Brief study on status of sugarcane farming and its impact on production of sugar in Nepal

Refined sugar remains one of the major component of daily life. Nepal has been importing large amount of sugar (mostly from India) to sustain its increasing domestic demand. Nepal’s disproportionate reliance on Indian sugar has caused to be a matter of crisis at times when Indian Government decides to put a ban on export of sugar.

Sugarcane is one top cash crops farmed in Nepal and is at the heart of domestic production of sugar. An increase in efficient production of sugarcane could potentially decrease Nepal’s dependency on refined sugar from India. This study makes an effort to make use of data made available by Government of Nepal such as yearly agricultural statistics1 and others to make an assessment on status of Sugarcane farming and production of sugar in Nepal.

Making sense of data from Annual Agricultural Statistics

Figure 1: Total area (in hectare) of farming of cash crops (including sugarcane) from 1990 onwards

 

Figure 1 provides total area of cultivation (in hectare) of cash crops in Nepal. Apart from few anomalies such as during the FY 2074-75 there exists a general upward trend in total area of cultivation of cash crops in Nepal. The total area for cultivation of cash crops peaked during FY 2076-77 when total of 533311 hectare of land were used.

The curve (in darkblue) representing the total area of cultivation of sugarcane also suggests that there has been a general upward trend and in line with the trend of the curve representing total area of cultivation (in maroon); the big exception to this looks to have happened after the FY 2075-76. There is a significant downward trend in total area of cultivation of sugarcane after 2075-76

Table 1 below provides total area in which the sugarcane is being cultivated in last five FY. The table shows a diminishing rate at which sugarcane is being cultivated in Nepal.

Figure 2 provides visual representation of the area and production of various cash crops. The values in area is in 1000s (hectare) and the production is in metricton.

Table 1:

Total area of cultivation of sugarcane in last 5 FY
Total area of sugarcane farming in Nepal
(values in hectare)
sn Year Area (in hectare)
1 75-76 78609
2 76-77 71625
3 77-78 68565
4 78-79 64354
5 79-80 62567

 

Figure 2: Total area (in 1000s hectare) and production (in metric ton) of sugarcane in Nepal

Lets look into district level data on Sugarcane in Nepal

Table 2:

Total area of cultivation of sugarcane in last in each district
Data listing total area of sugarcane farming in top 20 districts
(values are in hectare)
sn DISTRICT 71-72 72-73 73-74 74-75 75-76 76-77 77-78 78-79
1 SARLAHI 22500 27000 26000 25814 22153 18906 17360 15673
2 RAUTAHAT 10075 10015 9985 9914 9112 7112 8513 6942
3 KANCHANPUR 5050 5050 5120 5083 8042 10042 5625 5765
4 MAHOTTARI 7500 7500 0 7655 7642 6642 7148 5600
5 NAWALPARASI WEST 7015 7438 7388 3668 4283 4083 4083 3255
6 SUNSARI 3855 4000 4000 3971 4812 4912 3555 3411
7 KAPILBASTU 5235 5230 4930 4895 1534 1434 3540 3540
8 DHANUSHA 3605 3590 3590 3564 3564 3645 3605 3600
9 BARA 2550 2810 2810 2790 2790 2890 2840 4230
10 SIRAHA 2200 2200 2210 2194 3650 3550 2872 3500
11 MORANG 2204 2204 2204 2188 1044 1445 1835 1830
12 PARSA 1480 1000 1000 993 993 1045 1019 2950
13 KAILALI 235 235 235 233 233 1045 230 234
14 RUPANDEHI 310 310 310 308 267 367 367 370
15 DANG 2200 25 35 35 29 29 29 0
16 BARDIA 300 300 300 298 220 125 220 220
17 BAITADI 300 250 240 238 11 11 252 260
18 SAPTARI 150 200 201 200 201 201 200 201
19 JHAPA 190 180 170 169 169 175 170 165
20 NAWALPARASI EAST 0 0 0 0 238 238 230 233

 

Table 3:

