Crisis in sugar cooperatives

The fall in the price of sugar, the dwindling area under sugarcane and mismanagement of
the factories have pushed the sugar cooperatives in Maharashtra to the brink.

WHEN Vitthalrao Vikhe-Patil and his associates, the economist Dhanajayrao Gadgil and the
cooperative expert Vaikunthbhai Mehta, started they intended it to be for , who wereThey made
agave them aThe cooperative sugar factory engine for developmentBut in the mid-1970s the
harvests began to turn bitter for a variety of reasons that the pioneers had probably not foreseen.

ATUL DEULGAONKAR

At a sugar factory in Maharashtra's Osmanabad district.

In the cooperative scheme of things, the factory arranged credit, provided seeds and fertilizers,
and helped harvest and transport the sugarcane. The farmer only had to water the crop. On its
part a 1,500-tonne-a-day-capacity sugar factory had an average recovery of 10 per cent (10 kg of
sugar from 100 kg of sugarcane), producing three lakh tonnes of sugar in a 180-day operation.
Each factory crystallised the economy of at least a hundred villages with roads, electricity,
education and healthcare and accelerated rural development. Value addition from the factory was
in the form of by-products such as industrial alcohol, rectified spirit and acetic acid from
molasses and particle board, paper and electricity from bagasse.

Cooperative sugar factories mushroomed in the region with the support of the Central and State
governments, and the area under sugarcane increased manyfold. Today, Maharashtra has 177
sugar factories and leads the country in sugar production. According to the statistics put out by
the Maharashtra State Sugar Cooperative Federation, 1.6 million farmers in the State cultivate
sugarcane on 0.7 million hectares, producing 60 million tonnes of sugarcane.

The sugar belt achieved progress until the mid-1970s when scams involving chairmen, directors
and employees of sugar cooperatives exposed the corruption within. There was still scope to
salvage the situation, but the cooperative chiefs were in no mood to listen to leaders like Y.B.
Chavan and Annasaheb Shinde, who were the avant-garde of the cooperative movement.

Time was when directors of sugar cooperatives were considered the true trustees of public funds,
always trying to cut costs. Now, `flow of funds' seems to be the norm. One of the directives of
the Sugar Commissionerate is that a factory should buy sugarcane from within a 15-20 sq km
radius so that bullock carts can transport it from the fields. But with enhanced capacity and an
increase in the number of factories trucks are the preferred means of transport despite the higher
cost.

Harvesting is a labour-intensive task and almost two lakh labourers come from the drought-prone
areas of Maharashtra and Karnataka. Factory managements contract them every year by making
an advance payment to their agents, but many fail to turn up or exist only on paper. The gains of
agents, be it in contracting labour or purchasing gunny bags, machinery parts or sulphur, lime
and caustic soda, are in many cases inversely proportional to the losses of the factories. Sunil
Kocheta, a senior auditor for sugar factories, claims that misappropriation takes various forms.
He alleges that cheques for millions of rupees are not deposited in banks so as to please traders.
"They cannot offer us accounts for several years," he says.

Such is the state of affairs that 13 of the 177 sugar factories have been liquidated and 56 are sick,
with accumulated losses of over Rs.1,900 crores, according to the office of the Sugar
Commissioner.

Matters were not helped by the fall in the price of sugar last year, to Rs.1,050 a quintal from
Rs.1,350. It is now around Rs.1,200. Predictably, cane prices also fell, plunging factories into a
financial crisis. This had a direct impact on farmers and factory workers. Farmers staged
demonstrations last year and this year demanding an advance payment of Rs.800 a quintal of
cane. Hardly 10 factories can afford to pay such an amount in the present situation. The
procurement price of cane ranges from Rs.600 to Rs.900 a tonne and the cost of crushing that
quantity varies from Rs.172 to Rs.645, depending on the efficiency of the factory.
Transportation, over-staffing, maintenance and a large inventory add to the production cost.

It seems to be a no-win situation for the sugar factories as more and more farmers switch to
soybean and cotton, forced by an unremunerative procurement price and water scarcity. Three
successive years of drought has contributed in no small measure to the decline in the area under
sugarcane. For instance, in Latur district sugarcane was grown on 68,000 hectares in 2001-02,
but in the 2003-04 season it came down to 12,000 ha. According to the Vasantdada Sugar
Institute, the yield in the 2003-04 season is estimated to be 350 lakh tonnes against the
requirement of 682.32 lakh tonnes for the 177 factories. Besides, a massive pest attack on cane
throughout the State is likely to reduce the sugar yield of the harvested cane by 40 per cent,
according to agricultural experts. As a result, the crushing season is expected to last only about
100 days as against the normal 180. In such a situation, say agricultural experts, very few
factories will be able to function in the 2004-05 season.

The Central government and the factory managements are responsible for this situation, says
former Chief Minister Vilasrao Deshmukh, whose Manjara cooperative sugar factory has won
many national awards for excellence. "The Central government unnecessarily imported sugar in
1998 when our stocks were piling up. So the sugar rates came down," he says. According to him,
the criterion for the statutory minimum price should be the average recovery of sugar produced
from sugarcane, but the Central government norms consider peak recovery, which slashes
sugarcane procurement price.
As for the functioning of the factories, he holds the view that the factory managements are
accountable for both profits and losses and that financial indiscipline and irregularities should be
punished. "In many cases, there is interest only up to the commissioning of the factory. No effort
is made to ensure its proper functioning. This has crippled the whole cooperative movement,"
says Deshmukh.

The sugar factories in the State have a combined turnover of about Rs.8,000 crores and provide
employment, directly or indirectly, to 1.5 crore people. Any crisis affecting the factories is bound
to have a cascading effect on the rural economy. Many sugar experts opine that a way out would
be to decontrol the sugar industry. They claim that decontrolling the industry will benefit the
producer, processor and consumer just as the decontrol of cement a couple of years ago made it
available freely and at a steady price.

"Reforms will shock the factories for a year or two, but they will eventually adjust to the
situation. Our policy supports sick factories by giving them subsidy. Instead, we should give
incentives in the form of infrastructure facilities, on merit," says B.B. Thombre, managing
director of Natural & Allied Sugar Industries and a sugar expert.

Some experts believe that sugar factories must diversify to generate electricity by using bagasse
as fuel and sell the extra power to the State. Each factory can generate at least three megawatts a
day. They point out that in Karnataka and Tamil Nadu, the State governments purchase power
from sugar factories. The issue has been hanging fire in Maharashtra for the last eight years with
no agreement in sight between the factories and the government.

Sugarcane juice and molasses can also yield ethanol or ethyl alcohol, which is mixed with petrol.
Sorghum can also be processed in the factories to produce ethanol.