Sugar cooperatives in India are the perfect example of a sweet dream turned sour. They have been the backbone of India's sugar sector. Once upon a time they were raking in money like a Shylock-managed company. But, thanks to mismanagement and corruption, the cooperatives are on its death bed now.
Take the case of Maharashtra, the land of sugar cooperatives. They contribute 95 per cent of the total sugar produced in the state, making private sector's presence almost insignificant in the state. The first sugar cooperative in Maharashtra was formed by Vithalrao Vikhe Patil in 1950 to resist the uncouth exploitation of farmers by money-lenders and private mill owners. Patil brought together sugarcane farmers of 44 villages in Ahmednagar district in western Maharashtra and formed Asia's first cooperative sugar factory.
At that time, extracting sugar from cane was so expensive that most of the farmers preferred to convert it to jaggery, which resulted in a glut of jaggery in the market. The cooperative changed this situation by assuring the farmers of off-take of their produce at a reasonable price. The unique aspect of the cooperative movement was that a farmer with a small landholding is also given the same status of a shareholder.
Situation has changed down the years. What is ailing the sugar cooperatives now? Ask Prakash Naiknavare, managing director, Maharashtra State Co-operative Sugar Factories Federation Ltd. He said: "A major problem being faced by the cooperative sugar sector is unprofessional management, lack of foresightedness and absence of decision-making process.
The decision-making is delayed because of the high number of people involved in the process. Another issue is that of vagaries of nature. Sugar industry is grossly governed by natural vagaries and the infamous sugar cycle of two years surplus followed by one year of shortage."
Biggest problem the sugar industry facing today is surplus production -- from 10 lakh tonnes in 1950 to over 200 lakh tonnes at present. While consumption of sugar is increasing at a steady pace of 4 to 5 per cent per annum, it does not match the increase in production. As a result, prices of sugar have been steadily sliding this year. In three months' time -- from January to March this year -- sugar prices crashed from Rs 1,800 to Rs 1,300 per quintal.
"We are facing the problem of plenty. It is unprecedented. Today, the price of cane is more than the price of sugar and this has never happened before," says S L Jain, director-general of Indian Sugar Mills Association. The impact of the price crash will ultimately be felt by sugarcane farmers. As mills run into losses, payment to farmers will be delayed. Then, cane planting will go down and crop patterns will change. As a result, farmers will be forced to shift to other crops, causing shortage of sugar.
In a bid to rescue the sugar sector, the government recently lifted the ban on exports and decided to create a buffer stock. But, lifting the ban on exports came at a time when global prices had crashed. So, despite export subsidy, sugar mills were not able to ship the commodity to other countries at a competitive price.
While sugar production has increased in the last decade, domestic sugar consumption has grown at a sluggish pace. This has led to accumulation of stocks with sugar mills which affected prices. This is one of the main reasons why the margins are under pressure. This is also true to the global sugar scenario and thus to prevent