Total production sugarcane in eash District
Data listing total production of sugarcane in top 20 districts
(values are in kiloton)
sn DISTRICT 71-72 72-73 73-74 74-75 75-76 76-77 77-78 78-79
1 SARLAHI 1130 1350 1326 1297 1102 995 903 795
2 RAUTAHAT 322 551 349 342 439 343 342 343
3 KANCHANPUR 202 257 230 225 397 486 340 341
4 MAHOTTARI 289 389 0 393 392 341 367 275
5 SUNSARI 231 240 240 235 283 255 209 209
6 BARA 115 154 124 122 139 144 133 192
7 KAPILBASTU 278 315 271 265 71 66 186 186
8 SIRAHA 100 120 99 97 193 176 137 166
9 DHANUSHA 151 201 129 126 154 158 142 163
10 NAWALPARASI WEST 211 463 355 173 202 193 193 154
11 PARSA 67 56 46 45 47 49 47 151
12 MORANG 154 151 2 123 51 71 107 106
13 RUPANDEHI 15 19 15 14 13 17 17 16
14 NAWALPARASI EAST 0 0 0 0 11 11 11 11
15 KAILALI 10 13 10 10 10 45 10 10
16 SAPTARI 3 8 4 4 8 8 6 8
17 BARDIA 6 7 7 7 9 5 7 7
18 GULMI 2 2 2 2 0 0 5 5
19 BAITADI 5 6 4 4 1 1 4 4
20 JHAPA 5 9 5 5 8 8 5 4

Observation 1.0

Observations based on the above table:

  1. There is a general downward trends in sugarcane cultivation in Nepal. Few noteworthy instances are as follow:

    • Sarlahi and Rautahat are two of the top districts which cultivates sugarcane in Nepal. In the FY 2071-72 the total area of sugarcane cultivation in Sarlahi was 22,500 hectare which was reduced to 15,673 hectare in FY 2078-79; that is a reduction of 30.3%. It is to be noted that in the FY 2072-73 the total area of cultivation of sugarcane in Sarlahi peaked at 27,000 hectare.

      Similar is the case of Rautahat which had its peak of cultivation area in FY 2071-72 at 10,075 hectare which is reduced to 6,942 hectare in FY 2078-79.

    • There is significant reduction in cultivation area in other important district such as Mahottari, Kapilbastu and Nawalparasi (West & East).

    • The reduction in area of cultivation in Dang district from 2200 hectare in 2071-72 to 0 in 2078-79 is startling.

  2. Few Glimpses of Hope

    • Kanchanpur district presents interesting trend; for the FY 2075-76 & 2076-77 there was a surge of sugarcane cultivation where the area of cultivation increased by almost 50%. If we are to compare the yield rate, Kanchanpur has a competitive yield rate in comparison to district such as Rautahat.

    • Bara saw a surge in the cultivation of sugarcane in the FY 2078-79

The best case scenario !

As illustrated in Table 2 there is significant variance in amount of land used to cultivate sugarcane. This suggests that there is presumably relative ease in switching crops (most likely among cash crops) in the available land. The table below Table 4 presents hypothetical scenario in which the maximum area where sugarcane were cultivated in last eight FY in each District is taken along with maximum yield to project a production.

Such scenario where the best performance (in terms of top yield rate and area of cultivation) could be replicated (through efforts from all sector) the production of sugarcane could be increased significantly. It is to be noted that the values taken to compute such increased production are taken from the best performance of each district in last 8 years. The computation suggests the following:

  1. There would be 27 districts which would have cultivation area of sugarcane in excess of 100 hectare;
  2. The total area of production would increase to 95,744 hectares across these such 27 district (the highest total cultivation area across the country in the most recent time was in 2073-74 where total of ~ 81,009 hectare of land was used for sugarcane cultivation)
  3. Together with the top yield rate at each of these 27 districts in last 8 years would in combine produce total of 5,339,261 metric ton of sugarcane. Nepal has seen the highest production of sugarcane in the FY 2073-74 where ~ 4,350,000 metric ton of sugarcane was produced. That is an increase of 18 % just from 27 districts.
Table 4:

