UNIVERSITY GRANTS COMMISSION MINOR RESEARCH PROJECT SATYASRI.M

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1 UNIVERSITY GRANTS COMMISSION MINOR RESEARCH PROJECT SUGAR INDUSTRY PRODUCTIVITY TRENDS IN MAHARASHTRA SATYASRI.M SHANKAR NARAYAN COLLEGE OF ARTS AND COMMERCE, BHAYANDAR (E)

2 Sr. No. 1 PREFACE 2 INTRODUCTION CONTENTS PAGE NO. 3 SUGAR INDUSTRY IN INDIA 4 SUGAR INDUSTRY IN MAHARASHTRA a) LABOUR PRODUCTIVITY b) CAPITAL PRODUCTIVITY c) SUGARCANE PRODUCTIVITY d) PRICE OF SUBSTITUTE GOODS 6 ANALYSES OF SUGAR PRODUCTIVITY 7 CONCLUSION

3 PREFACE This study has been undertaken to observe the sugar productivity trends in Maharashtra. Sugar industry in Maharashtra is a real contributor for agriculture sector as well as industrial sector. It is interesting to know that the sugar industry in Maharashtra has a unique feature of co-operative societies. They contributed for socio, economic and political development of rural Maharashtra. With this historical background it is necessary to know the future of sugar industry In Maharashtra at present condition. This research project has fulfilled this objective with the study of productivity trends in relation to labour, capital and sugarcane. During the completion of this project many people have contributed directly and indirectly. I wish to take the names of them. I am glad to express my heartfelt thanks to my Guide Dr. Surya Rao, Reader, Head of the Department of Economics, PG courses, D.N.R. College, Bhimavaram. I wish to thank our Chairman, S.N.Education Trust, Shri Rohidasji Patil for his interest in academic development of the Staff. I extend my sincere thanks to our Principal Dr.S.B.Singh for his kind co-operation to complete this study. I would like to thank my college Librarian Mr. S.Dongre and clerk Miss Anjali Shinde for providing the timely assistance. I wish to thank my colleague Dr.A.Rabbani and Mr. Sunil Dhapse I wish to thank all the Librarians of various institutions like Pune University, Gokhale Institute of Economics and Politics, V.S.I. Manjari (Bk), Pune, University of Mumbai, IGIDR and S.N.College for the assistance during the time of collecting the data and information about the study. The work remains incomplete unless I thank the UGC for their financial assistance to encourage the research attitude of academicians. Last but not the least I wish to thank my mother, sisters and brother for the moral support in all my activities.

4 SUGAR INDUSTRY- PRODUCTIVITY TRENDS IN MAHARASHTRA Chapter I Introduction Objectives Scope and Data Sources Review of Literature Chapter II The productivity trends of sugar industry in India a) Labour productivity b) Capital Productivity c) Sugarcane Productivity Chapter III Productivity trends in Maharashtra 1. Sugarcane Labour productivity 2. Capital Productivity 3. Sugarcane Productivity Chapter IV Analysis Chapter V Conclusion Limitations and Suggestions

5 CHAPTER I INTRODUCTION: 1.1 About the study and need for the study 1.2 Objectives, Scope, Data Sources 1.3 Definition and Measurement of Variables a) labour productivity b) capital productivity c) sugarcane productivity 1.4 Methodology 1.5 Scheme of Analysis 1.6 Review of Literature

6 In this Chapter an introduction about the study, need for the study, objectives of the study, scope, data sources and scheme of analysis are presented. 1.1 About the Study: Sugar industry is one of the major traditional industries in India. The dictionary meaning of sugar is a sweet crystalline substance obtained from sugarcane and sugar beet. It is one of the most important consumer goods. Sugar Industry is second largest agro-based industry in India. It ranks third largest industry in terms of its contribution to the net value added by manufacturers. It employs 3.25 lakh workers directly and 45 million farmers of sugarcane cultivation indirectly. The total installed sugar factories in India are 594 out of which 317 are in cooperative sector and 215 are in private sector and 62 are in public sector. The major raw material required for the industry is sugarcane. Sugarcane forms 60 per cent of the total cost of production. Therefore, the sugar industry is naturally located near to the availability of sugarcane. Thus the location factor plays an important role in sugar industry. Sugar is an essential mass consuming commodity. The market for sugar is a seller s market unlike that of sugarcane. Sugar can be stored in order to gain from the price fluctuations in the market. This has given scope for the manufacturers and traders to mismanage the distribution and exploit cane growers and consumers for maximize their profits. Thus the state intervention and control over the production and marketing of sugarcane and sugar become necessary. In comparison with other countries, one of the strangest features of India s sugar sector is the almost complete absence of large-scale, factory owned sugarcane growers. But during 1930s there was a rise of vigorous new competitors from the South and West of India organized on new lines as Co-operative factories owned by thousands of village cane growers. The first co-operative factories started in in Andhra Pradesh at Etikoppaka, Thummapala and Vuyyur.

