At a time when Credit Suisse has warned of an impending global backlash against sugar on health grounds, the Indian sugar industry is arguably facing its worst crisis. The bank is waving the red flag based on researchers' recommendations that unless tightly regimented, sugar would prove to be a lot more harmful than believed earlier.
The World Health Organisation (WHO), which in 2003 said sugar shouldn't account for more than 10 per cent calories in our diet, is set to deliver a stricter recommendation on sugar intake, based on evidences of its links with obesity. Investigations in more than one country confirm 10 per cent sugar-based calories in diets are too high, especially at a time when overweight is no longer a health issue in developed countries alone.
India, too, has fallen victim to the obesity menace. A revealing article in British Medical Journal says, "When considering the rapid weight gain that occurs after increased intake of sugar, it seems reasonable to conclude advice relating to sugar intake is a relevant component of a strategy to reduce the high risk of overweight and obesity in most countries."
About a decade ago, WHO came under pressure from the global sugar industry, particularly in South America and the US, not to recommend sugar use-restrictive measures. Now, WHO would have to contend with more resistance from various groups, including sugar producers, soft drink makers and the food sector, as it sets about prescribing cuts in sugar content in overall diets. In the emerging environment, Credit Suisse does not rule out the possibility of governments making regulations on a cap on sugar levels in soft drinks and food items. The bank wouldn't be surprised if sugar use is also sought to be curbed by way of taxation. Not unlikely, sugar sales would take a knock in developed countries in the medium term. The bank does not, however, see a threat to sugar use in emerging markets, in which growing middle classes and changes in diet patterns would be a hedge against a fall in demand. In India, sugar consumption has risen from 16.2 million tonnes (mt) in 2000-01 to 22 mt in 2012-13.
Distressingly, while sugar use in developed countries may contract, the Indian sugar sector is harmed primarily by skewed policies at regional levels. Some states, primarily Uttar Pradesh and Bihar, are pursuing a cane pricing policy that has brought sugar factories to their knees. It is not anybody's case that 50 million Indian cane growers should not be left with a decent surplus after paying for the cost of growing the crop. But if factories are not able to recover production costs, inflated by annual rises in cane prices more due to political than economic reasons, from sugar sales, it would lead to a creeping sickness in the industry. At the end of the 2012-13 season, the sector was again left with heavy losses; expectedly, banks are reluctant to extend any further credit to factories. Growers are also taking a hit, with mills not being able to clear cane bills. The Centre's sugar directorate said at the end of May, cane price payment arrears of factories across the country stood at a disturbingly high Rs 8,226 crore, including Rs 5,491 crore in Uttar Pradesh alone. The arrears have now fallen to about Rs 4,800 crore, as factories continue to make valiant attempts to douse the anger of farmers. Mills in Uttar Pradesh owe farmers Rs 2,500 crore.
The sector's paying capacity was compromised to such an extent that C B Patodia, president of UP Sugar Mills Association, had to plead with the local government to skip revising the state advised price for cane for the 2013-14 season. He told the Uttar Pradesh government, "Since we have a paying capacity of only Rs 240 a quintal, the government should bail us out by announcing a cane subsidy of Rs 40 a quintal to be paid directly to farmers." Balrampur Chini Managing Director Vivek Saraogi says sugar mills in Uttar Pradesh, drained of funds, would find it a challenge to go through the annual repair and maintenance work. Factories in the state are grovelling to a degree that the state is left with no alternative but to do a rescue act. That alone could lead to a condition for the industry to accept all the cane farmers bring to the mill gate in 2013-14.
Industry official Om Prakash Dhanuka says, "The scene in Bihar is more disturbing; sugar recovery rate from cane, at 8.8 per cent, is less than Uttar Pradesh's 9.1 per cent and the cost of sugar production is Rs 36 a kg, against Rs 35 in Uttar Pradesh. As it did in 1970, New Delhi should once again extend loans to factories equivalent to the notional central excise duty payable on their total sugar production, with interest subvention for four years, including a two-year moratorium." Crisis of grave proportions would be an industry feature till the current system of cane price-fixing, which leaves room for arbitrariness at the state level, is replaced by the Rangarajan committee's value sharing in a ratio of 70:30 between farmers and factories. The value would include that of sugar and its by-products.