In India’s Ethanol Rush, Sugarcane Farmers Feel Neglected

In India’s Ethanol Rush, Sugarcane Farmers Feel Neglected

By-Tej Prakash Bhardwaj

Ranjit Singh, 36, is a farmer in the Lakhimpur Kheri district of Uttar Pradesh. He owns 10 acres of fertile land in this region, which he mainly uses to grow sugarcane. After several months of arduous work on his farmland, he harvests this crop and sends it to his nearest sugar mill, around 12 km away from his village to sell it.

Sugar mills in Uttar Pradesh traditionally had been converting these farm produce to make sugar. However, the whole sugar mill industry is now transitioning. With a push from the Indian government to increase its renewable energy basket, these sugar mills have now jumped onto the bandwagon.

Many of these sugar mills, like those in Lakhmirpur Kheri, are now also diverting sugarcane juice and molasses to produce bio-ethanol (a biofuel). With a thrust from India’s government’s Ethanol Blending Programme (EBP) and a rise in its demand, these sugarcane crops have now become an “energy crop” for India too. However, sugarcane farmers like Ranjit Singh and others in UP are very overwhelmed as they do not see themselves as a stakeholder in the whole process due to the lack of support for the cultivators of these crops.

Delayed payments to farmers

Their main concern revolves around late payments against their supply of sugarcane, no additional benefits to them for the ethanol production from sugar mills and now an appreciable surge in their income in the last year despite a rise in the input costs for farming.

This crushing season, for example–Singh supplied sugarcane worth Rs 17 lakh to his nearest sugar mill. However, as of June, he only received Rs 6 lakh for his produce. 

“As per the mandate of the Sugarcane Act, every farmer should receive their payments within 15 days after the supply of sugarcane to the sugar mills. I had supplied this season’s entire sugarcane crop by March. However, I received the payment only for the crops that I supplied till mid-December,” Singh told IamRenew.

He added that the late disbursement of payments to the farmers adds to the woes of cultivators. He also added that this also fuels distrust among the farmers due to which many also leave farming besides fueling a trust deficit between the sugar mills and the sugarcane farmers in the region. He said such incidents are rampant and a decade-long unsolved issue. 

Under the Uttar Pradesh Sugarcane (Regulation of Supply and Purchase) Act 1953, sugar mill owners are bound to pay farmers within 15 days of their purchase from them. Failing to do so attracts a 12 percent interest for the delayed time period. However, sugar mills also have their own challenges like the dearth of liquidity. As sugar is a regulated commodity in India, these mills are able to sell it into the market as per the allowed quote, restricting their incomes. However, the government admits that ethanol production under the Ethanol Blending Programme has allowed farmers more liquidity. 

Some 4.5 lakh farmers in the district alone grow sugarcane. Other farmers from Lakhimpur, also complain of a similar delay. However, the delay in payments is not the only issue confronting the farmers in this sugarcane belt. Farmers also complain of high input cost, which has made cultivating this energy crop a Herculean task. 

A blooming ethanol industry 

The Ministry of Petroleum and Natural Gas started the Ethanol Blending Programme (EBP) in 2013-14 with a plan to blend bio-ethanol (a renewable source) with petrol. The move was set to reduce the country’s crude oil dependency and also increase the conditions of sugar mills in India. 

Under the programme, these sugar mills come in a contract with Oil Marketing Companies (OMC) for long-term offtake of ethanol from these sugar mills. The government also offers transport charges and other support to the stakeholders like sugar mills to boost the supplies of ethanol to petrol pump outlets in the country. 

The ethanol business in India, meanwhile, is thriving. The Ministry of Petroleum and Natural Gas had earlier planned to achieve 10 percent blending of petrol with ethanol by Ethanol Supply Year (ESY) of 2022-23. However, India achieved its 10 percent target in June 2022, five months before the target. 

As per the latest data from the ministry, as submitted before the Indian Parliament, India has achieved 13 percent blending of ethanol with petrol while it plans to achieve a target of 20 percent blending by ESY 2025-26. Several petrol pumps in UP and other parts of the country now flaunt E10 posters to describe their ethanol-blended petrol from their outlets. 

Farmers’ income from sugarcane

The mills procure sugarcane produce at a government-mandated price called State Advised Price (SAP). The UP government increased the SAP for 2023-24 to Rs 370 per quintal from Rs 350 per quintal. UP represents a special case as most of the Indian states like Maharashtra pay their sugarcane farmers FRP (Fair and Remunerative Prices) but states like UP pay its farmers SAP. SAP is often higher than FRP. 

“The government has decided that the SAP should be Rs 370 per quintal. If you include the cost of labour, transportation, land shareholding and other farming costs, the final cost of sugarcane should be Rs 450 per quintal. The government has increased the price by Rs 20 per quintal. But we still make losses, Singh added.

Calling the SAP hike “late” and “insufficient” another farmer from Lakhimpur Diljinder Singh says “The basis on which the government increased the SAP is unclear to us. The input cost is increasing every year due to fuel price hikes, increasing fertilizer prices, labour wages, etc. By the time they increase the SAP, our investments have already increased.”

The issue of delay has to do with the cyclical nature of the sugar business in India and UP. Sugar mills procure sugarcane from farmers and crush it to make sugar. Sugar is a regulated commodity in India. To keep the sugar price at affordable rates and to make it available through the Public Distribution System– the mills sell the sugar on a price and time mandated by the government. This leads to mills having very little liquidity and hence creates a cycle of delayed payments every season. 