7 In 1934 Saswad Mali community set up sugar factory in Maharashtra. But the real growth of co-operative sugar factories started by the Pravara co-operative Sugar factory in At present there are 317 number of co-operative sugar factories out of 594 sugar factories. Co-operative sugar factories contributed towards agriculture development as well as industrial development in India. There are two important by-products of sugar industry i.e. bagasse and molasses. They are used in various products and major revenue streams to sugar industry. Ethnol is manufactured from industrial alcohol which is produced by molasses. The other by-product bagasse is used in co-generation of power. Although Indian sugar industry occupies fourth rank as a producer in the world, its contribution towards foreign trade is not significant. It is because of various problems faced by the sugar industry. The major problems of sugar industry in India are; 1. Existence of a large number of sick units. These units are unable to run at break-even points. A large number of Indian sugar factories are old and outdated and of small capacities. The manufacturing losses are high. 2. Instability due to changing government controls, decontrols and partial control policy in sugar industry. The executives are of the opinion that the frequent changes in the government sugar policy are effecting the internal stability and development planning programmes.3 3. The higher price for sugarcane i.e. S.M.P. and S.A.P. aggravated the cost of production.ted. 4. A study of Reserve Bank of India points out declining trend in the profitability of some 77 selected companies. 5. Competition from Gur and Khandasari is another major problem of sugar industry in availing raw material- sugarcane.

8 1.2 Objectives of the study: 1. To study the productivity trends of sugar industry in Maharashtra for the period of 1991 onwards 2. To analyse the productivity in sugar industry in relation to a. Labour Productivity b. Capital Productivity c. Sugar Cane Productivity d. Price of substitute goods 3. To evaluate the prospectus of sugar productivity 4. To suggest necessary measures to improve productivity Scope of the study: In this study the time period is selected from 1991 onwards to examine the effects of policy changes in the industrial sector. Data Source:- To analyse the trends in sugar industry in India and Maharashtra secondary data is used as a main source. 1.3 Definition and Measurement of variables:- In this study the traditional measures of productivity such as labour productivity, capital productivity, sugar cane productivity are used to understand the productivity trends. Labour productivity: it is measured by dividing the Gross Value Added (GVA) with number of persons employed. Capital productivity: it is measured by dividing the Gross Value Added (GVA) total output with capital. Sugarcane productivity: it is measured by yield in terms of Kg production of sugar per hectare of area. 1.4 Methodology: The study has compared the averages of capital, labour and sugarcane productivities with output productivity in India as well as Maharashtra.

9 1.5 The scheme of Analysis: In this study the topics are analysed as in the following manner 1. The chapter I consists with the introduction to the topic the sugar industry productivity trends in Maharashtra. 2. The chapter II studies the productivity trends in India in general and in Maharashtra specific. 3. The chapter III deals the detailed study of trends in productivity of labour, capital and sugarcane and the impact of prices of substitute goods. 4. Chapter IV examines the analysis of the sugar industry. 5. In the chapter V the conclusion, limitations and suggestions are discussed.

10 1.6 Review of Literature Kirilyuk and Kirilyuk (1971) 1 have indicated with empirical evidences the need to increase production capacity of the factory from to 1700 tonnes per day in order to achieve economies of scale further, the suggested the optimum campaign length of 110 to 115 days.( The production capacity of sugar factory and optimum length international. Sugar Journal February 1971, P.No.56) Syed Ali (1990) 2 studied cost and revenue structure, capacity utilization, technical efficiency and performance of sugar industry in the thesis An Analysis of the functioning of Nizam Sugar factory-a case study of Amruthnagar Unit. It has been observed that there is an inverse relationship between scale of productions and cost per quintal. It is suggested that sugarcane price should be realistic and high yielding and maturing verities should be used instead of traditional verities. Pagar Sudhakar Kashinath (2003) 3 studied the transformation of rural economy due to sugar cooperatives in the thesis Socio economic effects of a Cooperative Sugar Factory: A case study of Vasantdada Patil Sahakari Sakhar Karkhana Lts Vithewadi, taluka deola, Nasik( )2005. The study explained the changes in the rural economy with special reference to agriculture, industry, trade and commerce, employment generation, infrastructure development etc. Nachiket Madhav Vechalekar (2004) 4 studied the cost effectiveness of sugar industries in the thesis Assessment of Cost effectiveness of Sugar Cooperatives in Western Maharashtra with special reference to by products, joints products and multi products. This thesis studied the cost structure of selected sugar factories under different conditions like including and excluding by products. It has been observed that the conversion cost showed an increasing trend in all the four years. The technical performance has been observed that there has been constant improvement in the recovery percent of sugar in the last 5 years. G.Subramanian (1982) 5 studied the regional efficiency of the sugar industry by using Cobb- Douglas production function for the period and The concept of efficiency has three interpretations i.e. technical, price and economic. It has been concluded that the tropical region is relatively more efficient than the sub-tropical region and the stability with regard to efficiency remains

