash flow but also enabled mills to pay dues they owed to sugarcane farmers.

According to the standing committee's report for the 2013-14 sugar season, mills earned around Rs 1368 crore from ethanol. In the 2021-22 season, the amount increased by a massive 1435 per cent to almost Rs 21,000 crore.

Sugar companies supplied just 3.8 crore billion litres of ethanol in 2013-14. The number jumped to almost 44 billion litres in the 2021-22 season due to the proactive approach of Oil Marketing Companies (OMCs), differential pricing of various grades of ethanol and subsidised loans to add new capacity.

The blending, too, rose from 1.53 per cent in 2013-14 to almost 10.02 per cent in 2021-22, and by the end of the 2022-23 season, in the next few months, it will touch 12 per cent.

Clearly, all the positives that the sugar generated in the last 15 years need to be further strengthened to absorb future surplus.