What is the issue?

• India?s domestic sugar market is in the doldrums as the price of sugar in the international market has been falling.
•  Managing sugar markets & balancing the interests of sugar millers as well as the sugar cane producers is a serious policy challenge before the GOI.

What are the recent developments?

• The GOI has imposed reverse stock holding limits on sugar mills to stabilise the sugar price due to higher projections of sugar production and high FRP (Fair & Renumerative Price)
•  Exporting surplus sugar to the deficit region of the world could be an option. Thus, the GOI took specific measures such as increasing customs duties on sugar import from 50% to 100% and zero tariffs on sugar exports.
• To encourage ethanol production, the GOI has announced payment for sugar mills that satisfied 80% of their proposed ethanol supply obligation under the ethanol blending programme (EBP).

What are the challenges?

• Increasing sugar export is not easy when the world sugar prices are sluggish.
• Diverting significant portion of the current sugar stocks to renewable fuel (ethanol) production has its own challenges with government restrictions on food-based feedstock use on energy production. 
• Also there is a slightly declining per capita sugar consumption globally & competition from other technologically advanced major sugar producing countries like Brazil and Thailand.
• While growing sugar cane as a commercial crop venture could be one of the effective tools for doubling farmer income, bold policy alternatives are needed to make it a reality.

Lessons from Brazil

• The Brazilian government offered a significant amount of subsidy to the ethanol producers with a current blending mandate of 27%
• It also initiated the availability of E100 (96% pure ethanol and 4% water) that can only be used in flex-fuel vehicles (FFVs) which are tax incentivised.
•  Majority of the sugar mills in Brazil are capable of producing both sugar and ethanol.

What can be done?

•  If the Brazilian model is replicated in India that allows direct use of sugar cane for ethanol production, the E20 mandate (20% blending by 2020) can be achieved with only 1.47 million ha of additional land.
• The cane-producing farmers will see renewable-energy feedstock market as an alternative to the traditional sugar market.
• Sugar mills with ethanol production capacity could switch between sugar & ethanol & remain profitable even if there were to be a fall in the price of one of the commodities.
• Thus if implemented strategically, India?s EBP could be a powerful tool to stabilise sugar & increase farmers? income as well as reduce the nation?s dependency on foreign crude oil.