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The Sugar Industry in Maharashtra

Pradeep S Chavan ( is a former member of the American Society of Agricultural Engineers and American Horticultural Society, the United States.

Sugar cane and the sugar industry are an indisputable backbone of the rural economy in Maharashtra. Barring a few exceptions, this agro-industry is bound towards financial unsustainability. The causes and potential solutions out of this impending crisis have been detailed here.

The author gratefully acknowledges the comments of the anonymous referee.

Maharashtra witnessed an economic revolution in its rural areas because of the pioneering efforts of Dhananjayrao Gadgil, Vithalrao Vikhe Patil, Vaikunthbhai Mehta (among others) and some well-known names from the private sector such as the Walchand group, Somaiyas and Dahanukars, in establishing the sugar cane industry in the last century. The sugar industry became the bridge between agriculture and industry in the state and ushered in rapid rural development. This multifaceted industry engendered in its wake the development of rural infrastructure, ancillaries, cottage industries such as jaggery and khandsari (unrefined, raw white sugar), education, health services, farm mechanisation, milk industry, ethanol and other chemicals, and power generation. Consequently, the general standard of living in these areas was raised considerably.

Initially, in the 1950s and 1960s, it was but natural for the government to grant favourable status to the cooperative sugar factories to boost the movement and ethos of cooperation. However, continued state intervention and political influence, well after its establishment, precluded level playing conditions for all stakeholders in the industry. Regional interests may be the reason why licences were granted. This is despite the knowledge that by allowing higher density of factories with lower crushing capacities, economies of scale could never be achieved in the production of major products or byproducts. Further, the factories sanctioned had little correlation with the irrigation potential of the region. As a result, more than a fair share of the developed irrigation potential in the region was diverted to the sugar cane crop (Planning Commission 2007).

With competitiveness taking a back seat, over the last four decades, laxness creeped in resulting in below par performance in many departments of the industry. As a result, many sugar factories find themselves short of the spirit of cooperation, marooned in deep waters of debt and inefficiency, and faced with polar swings in political support.

The Present Context

The scenario in the post-liberalisation era has been one of despair. It has been observed that on the counts of sustainability, and financial and managerial competence, the cooperative sugar industry has performed poorly barring a few exceptions.

It is a fact that many cooperative sugar industries today are not in a position to pay a reasonable and fair price to farmers for sugar cane. The inability of securing adequate and timely credit, rising debt, interest on sunk investments, bulky labour force, non-upgraded technology, inadequate diversification of byproducts, and unprofessional management of the industry, all contribute to the increased cost of production (Government of Maharashtra 2007). Inadequate availability of sugar cane in some pockets precluded economies of scale. Further, the production cost of sugar in India is much higher than other countries such as the United States and Thailand (Sawhney 2005). Reports suggest that the contemporary industry worldwide, including Thailand, needs annual financial transfusions in some form from the state to make both ends meet (Meriot 2015).

The fluctuating policy of the government has done more harm than any other contributing factor. For example, the government has removed the regulation on the monthly quotas creating a glut in the market and at the same time, has bickered to impose duty on imported sugar, when sugar prices rise in the local market (Department of Food and Public Distribution nd). Further, it has maintained sugar in the “essential products” list, although only 25% of the sugar produced is used for domestic consumption. Obviously, if a product is listed under the essential category then it is the responsibility of the government to ensure a fair and remunerative price (FRP) for its producers because the government makes every effort to contain its price rise. A restriction on the sugar quota that mills should hold in the months of September and October (during the festive season) precludes the mills from getting better prices and paying up their loans and arrears to farmers. Due to the Rangarajan Committee, post-April 2013, some positive steps have been initiated but they are not enough (Rangarajan Committee 2012).

It is partly the silence and partly the snail-paced reform policy process of the government, unlike say Brazil, on what percentage of cane should be used for ethanol production, its price and price equation with fossil fuels, and deciding its proportion in the automobile fuel, that is sending the sugar industry onto a cliff edge (Rabello and Ewing 2015).

After making sugar cane farmers unhappy, the political mandate has also gone against the sugar lobby. However, expecting the same political support as earlier from the state will be asking too much from debt-laden Maharashtra. There is every possibility that the Maharashtra Electricity Regulatory Commission (MERC) may reduce the proposed procurement price of the electricity generated by the sugar mills in the near future as the trend is to reduce the tariffs of most non-conventional energy sources (MERC 2017). The international scenario has only added to the trouble in the form of higher stocks and lower costs of production of sugar world over, in comparison to India. The falling prices of Brent crude oil have further added fuel to the fire, making even the environment-friendly ethanol production lose lustre.

