DCM Shriram Consolidated and International Finance Corporation have come together with a project to increase productivity of sugarcane farmers by 25 percent in three years
Bahar Singh started out as a sugarcane farmer, joining his two older brothers in cultivating his 50-bigha farmland. After almost a decade of growing and supplying his produce to Loni sugar mill in Hardoi district, heart of the sugar belt in Uttar Pradesh, the young farmer has found the sweet spot in sugarcane. The yield from his land today has doubled from 40 quintals, rising steadily over the last four years—50 quintals per bigha in 2010, 70 quintals in 2011 before finally hitting pay dirt for what is being called mitha sona (sweet gold).
Dressed in his impeccable white kurta and showing off his lush green fields being finally harvested—a process inordinately delayed beyond Diwali due to the pricing stalemate between farmers and millers—one can tell that his spirits are buoyed by the sharp rise in productivity and income. The hint of pride is unmistakable when he talks about his 17-year-old nephew preparing for engineering college at the end of the year. His large joint family hasn’t felt this good about growing sugarcane in a long time.
Bahar Singh is one of the 2,000-odd select farmers in the core area (radius of 15 km) of Loni and Ajbapur sugar mills of DCM Shriram Consolidated Ltd (DSCL) in central Uttar Pradesh, who are finally shedding the state’s legacy of abysmal farm productivity and producing record output.
For this change in fortune, farmers aren’t thanking any gods; instead, they are grateful to DSCL and International Finance Corporation (IFC), the private sector arm of the World Bank. Three years ago, the two joined hands to build the expertise of farmers in an intensive outreach and training pilot programme, evolving a customised package of agro-climatic practices to not just make sugarcane farming remunerative but also to help DSCL optimise its crushing capacity across its four plants in the Hardoi and Lakhimpur Kheri districts of the state.
The aim was pretty straightforward for Mitha Sona Pariyojana (moniker ‘sona’ connotes money to capture the imagination of the farmers): Increase productivity of target farmers by 25 percent at the end of three years. And, in doing so, create a model that could be expanded to the rest of the 150,000 farmers in the supply chain. Through extensive collaborative planning, innovation, smart monitoring and evaluation, the programme was able to do this, and more.
Gets bigger, better and broader
The programme is now reaching 12,000 farmers as DSCL ramps it up to its sugar mills in Hariyawan and Rupapar. That is just a start. A bigger, better and broader version of the prototype is being rolled out into what is arguably one of the world’s biggest sugar programmes in the private sector; it is on course to reach out to 200,000 farmers in India across 14 mills of four sugar companies by the sugar season of 2015.
Here is the ‘better’ and ‘broader’: Expanding the pilot’s original mandate of enhancing productivity to also include water efficiency and making farmers certifiable for sustainable farming. The idea is to get them ready for the likes of Coca-Cola and Unilever—institutional buyers who have announced that economic, environmental and social sustainability would have to be a part of everything they do. Their proclaimed vision is to go about sourcing only ‘sustainable’ sugar by 2020.
Sugarcane is a leading cash crop for farmers across the country—an estimated 50 million farmers depend on it for their livelihood. In central UP alone, there are over 4 million sugarcane farmers, but low stagnant productivity remains the biggest bind. As compared to an average yield of 100 tonnes per hectare in states like Tamil Nadu, an all-India average of 80 tonnes a hectare, and 70 tonnes in neighbouring Haryana, UP has averaged close to 55 tonnes per hectare.
Even the sugar content of cane is low, because of which sugar recovery is a mere 9.2 percent in UP as compared to well over 11.5 percent in Maharashtra. That’s not all. “The challenge for UP is particularly stiff as the average land holding is less than a hectare; therefore farmers have to be reached in multitudes to make any significant impact,” says DSCL deputy managing director Ajit S Shriram. So, even though sugarcane is the main cultivated crop in the mill area, small and marginal farmers tend to switch to competing crops such as wheat, paddy and vegetables because of the low yield and returns from sugarcane. Most sugar companies in UP have been reporting a declining trend in acreage in the command (25 km radius around the mill) area.
