Water-food-energy challenges in India: political economy of the sugar industry

India's sugar industry, which took off under government protection in 1932, has rapidly grown under the long-standing government supports from the 1950s through the present. The government has used various interventions to support the entire value chain of the sugar industry: guaranteed sale¹ and minimum price for sugarcane, financial assistance to sugar mills (especially cooperatives), monthly releases of sugar in free markets to regulate sugar price (abolished in 2012), and subsidized sugar provided to consumers [14]. These government supports for the sugar industry, which were initiated to enhance rural development after Indian Independence was achieved in 1947, have persisted due to consolidation of political power during the sugar industry's growth.

Maharashtra presents an excellent example of how the sugar industry gained political power. Since the 1950s, the state's policies favored the promotion of sugar cooperatives [15]. These cooperatives enabled sugarcane farmers to become shareholders in their regional sugar mill. The cooperatives played a critical role in rural development by creating employment at sugar mills and subsidiary industries as well as building schools, colleges, and hospitals [16]. As sugar cooperatives became important to the rural economy, their board chairmen and directors, who were elected by cooperative member farmers, gained considerable prestige and patronage [17]. With the status and power of sugar cooperative board members, major political parties began recruiting them into local and state politics [17, 18]. In turn, sugar cooperatives made contributions to political election campaigns of their board members, and those elected became 'sugar baron' politicians, who continued government support for the sugar industry [18].

Overall, sugar mills and politicians created a symbiotic relationship that had a reinforcing cycle [15]. This relationship, especially between sugar cooperatives and the Congress Party is evident: 74% of the chairmen of sugar cooperatives were elected as members of the Legislative Assembly and Parliament during the 1952–1972 period [17]. This strong rural support from the sugar cooperatives has enabled the Congress Party to dominate state politics in Maharashtra [17]. Since the late 1990s, some financially unhealthy cooperative mills were liquidated and converted to private mills, and new private mills were additionally established [18, 25, 26]. However, these private sugar mills are also in the hands of the 'sugar baron' politicians who either own or indirectly control them [18].

Figure 2 shows that the number of sugar mills and sugar production in Maharashtra have rapidly increased since the 1950s.² Over this period, the Congress Party was in power except for short interruptions and introduced various supports for the sugar industry. Figure 3 shows that the districts with a larger sugar industry tend to show stronger support for the Congress Party.

Zoom In Zoom Out Reset image size

Zoom In Zoom Out Reset image size

To date, the strong sugar lobby from the coalition of sugarcane farmers, sugar mills and 'sugar-baron' politicians ensures continued support for the sugar industry, including a minimum price and guaranteed sales of sugarcane to sugar mills. As a result, sugarcane has become the most profitable crop in Maharashtra [30] (supplemental material 2). Based on our informal interviews with farmers and local agricultural experts, it appears that there are several reasons in addition to high returns why farmers prefer sugarcane: sugarcane requires less labor, can be grown in soil with some degree of toxicity (e.g. heavy metals), and can withstand longer watering intervals.³ However, sugarcane's stable high profitability, particularly relative to alternative crops, remains an important incentive for its cultivation.

Sugarcane is a water-intensive perennial crop, and the varieties grown in Maharashtra require 1700–2400 mm irrigation per growth cycle of 11–17 months [31]. Sugarcane has expanded particularly in dry Western Maharashtra, taking advantage of irrigation infrastructure and electricity subsidies for pumping groundwater. Because the basaltic (hard-rock) aquifer in Maharashtra has limited groundwater storage [32], groundwater resources alone are often insufficient to irrigate sugarcane. Therefore, sugarcane is grown in or near cultivable command areas (CCAs),⁴ tapping primarily surface water from canals, rivers, and reservoirs, and secondarily groundwater (figure 4). Decades of rapid growth of sugarcane cultivation and irrigation have increased pressure on the state's water resources.

Zoom In Zoom Out Reset image size

In 2010–11, sugarcane, which occupied only 4% of total cropped areas, consumed 61% of irrigation water use.⁵ Indeed, during the past half century, sugarcane production in Maharashtra has increased seven-fold from an average of 11 million tons in the 1960s [25] to 75 million tons in most of the 2010s (2010–2018) [29], mainly through expanding areas of sugarcane cultivation (supplemental material 3). Along with area expansion, sugarcane has continued to rely on flood irrigation [34], thereby leading to a rapid increase in irrigation water use. From 1970–71 to 2010–11 irrigation water use by sugarcane has increased faster than any other crop and dominated irrigation water use in Maharashtra (figure 5).

