Sugarcane harvest season is upon us. That time of the year when most newspaper readers idly lament growers’ and millers’ failure to agree on a purchase price. Yet to ‘misquote’ Einstein, for farmers to keep growing more of the same crop every year expecting a better price is not insanity, it’s just lack of suitable alternatives.
In an interview with BR Research, Vice Chairman of Pakistan Sugar Mills Association cautioned against excessive cultivation of sugarcane, noting it to be detrimental for the farming economy. For one thing, sugar and its value-added products have lower export potential compared to other major crops. Sugarcane’s high water footprint isn’t some madman’s cries either; water scarcity is here and its reverberations are being heard across the corridors of power.
So there is near-consensus that cane farmers should switch to more productive and higher value-adding crops. India has achieved this. A 2014 KPMG commissioned report indicates that as water tables dropped in traditional cane and paddy growing areas of Andhra Pradesh and Karnataka, area under maize cultivation grew at a CAGR of 2.5 percent for over a decade, led by farmers ditching water-hungry crops for corn.
But consider this: among cereals, maize is often labelled as what economists call an inferior good. The grain is readily abandoned for other choicest cereals such as rice and wheat as income levels rise. Global prices are a reflection of this: during the outgoing calendar year, average paddy per ton rate stood at $420 and average wheat price close to $200 per ton, compared to which maize price per ton hovered at just about $150 per ton. Sugar price ranged between $300-$400 during this period. Commodity prices have followed a similar trend historically.
Why then should farmers in Pakistan or anywhere else plant maize over other crops? The answer is value addition. Maize is the largest cereal crop produced in USA by acreage with an area under cultivation of 90million acres. Corn’s diverse commercial uses explain this popularity. World over, corn is a basic ingredient for poultry and livestock feed, possibly accounting for over 61 percent of its use by one estimate.
As a major source of starch, corn is also the primary raw material for manufacturing-grade starch. But in US, corn is mostly commonly used to produce biofuel ethanol, which is blended with gasoline to produce E10 and E85 fuels for automobiles. According to a USDA estimate, ethanol production accounts for 27 percent of corn consumption in the States. The residual product from this process, called DDGS, is used to produce livestock feed.
It might be argued that the corn value-addition sector in the US is enabled by its higher yield. But consider this: India’s per hectare corn yield is less than half of Pakistan’s, yet the country has become a regional hub of corn export, capitalizing on growing demand for maize from far eastern countries such as Indonesia, Vietnam and Malaysia, which are net importers. Similarly, Japan, China, and EU are also all net importers.
Worldwide, only 17 percent corn consumption is explained by use as food. Industrial uses account for 22 percent end-use split. Despite such high commercial prospects, farmers in Pakistan continue to stick to ‘safe’ crops such as sugarcane because the value adding industry in corn is near-absent. As previously noted in these pages, unlike other major crops maize production in Pakistan achieved self-sufficiency in early stages thanks to introduction of hybrid seeds and does not necessarily need governmental support in the form of support price.
So the next time there is hue and cry over delayed sugarcane payments, don’t blame the farmers for not knowing Einstein. Blame the lack of value addition infrastructure which keeps them from producing anything but the safest commodities.
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