11 unaltered between that periods. ( Regional Efficiency in Indian Sugar Industry-A Production Function Approach, Margin, January-1982, Vol.14, No.2) K.R.Dawar (1990) 6 studied returns to scale and factor productivity in the cooperative Sugar Industry in Punjab and Haryana. The span of 20 years ( to ) data has been collected from original accounts of the mills. It has been observed that the sugar mill is said to be operating at constant returns. In conclusion the Punjab in general has been better performance than Haryana. ( Returns to Scale and Factor Productivity in the cooperative sugar industry in Punjab and Haryana - Indian Journal of Industrial Relations, Vol.26, NO.2, October, 1990.) R.M. Honavar (1992) 7 studied the performance of the sugar industry in four southern states Tamil Nadu, Karnataka, Andhra Pradesh and Kerala during to The growth pattern has been analysed with the parameters like labour productivity, capacity utilization, recovery, project behavior, growth in the profits, profits per tone of sugar. The study concludes that The sugar economy of the four southern states has been subject to very sharp fluctuations. The performance of the sugar industry in South India, as indicated by the profitability ratios, has declined over the latter half of the 1970s,Trends in the performance of the physical indicators such as productivity of labour and rate of capacity utilization diverged significantly from that of value indicators such as net sales, gross value added and gross total assets. Variations in physical efficiency thus did not appear to have any decisive influence on the financial performance of the industry. ( The Structure, Growth and Performance of the Sugar Industry in South India -ICSSR Research Abstracts Quarterly, Vol.XXI, No.1&2, Jan- June 1992.) Dr.T.S.Devaraja (2008) 8 studied the cost of production of sugarcane into sugar in Karnataka during to The internal and external influencing factors of this industry with a view to know the cost of production of sugarcane into sugar have been discussed. To study this sugar factories from private, public and cooperative sectors have been selected. In this study it has been observed that the cost of sugarcane is around 60% to 70% of the total cost. The study observed that the quantum of loss in selling per quintal is highest in public sector sugar factory in comparison to private and cooperative sector. Sugarcane price paid by private sector factory is higher in comparison to public and cooperative sector. Fixed and other costs are also highest in public sector as compared to cooperative and private sector. It is concluded in this paper that the availability of sufficient quantity of qualitative sugarcane is an important requisite for the factory to be economically viable. ( Cost of Production of

12 Sugar from Sugarcane in Karnataka A Comparative Analysis Approach -COOPRATIVE SUGAR, Vol.39, No.6, pp15 to 22) Bohhade Shivaji N. examined the SWOT analysis of sugar factories in the article SWOT Analysis of Sugar Factories in Maharashtra (Co-operative Sugar, March 2007; Vol.38, No.7).The comparison of strengths, weaknesses, opportunities and threats of sugar factories were analysed as ; Strengths: co-operative form of organization, Support of sugarcane growers Support of the central and state governments, Easy availability of sugarcane, Availability of cheap labour and Availability of supervisory and technical staff. Weaknesses: Insufficient supply and low productivity of sugarcane, Lack of professional management, Lack of training facilities to employees, Political interference, Over employment, Outdated technology, Under- utilization of capacity, Over burden of stock of sugar as compared to the world, High rate of interest on bank borrowings, Lack of research and development activities, Inadequate irrigation facilities and poor water management, Inadequate farm credit, Non-availability of high yield varieties and Inadequate attention to the ratoon crop. Opportunities: Establishment of by-product complexes, Increase in sugar consumption in India, Increase in sugar productivity, Package from Governments, Alternative crop like beet, Development of sugar complexes, Concentration on research and development, Adoption of drip irrigation system and Computerisation of sugar factories. Threats: Changing policy of the Governments, Shortage of sugarcane, Entrance of private and foreign competitors, Competition with other sugar factories and substitute industry, Attack of white woolly aphids, insects, diseases and weeds. L.D. Deodhar (1950) 10 studied labour in the sugar industry in 1950 with reference to Bombay Deccan in his thesis Labour in the Sugar Industry of Bombay Deccan. In this thesis he has considered the problems of the labourers working in the sugar industry, their standard of living and welfare. N.G.Bapat (1968) 11 worked on the economic development of Ahmednagar district and given the history of sugar factories in the district. But there was no reference in related to impact of sugar factories on rural economy.