Table presenting best case scenario (top area & yeild in last 8 FY)
Data listing scenario where top values of yield and area is taken from each district
(area in hectare, yield in ton per hectare and production in ton)
sn DISTRICT max_area max_yield production
1 SARLAHI 27000 52.64 1421280.00
2 KANCHANPUR 10042 60.53 607842.26
3 RAUTAHAT 10075 54.97 553822.75
4 NAWALPARASI WEST 7438 62.22 462792.36
5 MAHOTTARI 7655 51.83 396758.65
6 KAPILBASTU 5235 60.23 315304.05
7 SUNSARI 4912 61.35 301351.20
8 BARA 4230 54.88 232142.40
9 DHANUSHA 3645 56.06 204338.70
10 SIRAHA 3650 54.59 199253.50
11 PARSA 2950 56.44 166498.00
12 MORANG 2204 70.00 154280.00
13 DANG 2200 45.41 99902.00
14 KAILALI 1045 53.32 55719.40
15 NUWAKOT 777 39.00 30303.00
16 RUPANDEHI 370 60.65 22440.50
17 DOTI 325 68.93 22402.25
18 BAJHANG 240 68.00 16320.00
19 BAITADI 300 48.00 14400.00
20 BARDIA 300 41.00 12300.00
21 NAWALPARASI EAST 238 46.00 10948.00
22 SAPTARI 201 40.11 8062.11

 

(a) District wise map of Nepal with maximum yield rate in each district in last eight FY

(b) District wise map of Nepal with maximum area of cultivation of sugarcane in each district in last eight FY
Figure 3: District-wise cholorpath map of Nepal with top values of Yield and area of cultivation of sugarcane in Nepal

Observation 2.0

  1. There is a very low yield rate in Sugarcane in Nepal. The Average yield rate across all district in Nepal in last 8 FY is 35.733 metric ton per hectare. Even if we are to compute the mean yield rate along the highest yield rate among all district in last 8 FY is just 45.64 metric ton per hectare.

  2. The district with high yield rate are not among the top producer (or district where sugarcane is top cultivated cash crop). Table 5 provides the list of top 10 district with highest yield rate (the maximum yield rate is taken from the top yield rate in each district in last 8 FY). The table clearly illustrates that top two district in terms of production and area of cultivation ie Sarlahi and Rautahat are missing the list of top 10 districts with highest yield.

  3. Table 5 further reinforces the opportunity Kanchanpur possess as a high value district for efficient production of sugarcane in Nepal. Furthermore, the concentration of high yield districts in form of Doti and Bajhang in the same region as Kanchanpur provides a opportunity for concentration of sugar and/or sugarcane industry in the far west province.

  4. Morang has the highest maximum yield rate among all district in Nepal. In FY 2071-72 (2013-14) Morang saw cultivation of Sugarcane in 2,200 hectare of land (which was among top 10 district producing Sugarcane in that FY). It is to be noted that Morang in most recent FY ranked 12th in production of sugarcane (see Table 3). This suggests there is a strong case for increase in cultivation and investment of sugarcane in Morang.

  5. Sunsari has the most consistently high yield rate among all districts in Nepal. In terms total share of production of sugarcane Sunsari stands among top 5% of the districts in Nepal. Hence, increased investment in cultivation of sugarcane in Sunsari would be fruitful. Similar, is the case with Kapilbastu district.

 

Table 5:

Table with maximum yield rate and mean yield rate for top 10 districts (based on maximum yield rate) in last 8 FY
Data listing mean and maximum yield for each distrcit in last eight FY
(values are in ton per hectare)
sn DISTRICT max_yield mean_yield
1 MORANG 70.00 51.24
2 DOTI 68.93 45.81
3 BAJHANG 68.00 42.42
4 NAWALPARASI WEST 62.22 47.05
5 SUNSARI 61.35 58.76
6 RUPANDEHI 60.65 48.60
7 KANCHANPUR 60.53 49.72
8 KAPILBASTU 60.23 52.44
9 PARSA 56.44 48.02
10 DHANUSHA 56.06 42.58

Sugar Import

Table 8 below provides total sugar related items Nepal has imported in last 9 FY from FY 2071-72 to 2079-809. In this period Nepal imported total of 42 Arab worth of sugar related items. the item listed with HSCode 17011490 comprised of 68.56% (28.87 Arab in value) of total imports value in this period.