Zoom In Zoom Out Reset image size

Geographically, farmers cultivate sugarcane mainly in low-rainfall areas of Western Maharashtra, taking advantage of surface water storage and canal irrigation infrastructure. Such infrastructure, which was initially established in Western Maharashtra to fight droughts and famines in the early 20th Century [35], opened opportunities for irrigated agriculture and allowed expansion of sugarcane there [15, 35]. Due to the perishable nature of sugarcane, sugar mills were developed there as well. As the sugar mills gained political connections, Western Maharashtra benefited from a higher rate of irrigation development, which further enabled sugarcane cultivation [36].

In addition, sugarcane farmers also disproportionately benefit from electricity subsidy for groundwater pumping. This agricultural subsidy was implemented in Maharashtra in 1977 as a flat tariff mainly to improve billing efficiency [37]. At present, unmetered agricultural pumps get charged a flat rate tariff based on the pump capacity, and metered agricultural pumps are charged a subsidized volumetric rate tariff lower than the production cost of electricity.⁶ While the subsidy encouraged use of electricity for both surface water and groundwater pumping, it particularly encouraged groundwater use, giving farmers more access to and control of water. The subsidy substantially reduced the irrigation costs, which was particularly beneficial for water-intensive sugarcane. Also, the comparatively well-off sugarcane farmers were financially better able to drill wells and invest in irrigation infrastructure (i.e. pumps) and take advantage of subsidized electricity [37].

Rapid expansion of sugarcane and dominant water use to irrigate sugarcane in the low-rainfall areas has raised concerns regarding water scarcity and allocation in Maharashtra. In 1999, the Maharashtra Water and Irrigation Commission recommended that sugarcane should be banned in areas that received less than 1000 mm rainfall per year [38], and many water experts have repeated similar recommendations [3]. Nevertheless, 82% of sugarcane cultivation falls in regions with low-rainfall (<1000 mm/year) where farmers have access to surface water irrigation (figure 6).

Zoom In Zoom Out Reset image size

To analyze the hydrologic impact of sugarcane, we examine the case of the Upper Bhima Basin. The region is a watershed of great interest because it has significant area planted with sugarcane, and data from the Basin show hydrologic impacts of increasing sugarcane irrigation. From 2000 to 2010, the Upper Bhima Basin saw a substantial increase in irrigation water use for sugarcane and a marginal increase for other crops (figure 7(a)). Accordingly, the Basin's outflow was reduced from 1996 to 2012 (figure 7(b)). Our analysis of groundwater heads during 1996–2016 shows no statistically significant long-term decline in groundwater levels in the Basin (supplemental material 6). However, over the long term, groundwater levels are likely to decline once a new hydrologic equilibrium is reached, which can take decades. Currently, the impact of groundwater depletion appears as a reduction in baseflow of rivers and short-term drying of wells during droughts.

Zoom In Zoom Out Reset image size

India's leading nutritional challenges today are protein and micronutrient deficiencies [40, 41]. Micronutrients are required in small amounts but essential to human health; their deficiency can lead to illness, disabilities, and even death [42]. India faces micronutrient deficiency in iron, vitamin A, vitamin B12, vitamin C, folate, iodine, zinc, and copper [41, 43]. For example, the most common form of micronutrient deficiency in India, anemia caused by iron deficiency, afflicts roughly 50% of preschool children and contributes to 70% of maternal deaths [41, 44, 45].

The sugar industry worsens nutrition insecurity in two ways. First, our work in Maharashtra shows that the dominant water use to cultivate sugarcane prevents irrigation and production of other crops that contain protein and micronutrients. Although Maharashtra has the largest number of dams in India [46], much of the developed irrigation potential is being diverted to cultivate sugarcane. This diversion, in turn, has forced less water-consumptive, nutritious food crops largely into rainfed areas, showing much lower irrigation coverage than the national average. Cereals and pulses grown in Maharashtra generally require 300–800 mm of water [47], which is still less than the water requirement for sugarcane when adjusted for their shorter growth periods. Nonetheless, as of 2013–14, irrigation coverage of cereals and pulses was only 22% and 12% in Maharashtra, compared to 60% and 20%, respectively, in India overall (figure 8). Only 19.6% of Maharashtra's cropped area is irrigated, less than half of the national average of 47.7% [48]. Consequently, nutritious food crops, left to be grown under rainfed conditions, not only suffer from low yields but also remain vulnerable to variability in the timing and intensity of monsoons [48, 49]. Although households can purchase protein and micronutrient-rich food produced in other states, local production is important for household nutritional outcomes, especially in remote rural areas in India where transportation infrastructure and supply chains are poorly developed [50, 51].