13 N.S. Jain (1976) 12 worked on Theur Cooperative Sugar Factory of Haveli taluka in Poona district under Regional Economic Planning in a Sugar Factory Area. The study analysed the proper demarcation of functions between the sugar factories and other local planning agencies. The study also examined the propriety of entrusting particular planning functions to an organization like a cooperative sugar factory. G.B. Andhale (1972) 13 studied the impact of sugar factory on the lives of the producer shareholders of the factory with special reference to Sangamner Bhag Sahakari Sakhar Karkhana under A Study of impact of Cooperative Sugar Factory on the lives of Farmers with a special reference to Sangamner Bhag Sahakari Sakhar Karkhana. V. Malyadri (1975) 14 analysed certain aspects of socio-economic impact of sugar cooperatives in general. The study focused on social aspirations and social accountability of economic organization. It also observed that a sense of consciousness among people at all the levels has been developed due to the cooperative sugar factories. Mahajan 15 Committee has been appointed by the government of India to study the development and growth of the sugar industry in India vis-à-vis other sugar producing countries, and suggest modifications, amendments and repeal of existing laws and controls for healthy growth of sugar industry. The important recommendations are complete decontrol of sugar price, supply of sugar through PDS may be discontinued when complete decontrol becomes effective, continuation of statutory minimum price for sugarcane, existing policy for licensing of new sugar mills may continue with modifications, no new license for khandasari units should be allowed within the reserved sugar mill area, strengthening the research and development for sugarcane cultivation and sugar industry

14 CHAPTER II THE PRODUCTIVITY TRENDS IN INDIA In this Chapter the Sugar Industry productivity trends in India were analyzed in terms of labour productivity, capital productivity, sugarcane productivity and the impact of substitute goods prices. These topics have been covered under the following sections 1.1 Growth and development of Sugar Industry in India 1.2 The concept of productivity 1.3 Trends in labour productivity in sugar industry in India 1.4 Trends in capital productivity of Sugar Industry in India 1.5 Sugarcane productivity trends of sugar industry in India 1.6 The impact of prices of substitute goods 1.7 Summary

15 1.1 Growth and development of sugar industry India is the fourth major sugar producer in the world, with 22% share of the world s sugar production. It is second largest agro-based industry in India. It ranks third largest industry in terms of its contribution to the net value added by manufacturers. It employs 3.25lakh workers directly and 45 million farmers of sugarcane cultivation indirectly. Sugarcane production accounts for 3% of total cultivated area and contributes 7.5% of the gross value of agricultural production. It is also an important source of excise duty for the Central Government. The growth and development of sugar industry has under gone various conditions which has been explained with the following aspects a) The growth of number of sugar factories b) Sugar production and consumption trends c) State wise production in India d) India: Cane Acreage, Cane Yield, Sugar Production, Recovery There were only 29 sugar factories in 1931 in India. They have been grown into 159 by The growth of number of factories has been shown in the following table 1.

16 Table 1 the growth of number of sugar factories in India Year Number of Factories Source: ISMA

17 At present there are 508 sugar factories with average capacity tons crushed per day of 2700 and with total installed capacity of 19.2 million tones and 500 factories were in operation. There is a continuous rise in production and consumption of sugar since The growth trends of production and consumption of sugar have been shown in the following table 2. Table 2. Sugar production and consumption (million tones) Year Production Consumption

18 The trends in consumption and production of sugar during to reveal that there are violent fluctuations in them. The growth in consumption shows continuous rise, where as the growth in production is fluctuating.

19 The contribution of various states in the sugar production in India has been shown in the following table. Table 3. State wise Sugar Production in India (1000 Tonnes) State Andhra Pradesh Bihar Chattisgarh Gujarat Haryana Karnataka Goa Madhya Pradesh Maharashtra Punjab Rajasthan Tamil Nadu U.P. Central U.P. East U.P. West Others-Orissa, West Bengal All India Source: Sugar India Year Book 2009.