Ethanol and sugar mill economy 

However, sugar mills and experts said that the ethanol blending programme has boosted the economy of the sugar mills. Rakesh Tyagi, Director of the Ethanol Division of Avad Sugar & Energy Limited (ASEL) told IamRenew that the introduction of EBP has made the sugar mill operation “viable”. “Earlier, mills had no liquidity. They had to wait to sell their sugar produce and pay back to farmers. With Ethanol, it could sell Ethanol to improve liquidity. Even banks are more willing to give credit to mills. This profit has ensured more timely payments to farmers. There is no addition in their income due to Ethanol production,” he adds.

Shweta Saini, agricultural economist and CEO, of Arcus Policy Research said, “Sugarcane is the only commodity which is government mandated to be bought only on FRP by mills. This means whether Ethanol is produced or not, the sugarcane farmers will always get the FRP.” 

She added that the sugarcane farmers were supposed to be paid within 14 days. “Now they are getting paid quicker. Because, the profitability is higher for sugarcane mills and therefore, they (mills) are getting money quicker than they would otherwise. But the rate that they are getting will be the same because there is nothing that connects what mills make, the distilleries make from Ethanol to what farmers make,” she said. 

In states like Maharashtra, the government has implemented a revenue-sharing model, where mills and farmers share profits in a 70:30 ratio. However, in UP and other states where farmers are paid fixed SAP, such an arrangement is missing.

“In some states like Maharashtra, there is an established different cooperative system. The fixed-rate or FRP there is less. For example, in UP the rate is fixed at Rs 370, but there farmers get a much lesser fixed price, like Rs 290 or Rs 300. But whatever the profit will be earned, it will be shared among the farmers in the form of a bonus,” Tyagi added. 

Accepting the issue of delay in payment with “some of the sugar mills”,  Ved Prakash Singh, District Cane Officer from Lakhimpur Kheri explained, “There is no direct impact but because of EBP there is an indirect impact which is timely payments to farmers as the sugar mills are getting money immediately because of EBP. But some sugar mills delay the payments by 3-6 months. This is mainly with the mills which are “debt trapped”. These mills do not have a CCI ( Cash Credit Limit). Thus, they can only make payments against the sugar, Ethanol, or by-products they sell.” 

E20 and climate change

According to the Ministry of Petroleum & Natural Gas, under the EBP Programme, blending of ethanol with petrol increased from 38 crore liters in the Ethanol Supply Year (ESY) 2013-14 to over 500 crore liters in ESY 2022-23 with a corresponding increase in blending from 1.53 percent to 12.06 percent. During the current ESY 2023-24, the blending percentage has already crossed 13 percent.

The NITI Aayog projects the country’s annual ethanol requirement at 10.16 billion liters to achieve the E20 mandate and an additional 3.34 billion liters to meet the demand from other industries.

Having originally set itself the target of achieving a blending rate of 20 percent by 2030, the government advanced the target year to ESY 2025-26. To achieve E20, the Union government has taken several measures which include a detailed Roadmap for Ethanol Blending in India; expansion of feedstock (broken rice and maize) for the production of ethanol; remunerative price for procurement of ethanol under the EBP Programme; lowered GST rate to 5 percent on ethanol for EBP Programme among others. 

However, Saini believes despite these, meeting the E20 targets by ESY 2025-26 would be challenging due to “less acreage and production of feedstock, farm distress due to climate change and the availability of resources like land for crop production.

“The biggest challenge was the low acreage and yield. Other than that, clearly, the impact of climate change on yields is huge, she adds on the challenges.

A 2023 paper by Arcus Policy Research said, “A fall in sugarcane yield due to climatic changes is likely to have an adverse impact on its availability for production of ethanol. Given the centrality of cane as feedstock, this is critical for the government to assess.”

Tyagi also echoes the same sentiment. Fearing that to meet the further targets, the country might have to resort to food grains or end up growing crops for fuel that is using first-generation biofuels. He said, “It was easy to reach 10-12% blending as we diverted all the sugar and grain surplus. But to achieve E20, we need more feedstock. Hence, we need to produce more sugarcane, maize and other feedstock for fuel.” 

In December 2023,  the Ministry of Consumer Affairs, Food & Public Distribution banned the use of sugarcane juice/sugar syrup for ethanol making in the 2023-24 supply year. The decision to stop the usage of juice/sugar syrup for ethanol production was taken due to the expected fall in sugar production in the 2023-24 marketing year (October- September).

How sustainable is Ethanol Blending?

Sugarcane is a water-intensive crop. Estimates suggest paddy and sugarcane together use 70 percent of irrigation water in India. According to the NITI AYOG’s Roadmap for Ethanol Blending, India (2020-25) expert report highlights on average, one tonne of sugarcane can produce 100 kg of sugar and 70 liters of ethanol. Cultivation of each kg of sugar requires 1600 to 2000 liters of water. Hence, one liter of ethanol from sugar requires about 2860 liters of water.

Moreover, to produce these crops for fuel blending, India on average would require about 7.1 million hectares of land every year. This is equivalent to the entire Gross Crop Area (GCA) of states like Bihar (with 7.2 million hectares of GCA) or even Andhra Pradesh (with 7.3 million hectares of GCA) are dedicated to producing crops for fuel.

“Emissions from burning Ethanol as a fuel are less compared to burning fossil fuel. But the life-cycle of blended fuel is not green. Thus, emissions have just shifted to the value chain of the crop. Also, growing cane consumes a lot of water. Then processing it for Ethanol consumers more water,” says Saini. 

Moreover, producing Ethanol with broken rice also has a high environmental and opportunity cost. It directly competes with India’s food security and crop production for other sectors like the alcohol industry and poultry farming which is dependent on maize production, she adds.

This report was produced with support from Internews Earth Journalism Network (EJN).