Competitiveness of the Uttar Pradesh sugar industry: problems and prospects

Abstract

India is the largest consumer and second largest producer of sugar. Sugar is the largest agro-based industry in rural India with over 45 million sugarcane farmers. Sugar is a regulated commodity and is important to the political economy of major States including Uttar Pradesh (UP). The study of the competitiveness of the UP sugar industry, which ranks first in cane cultivation, is important in the context of an industry in financial distress, declining area under cane, ongoing phased decontrol of sugar in India, production shortfalls, reform processes in EU and US markets, emerging potential for fuel ethanol and CDM s. The study examines the impact of removal of subsidy in the EU and USA markets across major sugar producers. Data Envelopment Analysis (DEA) for all mills operating in UP during 1993-94 to 2003-04 have been examined for efficiencies and compared with Maharashtra mill efficiencies for 2000-01 and 2001-02. The management model and control systems of Haidergarh unit of Balrampur are examined for replicability. The environmental costs and benefits of canecultivation including cogeneration, ethanol and carbon credits are examined. Factors impacting efficiency levels of sugarcane production in UP are analyzed in terms of its costs and benefits. The study concludes that for the U.P. sugar industry to be cost competitive it needs to use the cane biomass as an energy and biofuel source. State Advisory Prices need to be frozen at current levels and incentive systems need to be built in to link pricing with sucrose content and time of harvest. Cane cooperatives do not add value but lead to substantial costs while constraining feedback to mills and growers and need to be abolished to enable backward linkages of mills with farmers. Technological upgradation and cogeneration can be financed through carbon credits. Mergers need to be encouraged to develop economies of scale in existing units.