20 Given transport facilities and access to markets, the economic size of a sugar unit is necessarily dependent upon the availability of cane in the region. This concentration is substantiated from observation of the trend of sizes established in different regions of this country in relation to availability of cane. Comparatively the size of the sugar mills in U.P., Bihar and Maharashtra where continuous availability of cane is assured, is observed to be larger. The following table4 shows the trends in Cane acreage, Cane Yield, Sugar Production and Sugar Recovery during to It has been observed that there was an overall increase in all the parameters of sugar industry during this period. Table 4. India: Cane Acreage, Cane Yield, Sugar Production, Sugar Recovery Year Cane Acrege (1000 Hect.) Yield of Cane (per Hect./M.T.) Sugar Production (1000 M.T.) Source: Sugar India Year Book 2009 Recovery (Sugar % Cane)

21 Location of sugar industry in India Sugar industry is an agro based industry. The major raw material required for the industry is sugarcane. Sugarcane forms 60 per cent of the total cost of production. Therefore, the sugar industry is naturally located near to the availability of sugarcane. It is also essential because the sucrose content of the sugarcane begins to decrease soon after the cane is cut. In the words of Dr.Mehta, the location pattern of the sugar industry is greatly influenced by the character of local distribution of sugarcane within the country and since such distribution depends entirely on physical and geographical factors, nature plays a dominant role in determining the location of sugar industry. Sugarcane grows both tropical and subtropical regions. In India, Andhra Pradesh, Tamil Nadu, Karnataka, Kerala and Maharashtra come under tropical regions where as Uttar Pradesh, Bihar, Punjab, Haryana, West Bengal, Rajasthan, Orissa and Madhya Pradesh come under sub regions. It has been observed a location shift in the sugar industry from subtropical region to tropical region during the process of development. The sucrose content in the sugarcane grown in the tropical regions is greater than in sub-tropical regions and the development of cane in the South is mainly responsible for bringing about location changes in the industry. Further the completion of various irrigation projects like the Irwin canal in Mysore (Karnataka), Nizamsagar and Tungbhadra projects in A.P., Cauvery and Mettur and Periyar irrigation projects in Madras have led to the sugar industry s development in Southern states. State intervention and sugar price policy Sugar is an essential, mass consuming commodity. The market for sugar is a seller s market unlike that of sugarcane. Sugar can be stored in order to gain from the price fluctuations in the market. This has given scope for the manufacturers and traders to mismanage the distribution and exploit cane growers and consumers for maximize their profits. Thus the State intervention and control over the production and marketing of sugarcane and sugar become necessary from time to time to curb the market imperfections like hoarding, black marketing, regulating price rise and ensuring equitable distribution of sugar to the consumer apart from ensuring a fair price for the cane grower and sugar manufacturer.

22 The sugar industry was granted tariff protection by the Government under the Sugar Industry (Protection) Act of Within five years of granting such protection the industry showed a magnificent development and its production reached a stage of surplus and created problems of price decline and marketing. In 1937 Indian Sugar Syndicate Ltd was established by the sugar mills owners with a membership of 92 sugar factories. However, due to failure on the part of its member factories to adhere to the norms fixed, the Syndicate could not succeed in regulating the prices and marketing of sugar. Government intervention under these circumstances became inevitable to protect the interests of various groups like farmers, producers and consumers. Thus the statutory control on price and distribution of sugar was imposed for the first time in the country through the promulgation of the Sugar Control Order in However the Control Orders created certain favorable conditions to the industry. During the first three years of the imposition of control i.e. from to the area under cultivation increased from lakh acres to lakh acres recording 22% increase. Similarly, the sugarcane and sugar output increased from 379 lakh tones to 579 lakh tones and 7.63 lakh tones to 12.2 lakh tones recording a growth rate of 37 per cent respectively. The partial control policy was introduced in 1950 which has shown a positive impact on area under sugarcane cultivation, cane output and sugar output which were 32, 24 and 56 per cent respectively. However the frequent policy changes of the government created instability in sugarcane production as well as sugar production.

23 The changes in sugar control policies were shown in the following table 5. Table 5. Sugar policy in India Year Policy Levy % Free sale % Minimum cane price (Rs./QTL) Partial control Partial control Partial control Partial control Partial control Partial control Partial control Partial control Partial control Partial control Partial control Partial control Partial control Partial control Partial control Partial control Partial control Partial control Partial control (from to ) ( to ) Partial control Partial control ( Partial control Linked to basic recovery

24 to ) (1-10- Partial control to ) (1-3- Partial control to ) Partial control Partial control Partial control Partial control Partial control Partial control Partial control Source : Sugar India Year Book,2009. Finally the intervention of State in the Sugar Industry Policy has been criticized due to lack of practicality and more political oriented. Sugar co-operatives In recent years co-operative sugar factories have begun to play an increasing role in the total sugar production in the country. Thus, co-operative sugar factories have taken a strong hold on sugar industry and this has resulted in great benefit to sugarcane growers who are shareholders and members of the co-operative sugar factories. The process of development of co-operatives in sugar industry This industry first grew on a large-scale during the 1930s and 1940s in northern and especially northeastern India (Bihar and eastern U.P.). Although the cane itself was grown cheaply by the villagers, the transaction costs in getting a regular supply delivered to the mills were quite considerable.

