How India cane farmers' protests affect the sugar sector

Protests by farmers demanding higher sugarcane prices disrupted parliament on Thursday, forcing the government to rethink its stand on cane pricing.

The protests have also delayed the start of crushing in the country's biggest cane growing state, Uttar Pradesh, threatening to aggravate a sugar shortage in the world's top consumer of the sweetener.

Why are cane farmers angry?

Farmers say that sugar prices have doubled this year, earning twice as much for mills as they did last year. Farmers think that cane prices should be raised to match.

In Uttar Pradesh, the country's second-biggest sugar producer, cane prices have gone up by 60%, which farmers say is inadequate.

How are cane prices set in India?

Until last year, the federal government fixed the floor price for cane which the mills would pay farmers, but some states, such as Uttar Pradesh, would declare a higher price, which the mills were forced to pay.

This year the federal government changed the system, saying the onus of paying price differences rested with state governments that set higher prices, and not mills.

What does the sugar industry think?

Millers say political considerations tend to push up prices, which would trigger a rush to plant cane for the next season, leading to a glut. Prices would then fall sharply and mills would be unable to pay cane farmers.

As a result, farmers would switch to other crops. Such sharp cyclical swings hurt both farmers and millers. In 2008 - 2009, India imported about 5 million tonnes of sugar after exporting a similar amount in the previous year.

What if the impasse persists?

If the issue is not quickly resolved, mills will not be able to start crushing cane. If mills do not operate, they will be unable to process imported raw sugar, which would create a severe shortage and send prices soaring. This would also force India to quickly import refined sugar, instead of raw sugar, which it has bought in large quantities so far.

Will the dispute have ramifications in other sectors?

Yes. If the cane harvest is delayed, then wheat planting will suffer. Delayed wheat planting reduces yield. India has already started importing wheat for the first time in two years.

This year, the government had declared that it would ensure early plating of wheat to make up for crop loss after the failure of the June-September monsoon, but the dispute over cane prices has already upset the government's calculation.

What are the government's political compulsions?

The Congress party-led government has won two consecutive federal elections on the back of rural support. The opposition Bharatiya Janata Party suffered five years ago when its India Shining' campaign that glorified urban prosperity angered rural voters.

The Congress party's rural welfare schemes ensured its victory in federal elections this year too. So the government will try its best to keep farmers happy as about 60% of Indians live in villages.