Farmers in UP haven’t felt this good about growing sugarcane in a long time
Strong business imperative
Obviously then, not enough cane comes to sugar mills for crushing, and that which does is of poor variety, severely impairing capacity utilisation. In DSCL’s case, for example, the operating season had come down from 150 days to just about 100 days. The company’s installed capacity is to crush 33,000 tonnes of cane per day. With a total acreage touching 90,000 hectares—increased to 1,35,000 hectares after ‘Mitha Sona’ in large part due to increased productivity—there was a strong business case for DSCL to take it upon itself to help its farmers grow more.
In fact, there is plenty going wrong with the sugarcane crop and mills in the entire state of UP, which accounts for a third of the country’s sugar production (See box: In the throes). Shriram, who is also the vice president of the Indian Sugar Mills Association, says it for all: “The entire sugar industry is fighting for survival.” According to an analysis of the UP sugar industry by Crisil, operating indicators for the mills in the state have deteriorated significantly over the last three years; the mills have survived the losses of sugar business mostly through forward integration into allied businesses. In this backdrop, says Shriram, improved productivity is the only way to somewhat offset the inflationary pressure on the farmers and millers.
IFC took up the challenge for a couple of reasons. “Agri-business is an area of focus for IFC in South Asia, accounting for a third of all our advisory work,” says Jeeva A Perumalpillai-Essex, IFC regional sustainable business advisory head, “and linking farmers to the private sector (market linkage) is the biggest concern.” Since the sugar industry has a strong private sector, what better space to choose for an intervention, she adds. That the crop is water-intensive only added to the challenge as did the fact that sugar value-chains are tight—it’s mostly the miller and the farmer in a symbiotic co-existence.
A first in agribusiness, sugarcane and in boosting farm productivity, IFC went about the project with gusto. Based on a rigorous diagnostic survey of the area, a customised package of practices for cane farmers was developed. An easy-reference pictorial flipchart demonstrated farming practices to be followed for sowing, improving soil, using water, planting, monitoring and reporting during each month of the crop cycle.
Extension workers are at the core of the project because they are the ones who interact with the farmers and hence are able to influence their farming behaviour. For their benefit, a comprehensive and illustrated training manual on improved practices was prepared in vernacular. This is an annual calendar dwelling on sugar agronomy. Detailed logbooks for all training activities and those undertaken on the farm were maintained for every project farmer, says IFC operations officer Harsh Vivek. Innovating evaluation
Once implemented, the impact of the initiative had to be evaluated. IFC noted during the collection of baseline data that productivity estimates of farmers were higher than DSCL believed to be accurate. An innovation was devised: An on-site assessment of productivity was undertaken by actually cutting and weighing the crop in demarcated plots for 200 farmers, or 10 percent of the ‘treatment’ sample, says Perumalpillai-Essex. The yield from this crop was then extrapolated to estimate productivity in hectares. It was found that ‘treatment’ farmers (those receiving training) had improved productivity by 86 percent over two years compared to around 19 percent for ‘control’ farmers (those not being trained).
Seeing encouraging results of good practices, control farmers too had begun to follow project farmers. The trench planting method of sowing that lowers seed consumption and doubles the efficacy, inter-cropping, liquid foliar spray instead of regular nitrogenous fertilisers that evaporate and drip irrigation instead of flood irrigation were some of those practices. In view of labour shortage for most of the field work, mechanised trench planting and harvesting through custom-hire services was followed.
In mid-2012, leading international NGO Solidaridad, which has been the driving force in fair trade and environmental issues, joined hands with IFC to take the programme to other states—Madhya Pradesh, Maharashtra, and Tamil Nadu. “Sugar is the second-largest crop in India that will guzzle an estimated 500 billion litres of water over the next year,” says Shatadru Chattopadhyay, managing director for South and South East Asia. Solidaridad is known for Fairtrade certification and creating sustainable supply chains—Max Havelaar coffee, Oke Bananas and even fashion clothing brands like MADE-BY and Kuyichi jeans are some of the examples.