25 Many of the private mill owners have responded, over the last few decades, by neglecting to reinvest in new equipment. Their plants have become obsolete and even less able to cope with the demands of the cane growers and the Government. The roots of these problems are set the awkward cane supply relationship between the factories, the cane growers and the co-operative supply unions with their underlying conflict of class interest. Meanwhile, the old established sugar interests of northern India have been faced with the rise of vigorous new competitors to the South and West. These competitors are organized on new lines as co-operatives not as co-operative cane supply unions, but as co-operative factories, with each factory owned by thousands of village cane growers. The first co-operative factory was organized in 1950 in Western India, in the state of Maharashtra. It was a success and by 1960 there were 14 such factories in the State; by 1970 there were 30 and by 1980 the number was 60. Maharashtra produces more sugar than any other State, more than 35 per cent of India s total white sugar. Almost 90 per cent of the sugar produced in Maharashtra comes from the co-operatives, the rest from a few private factories which were established in the 1930s. The co-operative sugar factories of Maharashtra are successful because they have resolved the longstanding problem of the Indian Sugar Industry, which was cane supply. As on the State wise number of installed sugar factories has been shown in the following table 6. Table 6. State wise Total Number of Installed Sugar Factories ( ) States Public Private Co-operative Total Punjab Haryana Rajasthan Uttar Pradesh Uttaranchal Madhya Pradesh Chattisgarh Gujarat Maharashtra Bihar Assam

26 Orissa West Bengal Andhra Pradesh Karnataka Tamil Nadu Pondicherry Kerala Goa Nagaland All India Total Source: Sugar India Year Book, With the above data it is clear that in total installed sugar mills till around 60 per cent are in co-operative sector. It explains the domination of co-operative sector in sugar industry in India. Role of By-Products in Sugar Industry There are two important by-products of sugar industry i.e. bagasse and molasses. These two are major revenue streams which are available to sugar industry. They are used in various products. Molasses: it is used for alcohol, fertilizers, cattle feed etc. Almost 90 per cent of the molasses is utilized for production of industrial alcohol, which can be further processed to manufacture ethanol. The balance 10 per cent is used for cattle feed and other purposes. Every tonne of molasses can generate around 230 ltrs of industrial alcohol. As on April 2004 data there are around 300 distillery units in the country with a capacity of around 3 bn. Litres of alcohol. However only 50 per cent of these units are operating and producing around 1.5 b.litres of alcohol from molasses. This is because of the

27 lower realizations of industrial alcohol. The Molasses production at all India level has been increased tonnes to tonnes during to The Government has recently made 5 per cent blending of ethanol with petrol compulsory across the country. This is expected to result in a huge demand for ethanol and provide a positive trigger for the sugar companies as ethanol is manufactured from industrial alcohol. At 5 per cent blending the demand for ethanol is expected to be 500 mn.litres. Hence this will result in significant demand for industrial alcohol as well and improve the overall capacity utilization. Bagasse : is the residual of sugarcane, is the other major by-product of the sugar industry. Generally the process of sugar making generates around 33 per cent of bagasse. Hence one tonne of sugarcane would generate around 330k.g. of bagasse. It is used for production of paper and for generation of steam, which is utilized for co-generation of power. Every tonne of bagasse can generate around 345 kwh of power. Thus these two major revenue streams are available for the sugar industry, which improves profitability of sugar industry. Problems of Sugar Industry The sugar industry plays an important role in the development of agriculture sector as well as industrial sector. Although Indian sugar industry occupies fourth rank as a producer in the world, its contribution towards foreign trade (export) is not significant. It is because of various problems faced by the sugar industry. 1. Sick units: one of the major problems of the industry is the existence of a large number of sick units. They are unable to run at break-even points. The reason is use of out dated machine resulting in inefficiency and high cost of structure. 2. Government policy: the sugar economy is highly controlled by the Government policy. The sugar industry is unstable with changing Government policy of controls, decontrols and partial controls. One side the sugarcane price is fixed by the Central Government as Statutory Minimum Price(SAM) and State Advised Price(SAP) fixed by each State over

