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AN ECONOMIC ANALYSIS OF SUGAR
INDUSTRY IN PUNJAB
Dissertation
Submitted to the Punjab Agricultural University
in partial fulfillment of the requirements
for the degree of
DOCTOR OF PHILOSOPHY
in
AGRICULTURAL ECONOMICS
(Minor Subject: Statistics)
By
Abujam Anuradha Devi
(L-2009-BS-47-D)
Department of Economics and Sociology
College of Basic Sciences and Humanities
©
PUNJAB AGRICULTURAL UNIVERSITY
LUDHIANA-141 004
2013
CERTIFICATE I
This is to certify that the thesis entitled, “An economic analysis of sugar industry in
Punjab” submitted for the degree of Doctor of Philosophy in the subject of Agricultural
Economics (Minor subject: Statistics) to the Punjab Agricultural University, Ludhiana, is a
bonafide research work carried out by Abujam Anuradha Devi (L-2009-BS-47-D) under my
supervision and that no part of this thesis has been submitted for any other degree.
The assistance and help received during the course of investigation have been fully
acknowledged.
_____________________________
Major Advisor
(Dr. S S Chahal)
Director
Technology Marketing and IPR Cell
Punjab Agricultural University
Ludhiana-141 004 (India)
2
CERTIFICATE II
This is to certify that the thesis entitled, “An economic analysis of sugar industry in
Punjab” submitted by Abujam Anuradha Devi (L-2009-BS-47-D) to the Punjab
Agricultural University, Ludhiana, in partial fulfillment of the requirements for the degree of
Doctor of Philosophy in the subject of Agricultural Economics (Minor subject: Statistics)
has been approved by Student’s Advisory Committee along with Head of the Department
after an oral examination on the same.
________________
Major Advisor
(Dr. S. S. Chahal)
_________________
External Examiner
______________________
Head of the Department
(Dr. M. S. Sidhu)
__________________________
Dean Post-Graduate Studies
(Dr. B. R. Garg)
3
Acknowledgement
“Journey of thousand miles starts with one step” became the guiding force for
me. It was only His blessing and grace that I have been able to make another remarkable
achievement in my life. I bow my head to merciful and compassionate ‘Almighty God’ for
eternal love and blessings.
Indeed the words are adequate, to convey the depth of my feelings of gratitude to
my learned Major Advisor, Dr. S.S. Chahal, Director, Technology Marketing an IPR Cell,
Punjab Agricultural University, Ludhiana, without those kind inspiration, keen interest
and sustained encouragement, this dissertation could not have been started, much less
finished. His valuable guidance, constructive criticism, untiring and ever willing help
during the entire period of the study have been of immense help to me in planning and
execution of the study.
It is with immense gratitude that I acknowledge the support and help of Dr. D.K.
Grover, Director, Agro-Economic Research Center, Department of Economics and
Sociology, PAU, Ludhiana, for his inspiring guidance, constructive criticisms, valuable
suggestions throughout the course of investigation and helped me whenever I approach
him.
With deep sense of gratitude, I am highly indebted and thankful to all my Advisor
Committee Members, Dr. B.R.Garg, Senior Economist, Dr. Parminder Kaur, Associate
Professor of Agricultural Economics, Department of Economics and Sociology, Dr. S.S.
Sidhu, Professor of Statistics, Department of Mathematics, Statistics and Physics and Dr.
Pratibha Goyal, School of Business Studies, PAU, Ludhiana for valuable suggestions and
rendering their help during the course of investigation.
Taking this best opportunity, I would like to acknowledge my heart -felt gratitude
and express my sincere thanks to Dr. Karnail Singh, Senior Statistician (Retired)
Department of Plant Breeding and Genetics, PAU, Ludhiana for his constant help,
inspiring guidance and valuable suggestions.
I extend my heartiest appreciation and gratefulness to Dr. M.S.Sidhu, Senior
Economist (Marketing)-cum-Head, Department of Economics and Sociology, Punjab
Agricultural University, Ludhiana, for providing all necessary facil ities to carry out this
investigation. I am grateful to all the sample cane farmers of Punjab and administrative
staffs of the sugar mills for providing requisite data.