In summary, the industry is at the crossroads where on the one hand, the government has gone ahead with sops such as soft loans, compulsory exports of four million tonnes of sugar, waiver of 12.5% excise duty on ethanol, increasing ethanol blending to 10%, removing the compulsion of jute packaging, and levying sugar purchase at market price, etc, and on the other, is going back on reducing mill quotas during festive seasons. The state-advised price above the FRP is also a matter of concern in Maharashtra where recovery is significantly higher than the national average (Bhosale 2017). The policy to import without duty during shortages and permit export only during glut, as we have stated above, are policies that eventually hurt the sugar industry which has a cyclical nature. At present, most mills in Maharashtra will not be able to meet the demands of sugar cane farmers in the absence of government assistance. Besides, the existing ethanol manufacturing capacity is way below the market requirement, if we were to go ahead with the 10% blending of fuel for vehicles.

On the other hand, total price deregulation, although an ultimate goal, has its own limitations under the present circumstances because whether it is the mandis (bazaars) or the agricultural produce market committees (APMCs) or the commodities, our markets are not totally free and fair. Add to that the seasonal and cyclical nature of the product, shortage of storage facilities, and political priorities, and we have a complex production and distribution scenario. Obviously, the transparency in sugar deals (on and off the line) is desired (Haque 2014). Further, trading in futures is yet to make a favourable impact either on the factories or the final consumer (Biswas 2016). Therefore, implementing a carefully planned short- and long-term strategy is the only way ahead.

Nurturing the Sugar Industry

In spite of all these shortcomings, it has to be borne in mind that the sugar cane industry is the backbone of the Maharashtra’s agrarian economy and especially, rural employment. A sizeable population derives its livelihood from cane cultivation and employment from the sugar and allied industries. Maharashtra contributes about one-third of the total sugar production in the country with the highest recovery rate. The industry is a taxpayer, power generator and a potential carbon credit earner.

With almost 55% of India’s population based in the rural areas and dependent on agriculture (directly or indirectly), a significant percentage of which is below the poverty line (47.9%), we must admit that bringing together agriculture and industry in the rural areas is the only long-term solution that will withstand the test of “inclusive” growth (Reserve Bank of India 2013). Inclusive development of the farming community is impossible if there is inequality in the “risk and reward” equation as the cream of the profit is pocketed by the marketing chain. Agro-based industry is the only means of increasing the farmer’s share in the price paid by the end user of the product. It has been proven that the cause of mass suicides of farmers has been due to financial stress, issues outside the farmers’ control, including weather, disease, market fluctuations, potential social isolation, lack of access to crop insurance, and lower state subsidies (United Nations 2016). Hence, an all-out effort to turn around the sugar industry should not be treated as charity but a matter of priority by the state.

That this is not an impossible task has been demonstrated by countries like Brazil, wherein the sugar cane–ethanol industry had a bright outlook for 2016. The blending of ethanol in fuel rose up to 27% due to state motivation (Rabello and Ewing 2015). In future, the sugar cane industry can be expected to play a pivotal role in buffering the prices of fossil fuels for the country. In that sense, sugar cane is a multifaceted crop. It is one of the most efficient crops in terms of the dry matter and calories/energy produced with a given quantity of resources, including irrigation water. Sugar cane is also an efficient user of sunlight in photosynthesis (Deepchand 2005). Apart from the sugar, molasses and chemicals produced by the sugar industry, every part of the crop from its leaf tip to fibre, bagasse, and even the ash-and-press mud is usable. The long gestation period of the sugar cane crop has been brought well below one year due to the introduction of early maturing sugar cane varieties such as COC 85061, considered a breakthrough in research for its yield of 128 tonnes per hectare (Tamil Nadu Agricultural University nd).

Problems and Plausible Solutions

The problem lies in the technique of sugar cane cultivation, and policy planning and management of the sugar industry. Yet, despite the challenges, there are some well-known sugar mills (consortiums) which are doing exceptionally well even in these trying circumstances. Thus, the critics of sugar cane cultivation must be reasonable in their opposition and realise the potential of colossal direct losses or repercussions of the crumbling of the rural sugar-based economy. We have witnessed the role of the government and its subsequent withdrawal in the poor marketing of one cash crop—cotton—in the Vidarbha region (Business Standard 2013). The asphyxiating marketing chain in the case of most agricultural produce leaves the farmer a lower share in the final retail price paid by the consumer. That farmers opting for cash crops are left with no choice but to resort to suicides in case of crop failure or any familial emergency are well-documented facts.