Project workers interact with the farmers and have prepared a comprehensive illustrated training manual in vernacular
to handhold them through the training
The million-tonne question: Is it possible to make India’s marginal sugarcane farmers understand the need for sustainable standards? “Certification is in a way proxy for sustainability,” says IFC’s Vivek. “The writing is on the wall that we have to do agriculture smartly, and for this it is best to engage with the farmers early,” points out Chattopadhyay. The message has gone home to sugar businesses. Companies are already putting their skin in the game –DSCL with four mills, Olam Agro India with two mills, EID Parry with five and Rajshree Sugar and Chemicals with three mills have come on board for the project that aims to touch a million lives over the next three years.
In the 2.0 version of the programme, explains Chattopadhyay, joint teams comprising full-time staff to work as field coordinators and those nominated by the mills, in addition to top-notch expert consultants and an army of extension workers, are driving farmers to unleash animal spirits.In The Throes
Fortunes of the sugar industry have been on a sticky wicket for some time. Thanks to a delayed start to sugarcane crushing due to the pricing standoff, sugar output is set to fall by half to about 24 lakh tonne in the new season (which started in October) over last year. The bad news is that it still comes over last season’s opening stock of 8 million tonnes, contributing to a glut, the fourth consecutive season of sugar surplus.
The industry pegs total production at around 25 million tonnes in the ongoing season, with serious price implications for the commodity. Already, producers and stockists in parts of the country are offloading sugar at Rs 10-Rs 20 lower a quintal to accommodate the new season’s inventories.
Ajit Shriram, ISMA vice president, explains the infamous Indian cyclicality: Surplus production triggering a fall in sugar prices, which in turn leads to mounting cane arrears. As a result, farmers switch to other crops, resulting in a year of sugar deficit and increasing prices in its wake. Cane prices rise as a result, once again incentivising sugarcane cultivation in the next season. “With Indian import duty on sugar as low as 10 percent, any further increase in domestic prices would trigger cheaper sugar imports,” Crisil said in a report in September.
Sugar mills in UP are particularly affected. Because of a SAP (state advised price) of Rs 280 a quintal, cane prices constituted over 90 percent of the delivered price for millers last year. This led to an unviable ex-mill sugar price of Rs 35 per kilo, says Shriram, as opposed to the market price of Rs 30 a kilo. Cane procurement prices in UP turn out to be prohibitive also because of low sugar recovery as compared to other states. Already, arrears to farmers in the state have run up to the tune of 2,400 crore.
In the new season, farmers were demanding a price of Rs 350 per quintal whereas millers were unwilling to pay beyond Rs 240 a quintal. The impasse was resolved in the first week of December when the government kept the prices unchanged but announced a financial package for timely payment to farmers. The UP government fixed the SAP at last year’s level of Rs 280 per quintal while the Uttarakhand government fixed the rate at Rs 5 lower.
As part of the package, mill owners were allowed to pay farmers in two tranches and were exempt from purchase tax and society commission on sugarcane sale. Food minister KV Thomas announced that banks would provide Rs 7,200 crore in loans to the industry exclusively for payment to the farmers.
“The sugar business of UP mills has suffered losses at PBIT level since 2010-11,” explains the Crisil report, “and more than half the sugar companies are posting net losses.”
Clearly, sugar prices must be linked to cane prices to safeguard the financial health of the industry, and also to curb volatility in production. In April, the Rangarajan Committee report had recommended that farmers be given 75 percent of the sugar price. While states like Maharashtra, Tamil Nadu and Karnataka have started to move towards this revenue sharing system, cane pricing has remained a political tool in UP.
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(This story appears in the 24 January, 2014 issue of Forbes India. To visit our Archives, click here.)