Zoom In Zoom Out Reset image size

The second way that the sugar industry affects nutrition is that the Indian government encourages sugar consumption by providing it at a subsidized price through the public distribution system (PDS).⁷ Sugar provides high but 'empty' calories with no nutritional value (figure 9). Since the 1950s, sugar has been subsidized through the PDS in India [52]. At that time, India had experienced frequent famines, and the most pressing food security challenge was to meet basic calorie requirements [53]. In that context, PDS sugar may have been beneficial in providing cheap calories. Since then, India has greatly improved its provision of calories through growth in wheat and rice production associated with the Green Revolution in the 1960s and 70s and with subsequent agricultural policies [53]. In today's India, calorie intake is broadly sufficient across income groups, but micronutrient deficiency remains a widespread problem [53]. Nonetheless, PDS continues to distribute subsidized sugar but does not include other crops high in micronutrients and protein such as pulses and legumes. Given that the PDS provides an incentive to purchase relatively low-cost sugar over more expensive, nutritious crops outside of the system, the program does not solve India's current nutrition challenge. Instead, the PDS helps to support sugar demand, indicative of the sugar industry's strong political influence.

Zoom In Zoom Out Reset image size

The PDS shifted from a universal system to one that targets only the poor in 1997 [52] but still distributes a large amount of sugar to a number of beneficiaries at a large social cost. In 2016–17, the PDS provided about 2.7 million tons of sugar to 400 million beneficiaries throughout India or approximately 30% of the country's total population [56]. Over the same period, the Indian government spent around 45 billion rupees (640 million USD⁸) on sugar subsidies for the PDS, accounting for 4.3% of total food subsidies [57]. Between 2004–05 and 2011–12, sugar consumption rose for lower income groups, mostly from the increase in their PDS sugar consumption [58, 59]. Although other factors also contribute to India's overall increasing sugar consumption (e.g. rising GDP per capita and greater consumption of sugary drinks), the PDS sugar program continues to play an important role at the expense of public financial resources and the nutrition of lower income groups.

In addition to electricity subsidy for groundwater pumping, another link of energy to the water-nutrition challenge is sugarcane-based ethanol production. India's long-term dependency on foreign oil continues to rise with escalating fuel demands as the economy develops [60]. By 2030, India's population will reach 1.5 billion, and the country is expected to have 430 million vehicles on the road [61]. To increase its energy self-reliance, the Indian government launched the Ethanol Blending Petrol (EBP) Program in 2003 [62]. Not coincidentally, this policy was introduced at the time when the sugar industry began to face new financial challenges.

After decades of growth, India's sugar industry faced substantial surplus sugar production and increasing sugar stocks by the 1990s (figure 10). Because the Indian sugar industry is highly subsidized, the domestic sugar price in India has consistently been higher than the world sugar price, making India's surplus sugar uncompetitive in the international market (supplemental material 7) [3]. This surplus sugar has led to the decline in the real sugar price in India (supplemental material 7). Meanwhile, the agricultural sector's share of income and labor in India has declined due to more balanced growth in non-agricultural sectors resulting from urbanization and industrialization. At this stage, the Indian government had two options on the sugar industry's future: either 'reduce' or 'protect' it. Due to vested political and economic interests in the sugar industry, the government has chosen the latter approach, consistent with the process of structural transformation experienced in virtually all large agricultural producing countries [63]. While continuing to support over-production of sugarcane and sugar, the government has adopted several measures to remove the surplus, such as subsidizing sugar exports and promoting PDS sugar. Introducing sugarcane-based ethanol through the EBP served the dual purpose of enhancing energy security and propping up the sugar industry by providing a diversified source of income to sugar mills and removing surplus sugar.

Zoom In Zoom Out Reset image size

There are many examples in India and around the world of energy policies negatively affecting water and food resources. The electricity subsidy for agriculture in northern India has depleted groundwater, threatening food production [13]. Corn-based biofuel in the United States has inflated the price of corn for food and fodder [64], and ethanol policies in Brazil have incentivized the expansion of sugarcane cultivation at the expense of some staple food crops [65]. In India, sugarcane-based ethanol may also worsen the water and nutrition challenges highlighted above by requiring more water and land resources to cultivate additional sugarcane. There may be an opportunity, however, to limit the water-food downsides of bioethanol in India. If implemented properly, diverting sugar to ethanol production could improve energy self-reliance and reduce subsidized sugar consumption without having to increase sugarcane cultivation.