I will be failing in my duty if I do not make a mention of cooperation, generous
help and constant encouragement given to me by my friends Siju, Valentine, Sharmila,
Bembem, Basanti, Parvinder, Kamala, Anandi, Nun, Richa Sharma, Karamjeet Kaur,
Paban and Arshdeep.
The financial assistance extended by Department of Science and Technology,
Government of India, New Delhi in the shape of INSPIRE Fellowship is gratefully
acknowledge.
I express my sincere thanks to Rakesh Kumar for setting and printing of my
dissertation within a short period of time.
Last but not least, I would like to thank my parents for their unconditional
support, both financially and emotionally throughout my degree. In particular, the
patience and understanding shown by my mum and baba during the study period is
greatly appreciated. I know, at times, my temper is particularly trying. Finally, I express
my deep sense of gratitude and reverence to my loving mum Abujam Chandrakala Devi
and baba Abujam Ibochouba Singh, my brothers Jayanta Kumar Singh, Thoiba and sister
Roshni, for their whole hearted support, moral encouragement, silent blessing and for
their great inspiration without which I would not have been possible to complete this
gigantic task.
Abujam Anuradha Devi
Dated:
4
Title of Thesis
:
Name of the student
Admission No.
Major Subject
:
Minor Subject
Name and designation of
Major Adivisor
:
:
Degree to be Awarded
:
Statistics
Dr. S.S. Chahal
Director,
Technology Marekting and IPR Cell, PAU, Ludhiana
Ph.D.
Year of award of Degree
:
2013
Total Pages in Thesis
:
153 + Appendices+Vita
Name of University
:
Punjab Agricultural University
Ludhiana- 141004, Punjab, India
:
AN ECONOMIC ANALYSIS OF SUGAR
INDUSTRY IN PUNJAB
Abujam Anuradha Devi
(L-2009-BS-47-D)
Agricultural Economics
Abstract
The present study was carried out to ascertain the performance of sugar industry in
Punjab. The study was carried out by selecting two sugar mills based on highest TCD each from
cooperative and private sectors. So as to examine the causes of failures of sugar mills, the Zira
Cooperative Sugar mill was selected purposively. In order to achieve the stipulated objectives
both secondary and primary data were used. The data were analyzed by using various statistical
tools such as compound growth analysis, regression analysis, ratio analysis, tabular analysis,
etc. The major findings of the study revealed that the area, production and productivi21ty of
sugarcane have declined both at state and national level. The state have lower growth rate of
area under sugarcane and production than the national level while the growth of sugarcane yield
was higher in the state level. Similarly, growth of sugar production, recovery of sugar and total
cane crushed by the mills has been declining through time. The results indicate that there has
been wide variation in area and production of sugarcane in the state as well as the national level.
The production of sugarcane was affected by area and interaction effect of yield and area. The
total cane crushed by the mills was found to be an important factor for production of sugar both
at state and national level. The acreage under sugarcane was affected by both price and nonprice factors. The farmers rapidly adjust the area under sugarcane both in short-run and longrun. The profitability, operational performance, solvency and liquidity of the mills were not
satisfactory in both the sectors. Comparatively, the private sector had better physical and
financial performance than the cooperative sector. The study identified various technological,
socio-economic, infrastructural, financial and marketing problems faced by the cane growers.
Further, the important constraints of the sugar industry such as low sugar recovery, shortage of
sugarcane supply, inability to pay arrear to the cane growers in time, low level of profitability
and non-viability of sugar mills were also identified. The case study of Zira Cooperative Sugar
Mill revealed that the mill has been under financial stress right from its inception. The
prevailing production, processing and marketing of sugarcane and sugar as well as the financial
position of the sugar mills were not conducive to the various stakeholders. This calls for
pragmatic policy which could benefit both the farmers and sugar mills.
Keywords: TCD, Area, Production, Productivity, Growth, Physical, Financial, Constraints.
Signature of Major Advisor
Signature of the Student
5
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CONTENTS
CHAPTER
TITLE
PAGE NO.
I
INTRODUCTION
1-8
II
REVIEW OF LITERATURE
9-37
III
MATERIAL AND METHODS
38-55
IV
RESULTS AND DISCUSSION
56-116
V
A CASE STUDY
117-135
VI
SUMMARY
136-142
REFERENCES
143-153
APPENDICES
i-xv
7
LIST OF TABLES
Table
No.