Table 8:

Total imports of various sugar related items in last 9 FY with HsCode
Total imports of various items in last 9 FY (from FY 2071-72 to 2079-80)
Quantity in Kg, and value in 1000s
sn hscode Description quantity value % of imported value
1 17011490 Other Sugare 555703970 28871585.21 68.56%
2 17011390 Other Sakhhar(Gud & Veli), Gudgatta àààà 73153825 4413944.37 10.48%
3 17011200 Raw beet sugar, in solid form 79753628 3669584.39 8.71%
4 17011310 Sakhhar(Gud & Veli), Gudgatta of Chukandar 42191402 1436605.49 3.41%
5 17011410 Sakhhar (Gud & veli),Gudgatta of Sugarcane 36898031 1254112.65 2.98%
6 17019990 Cane or beet sugar, in solid form, nes 14286357 790864.30 1.88%
7 17019900 Cane or beet sugar, in solid form, nes 9242154 563827.38 1.34%
8 17011420 Khanda sugar 8762958 391483.04 0.93%
9 17019100 Cane or beet sugar, containing added flavouring or colouri 5846581 307815.61 0.73%
10 17019910 Cane or beet sugar, in solid form, nes 4164177 293866.88 0.70%
11 17011320 Khanda sugar 3135794 109875.56 0.26%
12 17019920 Sugar Cube 45643 4696.51 0.01%
13 12129100 Sugar beet, fresh, dried, chilled or froze_ n 1119 291.25 0.00%
14 17011190 Sakhhar(Gud) _ 155 7.04 0.00%

Figure 9: Total imports and import values of sugar related items in last 9 FY

 

Figure 9 illustrates that the import of sugar (and/or related items) in Nepal has an erratic trend. There has been a decreasing trend of total imports of sugar from FY 2077-78. In the figure, the bar plot represents the quantity of sugar (KT refers to Kilo Tonnes) and line plot denotes the value of import (in arab) in each FY.

Table 9 below makes an attempt to estimate the total demand of sugar in the Nepal based on domestic production of sugarcane and imports in the given FY (the data on domestic production of sugar in Nepal is only available for two FY). However, because of limited sample size of domestic production of sugar, any attempt to estimate the yearly national sugar demand is not possible (based on the data available).

Total Demand of sugar based on internal production and trade data

Table 9:

Table with estimate of total demand of sugar in Nepal
Estimate of total demand of sugar in Nepal based on available data on domestic production
(values in tonnes)
fy imported domestic Total
74-75 236142.7 178035.8 414178.6
75-76 19483.0 182544.3 202027.3

Sugar and taxation

Figure 10: Total imports and yearly custom rates of major sugar related items in last 9 FY

 

There has been a upward trend on custom rates on sugar in Nepal. As illustrated by Figure 10 the custom rate on sugar (items with HScode 17011490) was 40% which remained at only 15% up until FY 74-75. There is no evidence to suggests that rise in custom rates were in context of increasing domestic sugar production and therein to protect domestic industries.
Apart from a stark decrease of sugar import in FY 75-76 after increase of custom rates from 15% to 30%, the data itself does not provide clear evidence of impact of rise in custom rates in total imports of sugar. Government of Nepal have in various times provided a facility of custom free import of sugar to government owned entity which could explain non-conclusive relationship between rise of custom rates and its impact on sugar imports in Nepal.

Government Subsidy in Sugarcane farming in Nepal

Table 10:

Table government allocated subsidy (via budget speech)
Amount of budget allocated in subsidy (direct cash transfer) for sugarcane farmers
(values in Crore)
SN FY Subsidy (in Crore)
1 80-81 80
2 79-80 81
3 78-79 84
4 77-78 95
5 76-77 95

 

In the FY 2075-76, Government of Nepal started to hand out direct cash subsidy to Farmers which was Nrs 65.28 per quintal (which later increased to Nrs 70 per quintal after FY 78-79). However, such subsidy during FY 2075-76 was not categorically mentioned in the budget speech (hence, it is avoided in this report). From the FY 76-77 onwards government of Nepal have categorically allocated subsidy for sugarcane farmers from the yearly budget presented in the parliament.

Data on government subsidy for sugarcane farmer as illustrated in the the Table 10 is obtained and curated from yearly budget speech of the finance minister of Nepal. In last five fiscal year (starting from FY 2076-77) the GoN allocated total of 4.35 Billion in direct cash transfer in form of subsidy. It is to be noted that actual disbursement of such subsidies has always remain higher than the allocated amount; each year more than 1 billion NRs is being handed out in cash subsidy to Sugarcane farmers by GoN.