Under the EBP, the mandatory blending rate of ethanol with gasoline for public Oil Marketing Companies (OMCs) increased from E5 (5% ethanol) in 2008 to E20 (20% ethanol) in 2017 [66]. The highest blending rate achieved by 2017, however, was 3.3% (E3) due to insufficient ethanol production capacity, competing demands for potable and industrial ethanol, and noncompetitive pricing for fuel ethanol [67]. In 2018, the government extended the E20 target year to 2030 [68]. By 2030, India's gasoline demand is projected to increase to 94 billion liters of pure gasoline (figure 11). Given that ethanol provides 40% less energy content (density) than gasoline [69], when the two are blended more of this blended fuel is required than pure gasoline to provide the same total energy. Meeting India's gasoline demand in 2030 will require 101 billion liters of E20 blended gasoline, which will require 20 billion liters of ethanol, an increase of over eight times its current production. To reach this target, the government has introduced several new measures, such as providing financial assistance to sugar mills to enhance ethanol production capacity and raising fuel ethanol prices for the OMCs [69].

Zoom In Zoom Out Reset image size

The most important measure introduced recently allows the use of sugarcane juice in ethanol production, in addition to molasses (a by-product from sugar processing with less extractable sugar remaining⁹), which was permitted previously [68]. This measure has enabled the sugar industry to divert some sugarcane juice from sugar production to ethanol production. To incentivize such diversion, the government has also set differential pricing for ethanol produced from molasses and sugarcane juice, where the price of ethanol from sugarcane juice is set higher [69]. As a result of these measures, the blending rate of ethanol grew to 5.8% in 2019, but ethanol was still largely produced from molasses [70].¹⁰ It requires investments and time, however, for distilleries to modify ethanol production to use sugarcane juice as a feedstock. Also, the availability of sugarcane juice for ethanol production is affected by sugar demand in any given year. Though the share of raw materials in ethanol production in future years is somewhat unpredictable, ethanol production is likely to grow under the government measures aimed at achieving E20 by 2030.

Although E20 is a desirable goal for improved energy security, India's biofuel policy should also be assessed for its impacts on water-food challenges. In particular, it is important to ask: How much sugarcane is required to meet India's biofuel E20 mandate by 2030, and what will be the consequences for water resources and nutrition? To assess the potential range of such impacts, we consider two future scenarios of ethanol production: continuing the current practice of heavily relying on molasses or entirely switching to sugarcane juice.

The first scenario of continuing to rely on molasses presents significant risks to India's water and nutrition challenges through additional demand placed on sugarcane. Meeting E20 with ethanol produced from molasses by 2030 would require an additional 1320 million tons of sugarcane, 348 billion m³ of water, and 19 million hectares of land in India (figure 12); or approximately 385% increases over their respective current level (2010–2018 average) assuming current average yields and water use rates for sugarcane in India (see supplemental material 8). These increases in water and land resources for sugarcane could intensify competition for these resources for nutritious crops and would further deplete water resources. Although it is possible to grow the additional sugarcane in new areas where water resources are not constrained, the political interests already established in Maharashtra and other major sugarcane producing states would likely keep sugar production mainly in those regions. At the same time, the increased sugarcane supply would lead to production of an additional 161 million tons of sugar, which is only slightly less than the world's current sugar output. Since adding this much sugar to the international market would cause the sugar price to plummet, the Indian government would need to further subsidize Indian sugar to be exported or consumed via the PDS. If put into the PDS, the extra sugar produced could encourage more consumption of empty-calorie sugar, which counters India's nutritional challenge of micronutrient deficiency.

Zoom In Zoom Out Reset image size

The other scenario of ethanol production from sugarcane juice presents an interesting possibility of meeting E20 without having to increase sugarcane supply and with the nutritional benefits of reducing PDS sugar. The current level of sugarcane production is sufficient to supply the amount of ethanol needed to meet E20 by 2030 if ethanol comes entirely from sugarcane juice (figure 12). Therefore, water resource depletion and competition for water and land resources for nutritious crops would at least not worsen further. In addition, using sugarcane juice for bioethanol could reduce sugar production by 19 million tons per year, which is more than the current stock of surplus sugar in India. By removing some of this surplus sugar, the government would be able to reduce spending on its export subsidy and PDS sugar. Nevertheless, a reduction in government spending would likely be minimal, since subsidies for ethanol development would be required. However, removing surplus sugar could help reduce the amount of subsidized PDS sugar and promote consumption of more nutritious crops that are needed to attain nutrition security in India. Such nutritional benefits would not occur if ethanol were made predominantly from molasses.