Contents
Page
No.
4.1
Trends in area, yield and production of sugarcane through 1950-51 to 2010-11
57
4.2
Growth of sugarcane through different periods in India
59
4.3
Growth of sugarcane through different periods in Punjab
60
4.4
Period-wise variability in sugarcane area, production and productivity
62
4.5
Decomposition of growth in sugarcane production into area, yield and
interaction effect in India
63
4.6
Decomposition of growth in sugarcane production into area, yield and
interaction effect in Punjab
64
4.7
Growth of sugar production through different periods in India
65
4.8
Growth of sugar production through different periods in Punjab
65
4.9
Decomposition of growth in sugar production into cane crushed, recovery
and Interaction effect in India
66
4.10
Decomposition of growth in sugar production into cane crushed, recovery
and interaction effect in Punjab
67
4.11
Estimated coefficient of sugarcane acreage response function (1980-81 to
2010-11)
68
4.12
Estimated coefficient of sugarcane acreage response function by linear
regression analysis (1980-81 to 2010-11)
68
4.13
Estimates of short and long-run elasticities and adjustment coefficient
70
4.14
Physical performance of Indian Sucrose Limited, Mukerian, 2006-07 to
2011-2012
72
4.15
Physical performance of Wahid Sandhar Sugar Limited, Phagwara, 200607 to 2011-12
74
4.16
Physical performance of Nawanshahr Cooperative Sugar Mills Limited,
2006-07 to 2010-12
76
4.17
Physical performance of Morinda Cooperative Sugar Mills Limited,
Morinda, 2006-07 to 2011-12
77
4.18
Comparison of physical performance of Private and Cooperative sector
sugar mills in Punjab
80
4.19
Profitability analysis based on different ratios of private sectors through,
2006-07 to 2010-11
82
8
4.20
Operating performance or efficiency ratios of private sugar mills during a
period from 2006-07 to 2011-12
84
4.21
Analysis of solvency ratios of private sugar mills for the periods of 200607 to 2011-12
86
4.22
Analysis of liquidity ratios of private sugar mills through periods from
2006-07 to 2011-12
87
4.23
Profitability analysis based on different ratios of Cooperative sectors
through 2006-07 to 2010-11
89
4.24
Operating performance or efficiency analysis based on different ratios of
cooperative sectors through 2006-07 to 2010-11
91
4.25
Solvency analysis for cooperative sugar mills in Punjab for period of seven
years
93
4.26
Solvency analysis for cooperative sugar mills in Punjab for period of seven
years
93
4.27
Comparison of profitability ratios of private and cooperative sector sugar
mills in Punjab
95
4.28
Comparison of operating performance/efficiency ratios of private and
cooperative sector sugar mills in Punjab
96
4.29
Comparison of solvency ratios of private and cooperative sector sugar
mills in Punjab
97
4.30
Comparison of liquidity ratios of private and cooperative sector sugar mills
in Punjab
97
4.31
Distribution of the respondents according to age in Punjab
98
4.32
Distribution of the respondents according to educational level in Punjab
99
4.33
Distribution of the respondents according to occupation in Punjab
100
4.34
Distribution of the respondents based on income level in Punjab
100
4.35
Distribution of the respondents according to family size in Punjab
101
4.36
Distribution of the respondents according to operational holding
101
4.37
Distribution of the respondents based on experience in sugarcane production
102
4.38
Distribution of the respondents based on experience in sugarcane production
102
4.39
Technological constraints faced by the respondents of the sugar industry in
Punjab
106
4.40
Socio economic constraints perceived by the respondents of the sugar
industry in Punjab
109
9
4.41
Infrastructural constraints faced by the respondents of the sugar industry in
Punjab
110
4.42
Financial constraints faced by the respondents of the sugar industry in
Punjab
112
4.43
Marketing constraints faced by the respondents of the sugar industry in
Punjab
113
4.44
Different stages of Zira Cooperative Sugar Mill sickness
120
4.45
Profitability ratios of Zira Cooperative Sugar Mill, 2001-02 to2004-05
121
4.46
Liquidity ratios of Zira Cooperative Sugar Mill, 2001-02 to2004-05
122
4.47
Inventories of the Zira Cooperative Sugar Mill, 2001-02 to 2004-05
123
4.48
Trend analysis of the Zira Cooperative sugar mill working results, 1990-91
to 2004-05
124
4.49
Cane crushed and recovery of sugarcane of the Zira Cooperative sugar mill
125
4.50
Working results of the Zira Cooperative Sugar Mill, 1980-81 to 2004-05
130
4.51
Ratio analysis of the Zira Cooperative Sugar Mill, 2001-02 to 2004-05
131
4.52
Trend analysis of sales and cost of production for period prior to
liquidation
132
4.53
Trend analysis for financial ratios for period prior to liquidation
133
4.54
Comparison of cost of production between the sick and non-sick mill in
Punjab
135
10
LIST OF FIGURES
Figure
No.