Case Study - India

India remains one of the world’s leading producers of sugar. During the 2021-22, India produced 18.8% of total global sugar production. The latest reports from bodies of the Government of India suggest that the Indian sugar (and/or sugarcane) industry is supporting the livelihood of 50 million sugarcane farmers and generating around 500,000 direct employment opportunities in sugar mills10.

Sugarcane Pricing Policy in India

In India, the statutory provisions of Sugarcane (Control) Order, 1966 issued the Essential Commodities Act (ECA), 1955, govern the pricing of sugarcane. The concept of Statutory Minimum Price (SMP) was replaced with the ‘Fair and Remunerative Price (FRP)’ from 2009-10. To incentivise higher sugar recovery rate, the FRP is linked to a basic recovery rate of sugar, with a premium payable to farmers for higher recovery of sugar.

The FRP is announced by the Central Government based on the recommendation of the Commission for Agricultural Costs and Prices (CACP) in consultation with the State Governments and after taking feedback from the associations of the sugar industry. The FRP takes into account the following factors:

  1. Cost of production of sugarcane;

  2. Return to the growers from alternative crops and the general trend of prices of agricultural commodities;

  3. Availability of sugar to consumers at a fair price;

  4. Price at which sugar produced from sugarcane is sold by sugar producers;

  5. Recovery of sugar from sugarcane;

  6. The realization made from the sale of by-products viz. Molasses, bagasse and press mud of their imputed values;

  7. Reasonable margins for the growers of sugarcane on account of risk and profits.

The FRP is linked to a basic recovery rate of sugar, with a premium payable to farmers for higher recoveries of sugar from sugarcane. The FRP for 2022-23 sugar season has been fixed at Rs (Indian currency) 305 per quintal linked to a basic recovery of 10.25% subject to a premium of Rs. 3.05 per quintal for each 0.1% increase of recovery over and above 10.25% and reduction in FRP at the same rate for each 0.1% decrease in the recovery rate till 9.5%. In cases where recovery is below 9.5%; such farmers will get Rs. 282.125 per quintal for sugarcane in the current season.

FRP in India
Sugar Season FRP (Per Quintal) Basic Recovery Level
2009-10 129.84 9.5%
2010-11 139.12 9.5%
2011-12 145.00 9.5%
2012-13 170.00 9.5%
2013-14 210.00 9.5%
2014-15 220.00 9.5%
2015-16 230.00 9.5%
2016-17 230.00 9.5%
2017-18 255.00 9.5%
2018-19 275.00 10%
2019-20 275.00 10%
2020-21 285.00 10%
2021-22 290.00 10%
2022-23 305.00 10.25%
2023-24 315.00 10.25%

Schemes under Sugar Development Fund (SDF)

Government of India operated various schemes of financial assistance as loans to sugar mills under Sugar Development Fund Act, 1982 (which now has been cancelled effective September 2021)11. Under such schemes of financial assistance, Government of India provided:

  1. Loan for modernization/Rehabilitation.

  2. Loan for sugarcane development.

  3. Loan for potentially viable sick sugar undertaking.

  4. Loan for production of anhydrous or Ethanol from Alcohol (or from Molasses).

  5. Loan for conversion of existing ethanol plant into zero liquid discharge plant.

  6. Loan for bagasse-based cogeneration plant.

Such loans carried a concessional rate of interest at the rate 2% below the bank Rate12.

Recommendation

  1. Regarding Pricing of sugarcane

    • The existing policy framework for Pricing of sugarcane (or any agro product !) is weak and often arbitrary in nature. There should be an independent statutory body that would provide detail recommendation of prices (of sugarcane among other things) based on appropriate study to government of Nepal. Lets think of a body similar to Commission for Agricultural Costs and Prices in India.

    • Such policy framework (pricing of sugarcane) should categorically include factors based on which pricing of sugarcane should be determined. Among other things such as cost of production of sugarcane, it should include an assessment of relationship and/or risk in relations with the FRP in India. The current scenario is such that the farmer welfare (ensuring through minimum support price) and market efficiency of sugar production (based on minimum support price) is mutually exclusive given the disparity of pricing of sugar in India and Nepal together with lower yield rate in Nepal. There requires a comprehensive strategy to balance this disequilibrium.