28 and above the SMP. On the other hand sugar mills have to supply the levy quota at prices fixed much lower than the market prices (the levy sugar is allotted to State/UT Governments for distribution through the Public Distribution System). Prices of levy sugar are fixed zone wise on the basis of SMP of sugarcane conversion costs as recommended by the Bureau of Industrial Costs and Prices. There is no price control on free sale of sugar but market supply is regulated by the Government by fixing monthly release quotas to maintain price stability. Export quotas are also determined by the Government and handled by designated export agency. The whole scheme of sugar controls is not in the interest of the industry or the economy. 3. Higher prices for cane: The sugar mills have to pay much higher prices for the purchase of cane that what is SMP and SAP. The factories in eastern U.P. and Bihar had to pay about 50 per cent more than the SMP and SAP. This aggravates the cost of production of sugar. 4. Profitability: A study of finances of 77 sugar factories for the period of to made by the Reserve Bank of India, points out declining trend in the profitability of these companies. Their sales which showed a rise of 13.3 per cent in , rose only by 8.5 per cent and 0.4 per cent during and , respectively. But the rate of dividend was maintained. As a result, the sugar industry has been deprived of selffinancing by ploughing back profits which is most natural and healthy source of funds from internal accruals for its expansion programmes. 5. Competition from Gur and Khandasari: In India, 10 tonnes of sugar are obtained from 100 tones of cane but in case of khandasari only 7 tonnes of sugar are derived. Thus there is a net loss to the country by the use of cane but in case of khandasari and gur. The recovery content of gur is only 5 per cent. The gur factories deprive the community by 25 to 40 per cent of sucrose when they divert the cane required by sugar mills. While the price of sugarcane supplied to the factories is fixed by the Government, there is no price fixation for sugarcane used for gur. The result is that production of gur often increases at the cost of sugar. Thus the price fixation policy is not fair enough while distribution of sugarcane among sugar, gur and khandasari is considered. Thus it would be much more desirable to chalk out a combined allocation policy of sugarcane for these three close substitutes at the same price.

29 1.2 Productivity: Productivity is an important measurement for performance of a firm, industry, sector etc. Productivity has been recognized as an important aspect in the process of economic development. In the process of economic growth production and productivity are two significant aspects. Production is the amount of absolute flow of product during a given period, productivity is the measure of the efficiency in production of factors, inputs and factor input services - Brahmananda, P.R., Productivity in the Indian Economy Raising inputs for falling outputs. Himalaya Publishing House, 1982, p-3. Measurement of Productivity: Productivity measures can be broadly classified into two categories; partial factor and total factor productivity measures. Partial factor productivity: Partial factor productivity is the average productivity of a particular input in question, such as labour, capital, raw materials and fuels. In other words while studying the partial factor productivity, the relationship between output and only one input is considered at a time, ignoring the role played by other inputs in the production process. Marginal productivities: marginal productivity of a particular factor input indicates the change in contribution to output made by that factor input per unit change in input level. Marginal productivity of a factor input is variable over time and it varies directly with the corresponding variation in output-input ratio. Total factor productivity: The measure of total productivity compares output to a weighted combination of inputs usually labour and capital.this measure however, does not take into account some factors such as managerial ability, degree of competition and to the extent it cannot be considered as a true index of total factor productivity and hence the term multi factor productivity may perhaps be a better one Krishna, K.L., Total factor productivity: concepts and measurement, Productivity, Vol.x.No.4,1970, p-701. The total factor productivity is also identified with other names such as technical change and The Residual. From time to time various researchers have developed different

30 approaches to measure technical change. However most of the empirical studies are based on either the Kenrick s arithmetic index or the Solow s geometric index. In this analysis the trends in partial factor productivity are analysed with the help of labour productivity, capital productivity and the raw material (sugar cane) productivity. 1.3 The trends in labour productivity: Labour productivity is defined as a ratio between output and corresponding labour input. Output is measured in physical units or in monetary terms while labour input can be measured in terms of number of workers or number of man-hours. In this analysis the labour productivity is measured by output (Gross Value Added) with labour input as number of persons employed. Table 7. Trends in Labour Productivity Year GVA No. of persons Labour employed productivity Growth rate Source ASI

31 In the above table the labour productivity in sugar industry was measured for the period to The number of persons employed is defined as all persons employed directly or through any agency whether for wages or not and engaged in any manufacturing process or in any other kind of work incidental to or connected with the manufacturing process or the subject of manufacturing process. Labour engaged in the repair and maintenance or production of fixed assets for factory s own use or labour employed for generating electricity or producing coal, gas etc. are included. Gross Value Added is derived by the difference of total outputs and total inputs. The labour productivity for the above period is derived by dividing the GVA with Number of persons employed. The growth rate of labour productivity is derived for the above period. The average growth rate of labour productivity is derived as The data for ten years i.e. from to was taken into account. 1.4 The trends in capital productivity: The capital productivity is defined as value added per rupee of capital and thus can be the ratio of output (Gross Value Added) to capital. The data for ten years from to was considered. Table 8. Trends in Capital Productivity Year GVA (Rs.lakh) Capital Capital productivity Growth rate Source: ASI