The sugar cane cultivator chooses sugar cane because he does not have to worry about either the price rate or marketing of the produce. Until recently (before the outbreak of crop epidemics such as woolly aphid), the crop was best-suited to less intervention in comparison to other crops. However, as the nature of the general economy changes, farmers are bound to move towards a free-market system (APMCs’ monopoly in determining vegetable and fruit prices has already been challenged in 2016 [Sawant 2016]) and enterprising farmers will definitely find more profitable alternatives to sugar cane. Besides in a neo-liberal market, participants have to assume global competition. The point of exposing the shortcomings in the current state of this agro-industry is to be able to illuminate a future course of action to recovery.

Sustainability: Concerns include the sustainability of natural resource use and its conservation, and inclusive welfare of all stakeholders involved. More than half a century has passed but the industry has not reached the status of a zero-pollution industry. Even the so-called “developed” sugar factories have failed to curb their contribution to this menace (Maharashtra Pollution Control Board 2011).

Secondly, the amount of water consumed by the sugar cane crop through traditional irrigation methods is an unaffordable luxury for the state in the present scenario. This eventuality became evident in the 1970s and 1980s in spite of several irrigation projects underway. Predictably, considerable amount of the irrigation potential developed in the state was used up by the sugar cane crop (Planning Commission 2007).

In the last 35 years, the state could have brought the entire crop under compulsory drip irrigation but it appears that the political will for the same was inadequate. Apart from conserving water, drip or micro irrigation would have saved on fertiliser use, weedicides, and cost of cultivation, by easily adopting two subsequent ratoon crops (or re-harvests). Even now, with the advent of satisfactory monsoons, almost one lakh hectare of land has been newly brought under sugar cane cultivation (over and above the 6.33 lakh hectares in 2016–17) (Commodities Control 2017). What percentage of this land is under micro irrigation is not known. Indeed, there have been cases wherein due to over-irrigation by traditional methods, several acres of land have become saline alkali.

With a maximum eight-month regime of the state-permitted irrigation facility, only those farmers with an assured summer irrigation augmentation facility would go for a limited cane crop. Automatically, the acreage would reduce and the productivity per acre would increase. Incidentally, there is considerable scope in increasing the per hectare productivity of sugar cane which could help boost the profit margins of farmers. Therefore, the first policy decision should be to achieve a “no drip (or say micro irrigation), no cane” rule within the next five years. The on-farm experiments have proven that drip irrigation saves about 70%–80% of irrigated water compared to conventional flood irrigation. This is due to the high application efficiency of micro irrigation (Tagar et al 2012). In other words, resources have to be used in a judicious manner to optimise the returns from the developed irrigation potential. Thus, a rise in the panipatti (irrigation water tax) in the near future seems inevitable.

Inclusive development: Compared to other industries, the sugar industry definitely fares better on the factor of inclusiveness. However, since the irrigation potential developed was not equitably distributed among different crops, and the benefits of the sugar industry were not impartially shared among its various stakeholders, there is scope for improvement on this front (Banerjee et al 2001). This includes the status of landless labour employed in cane harvesting, inadequate share from the profits set aside to upgrade technology or to provide loans and facilities to marginal farmers and landless labour to set up agri-ancillaries to ensure employment through the year.

Management of sugar factories: Barring a few exceptions, most cooperative sugar factories are not professionally managed. Efforts to make the sugar factory a “multi-product–multidisciplinary agro-industrial hub” or an “integrated agroindustrial consortium” that could run 365 days a year have fallen short. The successful factories keep themselves busy, at times by refining imported raw sugar. The production of byproducts such as paper, hardboard, etc, can be jointly undertaken by factories in the vicinity in order to achieve economies of scale. Ethanol could be produced not only from sugar cane but also from sweet sorghum and sugar beet so that the plant can run round the year. With an assured captive power, a thriving edible mushroom industry that requires uninterrupted air-conditioning could be undertaken and/or processing plants for dehydrated onion and garlic nurtured. Starch production from corn, and tapioca could also be thriving enterprises. Thus, the sugar industry can set a unique example of 360˚ linkages.