Contents
Page
No.
I
Framework for the analysis of sick sugar mill
53
II
Trends in area under sugarcane
57
III
Trend of sugarcane yield
58
IV
Trends of sugarcane production
58
V
Growth of sugarcane in India
59
VI
Growth of area, production and productivity of sugarcane in Punjab
60
VII
Organizational structure
128
11
LIST OF ABBREVIATION USED
MT
ARIMA
Autoregressive integrated moving average
BJSMF
Benito Juarez Sugar Mill Factory
BMP
Best management practices
CGR
Compound growth rate
Co
Coimbatore
CoJ
Coimbatore Jaladhar
CT
Capital turnover
CU
Capacity utilization
CV
Coefficient of variation
Fig.
Figure
Ha
Hectare
IDBI
Industrial Development Bank of India
IFCI
Industrial Finance Corporation of India
IMF
International Monetary Fund
IS
Incipient sickness
Kg
Kilogram
LE
Livre égyptienne
ln
Natural log
MSP
Minimum Support Price
MT
Metric tonnes
N
Nawanshahr
NH
National highway
NS
Normal state
OLS
Ordinary Least Square
PAU
Punjab Agricultural University
12
PDS
Public Distribution System
R&D
Research and Development
ROI
Returns of investment
ROS
Returns on sales
SAP
State Advised Price
SMP
Statutory Minimum Price
SSC
Small scale growers
TCD
Tonnes cane daily
TOT
Terms of trade
TS
Towards sickness
UP
Uttar Pradesh
Z
Zira
13
CHAPTER I
INTRODUCTION
India is the largest consumer of sugar in the world. The country ranked second in
cane area and is the second largest producer of sugar in the world next to Brazil with a share
of over 15 per cent of world sugar production. Sugar industry is also of significant importance
to the Indian economy. In fact, the Indian sugar industry is key driver of rural development,
supporting India’s economic growth. It occupies an important place among the agro-based
industries in India after textile industry. The industry has been a focal point for socioeconomic development in the rural areas as about 50 million sugarcane growers and a large
number of rural labourers depend on sugarcane farming and sugar industry for their
livelihood. At present, the sugar industry is regulated across the value chain. The key
stakeholders of sugar industry, that is farmers, millers, consumers and the government have
shared goals of achieving high economic growth, minimizing risks, enhancing farmer miller
relationships, meeting growing domestic demand and contributing to the nation's food and
energy needs. The industry provides employment to about two million skilled and non-skilled
workers and other employed in ancillary activities mostly in the rural areas. Besides,
employment generation they also holds the potentialities of developing other industries that
related to its by-products.
Sugar industry-historical perspectives
Ancient Indian literature cited that gur and sharkara were made from sugarcane juice.
The earliest record of establishment of first sugar factories in India dates back to 1610 by
Captain Hippon at Masulipatam and Petapoli on the Coromandel Coast, and subsequently one
at Surat on the West Coast by Captains Best and Dowton in 1612 (Shrivastava et al., 2011).