    • The current procedure (उखु कृषकलाई अनुदान दिने कार्यविधि २०७५) though can be tweaked to strengthen and streamline the distribution of subsidy in short-term, it cannot be the primary policy instrument. the regulatory regime for price of sugarcane and other incentive related program should be legislated through non-delegated legislation.

  2. Regarding Cash Subsidies to Farmers

    • The Cash subsidies to Farmers is a good initiative by the Government of Nepal. However, such initiative should have a categorical objective and should align to a larger sought policy objective. In prima facia the subsidies are not providing incentives for better yield and/or production and/or farming of sugarcane in Nepal. In contrast, as mentioned above there is a declining trend in total area of farming of sugarcane in Nepal in last few years.

    • The sugarcane industry in Nepal could easily run into to a risk of Samaritan Dilemma. Incentivized subsidy schemes should be introduced; subsidy could be tied with recovery rates of sugarcane.

  3. Regarding Sugarcane farming

    • Develop a sugarcane policy with tangible targets for sugarcane production and yield rates.

    • Government should formulate special programs with incentives to farmers in districts with high yield rates. Tangible incentives to switch from other cash crops in high yield districts (such as those in Sudur Paschim Province).

    • Use of crop variant with yield rate.

  4. Regarding Sugar mills

    • Government should design and implement special financial schemes for development, modernization and rehabilitation of sugar mills.

    • Conduct an independent due diligence and performance audit of all operating sugar mills. Such independent audit shall provide a clear picture of status of sugar mills and shall give ways for areas of work in sugar mills in Nepal.

Footnotes

  1. Data on sugarcane (and cash crops) used in this report is curated from annual agricultural statistics published by the Ministry of Agriculture and Livestock Development. Available at https://moald.gov.np/publication-types/agriculture-statistics/.↩︎

  2. Directorate of Sugarcane Development, Ministry of Agriculture & Farmers Welfare, Government of India, as accessed from https://sugarcane.dac.gov.in/pdf/StatisticsAPY.pdf.↩︎

  3. Department of Food and Public Distribution, available at https://dfpd.gov.in/gen_policy.htm.↩︎

  4. The data on MSP is obtained from various sources including government reports such as “Sugarcane Farming in Nepal” available at https://moald.gov.np/wp-content/uploads/2022/04/Sugarane-Development-in-Nepal.pdf.↩︎

  5. Sugarcane Farming in Nepal, Ministry of Agriculture and Livestock Development, 2077, available at https://moald.gov.np/wp-content/uploads/2022/04/Sugarane-Development-in-Nepal.pdf.↩︎

  6. The Government report suggests that the recovery rate was 8.22% in FY 2075-76 which most likely has arithmetic error.↩︎

  7. USDA, Sugar Annual India, pg. 3. avaibale at https://apps.fas.usda.gov/newgainapi/api/Report/DownloadReportByFileName?fileName=Sugar%20Annual_New%20Delhi_India_IN2023-0035.pdf. Reports of Government of Nepal claims that the recovery rate in neighboring states of India has recovery rate unto 12% (See Sugarcane in Nepal pg. 32. )↩︎

  8. This approximate difference of 18% is only if we are to discount direct government subsidy to farmers (which in FY 2020-21 is more than 1 billion at Nrs 65.28 per Quintal). If the government subsidy is incorporated in the cost of sugar production the difference would be more than 25%. Also, to be noted in this computation is that this report does not take in account SAP (Stated Advised Price) as practiced in few states of India which is higher than that of FRP (Fair and Remunerative Price).↩︎

  9. The import related data is obtained and curated from the website of Department of Customs. Available at https://www.customs.gov.np/page/statistics.↩︎

  10. “Price Policy for Sugarcane 2023-24 Sugar season”, Commission for Agricultural Costs and Prices, Government of India, November, 2022. Available at https://cacp.dacnet.nic.in/ViewQuestionare.aspx?Input=2&DocId=1&PageId=41&KeyId=820↩︎

  11. Department of Food & Public Distribution, Ministry of Consumer Affairs, Food & Public Distribution, Government of India, F.No. 11-68/2020-SDF, 21-09-2021. Available at chrome-https://dfpd.gov.in/writereaddata/Portal/Magazine/ClosureofSchemes.pdf↩︎

  12. Details on schemes is available at https://dfpd.gov.in/sdfbrief_c.htm↩︎