32 The capital productivity is measured by the ratio of Gross Fixed Capital and Gross Value Added. Fixed capital is defined as the depreciated value of fixed assets owned by the factory as on the closing day of the accounting year. The average capital productivity is derived as Sugarcane Productivity: It is measured as the yield (KG/Ha) by considering the area under sugarcane cultivation ( 000 Ha) to production of sugarcane ( 000 tns) Table 9. Sugar cane Yield Year Area ( 000 ha) Production ( 000 tns) Yield (kg/ha) The productivity of sugar cane is derived with GVA/sugarcane production. The trends are as follows Table 10. Sugarcane productivity trends in India Year Sugarcane productivity Growth rate of sugarcane productivity

33 The average sugarcane productivity is The growth rates are also derived which reflects progressive nature except certain years. The average of growth rates of sugarcane productivity is When it is compared with individual years of the above mentioned period, it can be concluded that growth rates of individual years are higher than average for majority years. Thus it is clear that the influence of sugarcane is more than any other factor of production. Table 11. Trends in partial factor productivity: Labour Capital Sugarcane Year productivity productivity productivity The trends in labour productivity, capital productivity and sugarcane productivity have been shown in the above table. Productivity of labour increased from in to in The growth rates of labour productivity fluctuated between to during the same period. Productivity of capital is observed that it was declined from in to in The average capital productivity for the period to is The sugarcane productivity trends were observed that there is an increase in sugarcane productivity for the period to from to The average sugarcane productivity is

34 Table 12. Trends in Growth rates of labour, capital and sugarcane productivity: Year Growth rate Labour productivity Growth rate of capital productivity Growth rate of sugarcane productivity During the period and , the growth rates of labour productivity, capital productivity and sugarcane productivity were shown in the above table. It is observed that the growth rates of three variables -- labour, capital and sugarcane -- were started with negative i.e , and respectively. In these variables have shown a positive growth rates such as 30.8, 20.3 and respectively. Even though there are fluctuations in the middle years the positive growth rate trends in is remarkable. 1.6 The impact of substitute goods: The substitute goods like Gur and Khandasari play an important role in sugar industry. As these three goods share the common raw material- sugarcane, the price of sugar is affected by the price of gur and khandasari. Due to the competition, the substitute goods also effect the availability of sugarcane for sugar factories. However the consumption of sugar is progressively increased from lakh tones in to lakh tones in The consumption of gur and khandasari decreased from lakh tones in to in The trends in consumption of sugar, gur and khandasari were shown in the following table.

35 Table 13. Trends in consumption of sugar, gur and khandasari. Year Consumption of sugar (lakh Consumption of gur and tones) khandasari (lakh tones) Source: Maharashtra State Co-operative Sugar Factories Federation Ltd., Statistical Dairy Summary: In this chapter the sugar industry in India was discussed in detail i.e. from historical background of sugar industry in India to productivity trends of sugar industry in recent period. It is observed that inspite of various problems the the sugar industry has shown a remarkable growth within a short span. Three important variable factors i.e labour, capital and sugarcane are examined in this study. The productivity trends and growth rates of productivities of labour, capital and sugarcane for the period of to were derived on the basis of secondary data. The observations are as follows; Productivity of labour increased from in to in The growth rates of labour productivity fluctuated between to during the same period. Productivity of capital is observed that it was declined from in to in The average capital productivity for the period to is The sugarcane productivity trends were observed that there is an increase in sugarcane productivity for the period to from to The average sugarcane productivity is

36 The growth rates of three variables -- labour, capital and sugarcane -- were started with negative i.e , and respectively in the year In these variables have shown a positive growth rates such as 30.8, 20.3 and respectively. Even though there are fluctuations in the middle years the positive growth rate trends in is remarkable. The study reveals that the production of sugar in terms of GVA was Rs lakh in increased to Rs lakh in However there are variations in GVA from to It is concluded that these variations are due to variations in labour, capital and sugarcane productivity. The trends in growth rates of labour, capital and sugarcane also conform that the variations in sugar production are due to highly varying labour, capital and sugarcane productivities. Other important factor that influences sugar production is substitute goods prices. Gur and khandasari are two important substitute goods of sugar. Sugar cane is the common raw material for sugar, gur and kahandasari. This arises competition among these three products for availing sugarcane. Consequently the price of sugarcane and the price of sugar are influenced by this competition. However in recent years the demand for gur and khandasari is comparatively reduced with sugar. Thus it is observed that the impact of substitute goods is lessened