The Sanskrit literature gives the first literary evidence of sugar manufacture and that history
of sugarcane industry began in northern India (Marathe, 2009). The industry started growing
in an organized way during 1930s after introduction of the Sugar Industry Protection Act,
1932. The Indian sugar industry is a green industry that is self sufficient in its energy needs
and generates surplus exportable power through co-generation. The first organized sugar
factory was set up at Saran, Marhowrah in Bihar in 1904 by a foreign group, British India
Corporation. By 1930 only 29 factories were established. Sugar production was about 1.6
lakh tonnes in 1930. India imported about eight lakh tonnes of sugar from Mauritius, Java
(Indonesia) and other countries. There were 615 installed sugar factories in the country
against 138 during 1950-51, of which 236 factories were in private sector, 62 in public sector
and 317 factories in cooperative sector in 2009 (Anonymous, 2010). The figures increased to
660 in 2011-12 of which 274 were in private sector, 324 in cooperative sector and 62 in
public sector. The functional sugar factories were 490 in 2009-10 which increased to 527 in
2010-11 (Anonymous, 2011). At present, the sugar industry has an installed capacity of 31
million tonnes with production of 24.3 million tonnes sugar. The demand for sugar both raw
form and processed form has been increased continuously with the growth of the economy.
Given the projected growth in domestic and international markets, the sector would need to
produce at least 28.5 million MT of sugar by 2017 and at least 600 MT of sugarcane by 2030
to meet the domestic requirement of sweeteners, bioelectricity and ethanol for E10 blending
(Anonymous, 2011). Increase in sugar production would be primarily through productivity
improvements and increment in milling capacity of existing mills.
Sugar industry in Punjab
Punjab is called the “Granary of India” or “India’s bread-basket”. The state is one of
the most fertile regions on earth. According to the 2008 Global Hunger Index, Punjab has the
lowest level of Hunger Index. The state has essentially agrarian economy with lower
industrial output. The scarcity of fundamental raw materials was believed to be the main
reason. The agro-based industries are going to be the mainstay of the people in the state.
Earlier the processing industries for the agricultural commodities such as sugarcane, cotton,
pulses and oilseeds were not developed to the extent to make full use of the agricultural
surpluses of the state. Therefore, the sugar industry has the potential to become one of the
important agro-based industries in the state which on other hand provide a scope for allied
industries such as distillers, cogeneration, paper, etc.
The sugar industry in Punjab came into existence in the year 1930’s. The sugar
industry in the state has the co-existence of different ownership and management structure. At
one side, there are privately owned sugar mills and at the other side there are cooperative
sugar mills that procure sugarcane from nearby cane growers. Punjab is among the nine major
sugar producing states with total sugar production of less than one million MT (Anonymous,
2007). In 1965-66, there were five sugar mills in the state with crushing capacity of 4950
tonnes cane daily (TCD) and sugar production of 0.60 lakh tonnes. There were 23 sugar mills
of which 16 in cooperative and seven in private sector in 2008-09. But only 22 sugar mills
were functional with crushing capacity of 52016 TCD. The total cane crushed by the sugar
mills was 26.03 lakh tonnes with 9.29 per cent recovery and production of 2.4 lakh tonnes of
sugar in 2008-09. Eventually, the number of functional sugar mills has sharply declined to 15
in 2010-11 (nine cooperative and seven private sugar mills) with total cane crushing capacity
of 34.44 lakh tonnes and recovery of 8.59 per cent. The sugar production has increased from
2.85 in 2010-11 to 3.4 lakh tonnes in 2011-12 (Anonymous, 2012). The most peculiar aspect
of sugar industry in the state is seasonal nature and cyclical in production. Like the other
industries, the sugar industry in Punjab passes through a large number of hurdles. The factors
which are considered as the most important were shortage in sugarcane supply, obsolete
technologies, low capacity utilization, poor financial performance and discriminating
2
government policies. Besides, factors such as cyclicality in the business, cane procurement,
manufacturing and sales processes, dependency on the monsoon differentiate the sugar
industry from any other industry. It has been believed that financial and infrastructural
problems were the main reasons for the failure of some of the sugar mills in Punjab. The
factory owners were facing the problems of high cost in production sugar as a result the mills
engaged has been under liquidation. The farmers on the other side were not getting the
payment in time for their product. Thereby, the farmers made the choice to shift from
cultivation of sugarcane to rice and wheat cultivation whose price and disposal is assured
under Minimum Support Price (MSP) programme. As such, there has been a shortage in
supply of sugarcane to the sugar mills. Further, they cyclically affect the normal working days
(as 150 days per year to around 68 days per year) of the sugar industry. The TCD of the
state’s sugar mills was low and most of them were under-utilization of capacity which brings
inefficiency in sugar production.