Adopting better technology: This will help increase the viability and sustainability of the sugar cane crop. For instance, before being processed through a crusher, sugar cane is stripped off its outer epidermis by specially developed machines. This outer layer calledcomrind” contains longitudinal fiber which has high structural integrity and is used for making hardboard that is widely-used in the construction industry. A Canadian firm, Tilby Technologies Inc, developed a technology to produce core panels, laminated strand lumbers, medium-density fibre boards, oriented strand boards, fuel pellets, moulded products, and particle boards from comrind. The central portion of cane (comfith) post the extraction of the juice can be and is presently used to produce particle boards, fibre boards, absorbents and animal feed, which can easily justify sugar cane’s cost of production and also ensure a fair price to farmers. The wax obtained from the outermost dermax layer is a bonus as it is an essential raw material in many industries. Given that only the “cleaned” cane, sans comrind, is sent to the crusher, the further purification process would require much less energy, water and other resources. Furthermore, adopting high pressure boilers and turbo alternators, as is the case in the Mauritius, will not only make the factory energy-efficient but will also help in saving bagasse for the production of byproducts (Zafar 2015). All of the above-mentioned processes are an untapped potential in Maharashtra’s sugar industry.

Innovating for exports: Indian white sugar is not so well-received by importers (Naiknavare 2016). Indeed, the European Economic Community countries prefer to import raw sugar and refine it to their required standard. More refined products, catered for exports, may be produced by sugar factories in the region. Currently, the export of raw sugar, even with government subsidy, is not economically viable because of lower world market prices (Pattanayak 2016). Moreover, there are no takers for raw sugar in the local market either, which requires plantation white sugar (suitable for table use, not food processing). Additionally, efforts must be made to promote a healthier version of sugar (with higher nutritive value) in place of white sugar for domestic consumption.

Transparent business deals: It is a rather sad situation when farmer-members of sugar cooperatives lose faith in their own representatives. It is a crucial distinguishing factor between professionally-run sugar factories that have positively changed the lives of their shareholders and those on the brink of insolvency (Banerjee et al 2001). In fact, the trend of private firms acquiring insolvent sugar factories from the cooperative sector is on the rise, as the ready-made infrastructure comes at a cheap price and sans liabilities (Indian Express 2013). A few institutions have been successful in turning around loss-making sugar industries into an economically and financially sustaining consortium.

For instance, a private sector entity—Natural Sugar and Allied Industries of Osmanabad—has shown beyond doubt that a sugar industry coupled with a distillery, cogeneration plant using agro-waste, ferroalloys factory, and raw sugar imports to run the factory round the year, make it a profitable venture. The factory even recycles the water used by the industry. The exemplary performance of cooperative giants such as Shree Tatyasaheb Kore Warana Sahakari Sakhar Karkhana, Warananagar, Shree Chhatrapati Shahu Sugar Factory, Kagal, and Shree Datta Shetakari Sahakari Sakhar Karkhana, Shirol, all based in Kolhapur district, need a special mention for their exemplary management. The Warana group is complete with a bagasse-based cogeneration plant, a distillery, a zero-discharge effluent treatment plant, pulp mill, sodium lignosulphonate plant, bio-compressed natural gas, and biofertiliser plant from press mud. Shree Chhatrapati Shahu Sugar Factory also has matching plants along with biodigesters installed to produce biogas from the spent wash and at the same time, reduce pollution. Notably, the management of these groups provides its farmer-members with a share not only in the production of sugar but also in that of the byproducts.

Funds for working and capital investment can be raised from foreign investors, provided transparency in dealings is guaranteed. Further, the management rights will have to be shared with the investors. Furthermore, no venture capitalist will have the foolhardiness to invest in a business sector where government policies are temperamental. In a scenario of no regulation, investments from Indian and overseas sources are a veritable option.

Government policy: A stable policy based on a definite vision for the next decade is the need of the day. The government has to arrive at a decision regarding the percentage of cane to be used for ethanol production. It also has to increase anhydrous ethanol from 10% to 15% in the prevalent fuel mix and fix a premium price policy for the environment-friendly ethanol in tandem with petrol/diesel prices. Simultaneously, the government has to give an impetus to “flex vehicle” manufacturing. The deregulation of the industry has to move in tandem with a detailed plan of systematic weaning of the industry towards self-sufficiency and independence. Until then, the perquisites such as soft loans for improved technology, export incentives, provision of credit are necessary.

Thus, a comprehensive development approach needs to be adopted by all concerned parties and at all levels, else the sugar cane and sugar industry is bound to go further downhill.


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The author gratefully acknowledges the comments of the anonymous referee.

Updated On : 23rd Feb, 2018


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