Sugar plant size (in terms of cane crushed per day) was the main criteria for the
determination of productivity and viability of the sugar industry (Ray, 2012). The success of
the mills largely depends on the financial and physical performance of the respective sugar
mills. The finance is the most important function of the organization which was consider as a
wheel for the growth of economy of sugar industry. The financial performance refers to the
act of performing financial activity. In broader sense, financial performance refers to the
degree to which financial objectives were met or has been accomplished. It was the process of
measuring the results of a firm's policies and operations in monetary terms. It was used to
measure firm's overall financial health over a given period of time and can also be used to
compare similar firms across the same industry or to compare industries or sectors in
aggregation. It has been seen that most of the cooperative sugar mills were under liquidation
and non-functional due to financial crush. Besides, the sugar industry has been facing several
problems like mounting stocks, controls by Government and under-utilization of capacity in
both cooperative and private sectors. The operation and performance of mills depend on
individual and collective decisions on management, makes such as investment in a new
facility, raising large amount of debt or adding new line of products or services. The
performance of the sugar mills is judged through financial statements. Comparatively the
private mills in the state have been performing well to some extent. None of the private mills
have so far recorded for being in liquidation in the state. In the near future, the private mills
will take over the cooperative mills if there is inefficient management and thus, there is a need
of timely awakening.
Sugarcane development
Sugarcane crop is multi-product crop which is used as the raw material for production
of white sugar, gur, khandsari, ethanol, electricity, paper, board, etc. The leaf and top portion
3
of the crop has been used for feeding the cattle. The crop is grown in two distinct agroclimatic regions of the country-the Tropical (largely comprising Maharashtra, Karnataka,
Gujarat and Tamil Nadu) and the Sub-tropical (Uttar Pradesh, Punjab, Haryana and Bihar).
For almost 94 per cent of the total sugar produced in the country were covered by the states
U.P, Maharashtra, Tamil Nadu, Karnataka, Andhra Pradesh and Gujarat in 2009-10.
However, the major share of country’s sugarcane production comes from U.P constituting
36.2 per cent followed by Maharashtra (23.6 per cent) in 2010-11 (Anonymous, 2011).
The area under sugarcane cultivation of the country was recorded at 5.03 million
hectares in 2011-12. It was 4.94 million hectares which increased by 1.79 million hectares
over last year in 2010-2011 (Anonymous, 2012). The sugarcane area constituted a negligible
portion of the net cropped area of the country. The consumption of sugarcane has been
growing historically while the production has been cyclical. The country’s total production of
sugarcane was 342.20 million tonnes with a production of 68.09 tonnes per hectare in 20112012. The production was 339.17 million tonnes which is comparatively low indicating a
downfall of one per cent over the previous year in 2010-11. However, the highest production
of the crop was recorded in the year 2006-07 with the production of 355.52 million tonnes
(Anonymous, 2011). The area and yield of sugarcane has been declining considerably over
the last decades. These were largely due to shifting of cropping pattern to rice and wheat from
sugarcane cultivation. India’s sugar area and production cycles are driven largely by policy
interventions, including sugarcane support price policies set by the Central and State
Governments as well as sugar storage and trade policies set by the central government. The
ecological factors such as rainfall, humidity and temperature also affect sugarcane production.
Sugarcane crops remain in the field for three years once it is planted, area and production
adjust downward slowly as price incentives fall, thus, prolonging periods of oversupply, weak
market prices give rise to financial distress for sugar mills. The performance of the crop has
important bearing for growth and development of agriculture but also the capacity utilization
and growth of the industrial sector which depends on the supply of its raw materials on
agriculture.
In Punjab, the area and production of sugarcane has fluctuated over the last four
decades. The area was 101 thousand hectares with the production of 6.00 million tonnes and
yield of 59.41 tonnes per hectare in 1990-91. It declined to 63.0 thousand hectares with
production of 3.72 million tonnes and yield of 58.50 tonnes per hectare in 2009-10
(Anonymous, 2010). The area under sugarcane crop was estimated to decline by 5.48 per cent
in 2009-10 over 2008-09 in Punjab. The area under sugarcane was 81 thousand hectares in
2009-10, registering a net decline of 4.44 thousand hectares, due to a substantial upward
revision in the prices of cereals especially wheat and paddy crops which comparatively more
profitable than sugarcane crop (Chahal et al., 2009). In 2011-12, the area under sugarcane in
4
the state was 80 thousand hectares and sugarcane production of 4.67 million tonnes with
productivity of 58.34 tonnes per hectare (Anonymous, 2012).
Problems of sugar and sugarcane
In October 2009, the Central Government of the country amended the Essential
Commodities Act, 1955, through an Ordinance providing for fixing the levy price of sugar on
a ‘fair and remunerative price’ to be announced by the Central Government of the country.
The move raised serious concerns in the sugar industry which supplies one-fifth of its sugar
production at a levy price, noticeably lower than the open market price to support the Public
Distribution System (PDS). In 2009-2010, sugar industry was set to supply 20 per cent of its
production at a levy price of about `13.50 per kg, fixed in 2003-04, against an open market
price of about `45 per kg in January, 2010 (Anonymous, 2010). This represents a loss of
revenue potential of a few thousand crore rupees to the sugar mill owners/shareholders.
The sugar mills in the country were not properly managed as far as their performance
was concern. The heavy losses, sickness and poor performance led to analysis of the financial
performance of the sugar mills in India. The production of sugar in the country is cyclical
historically same as in the case of sugarcane production. One of the good reasons was the
fluctuation of price both at national and international level. The cane growers and factory
owners’ face manifold constraints during the whole process of production.
The sugarcane and its end product sugar were totally different from other crops in
pricing and in other aspects. They become essential commodities under the Essential
Commodities Act, 1955. Since, then Government follows the policy of partial control and
dual pricing for sugarcane and sugar. The levy quota of ten per cent of sugar produced by
sugar factories was requisitioned by the government as compulsory levy at a price fixed by
the government in every sugar season for PDS. On other hand, non levy sugar was allowed to
sell as per quantity released by government under free sale sugar release mechanism. The
problems of pricing sugarcane highly affected the cane growers as well as the sugar mills both
under cooperative and private sectors. Moreover, price was considered the most critical
economic factor in the area allocation decisions of the farmers. The Statutory Minimum Price
(SMP) of sugarcane fixed by the Central Government was lower than the State Advised Price
(SAP) of sugarcane fixed by the State Government. The SMP for sugarcane was `139.12 per
quintal for different varieties but the SAP for sugarcane in Punjab was different for different
varieties of sugarcane. It was `200, `195 and `190 per quintal for early, mid and late varieties
respectively for 2010-11 (Anonymous, 2011). The central price and state price difference
ranges between `51 to `61 per quintal. These differences were borne by the state government.
5
It has been realized that the SMP was increased to `145 per quintal (4.06 per cent) in 2011-12.
Similarly, the SAP has also been increased more considerably than the SMP. It was `230, `225
and `220 per quintal for early, mid and late varieties respectively for 2011-12 (Anonymous,
2012). The differences increased continuously over the year which in turn became burden for
the State Government. Therefore, the mills were not able to pay the farmers in time for their
products. The upward revision of the SMP and SAP will only increase the area under
sugarcane but do not provide any incentive to improve the quality of sugarcane in terms of
sucrose content (Ray, 2012). This is evident from the fact that sugar recovery of the state has
remained stagnant at around 8.5 per cent for the last decades as compared to 10 per cent at
national level. The price of free sugar has been fluctuated depending on the market situation.
There is a need to bring parity between the price of the sugar and sugarcane. The retail price
of non-levy sugar was `30.76 to 36 per kilogram that is `3076 to 3600 per quintal which
means the sugar price was more than double. Due to excessive intervention of the government
in fixing the pricing of sugarcane and sugar, most of the existing mills in the states were not
allowed to expand their existing capacity and thus restrict to avail the economics of scale.
The area planted to sugarcane was not available to grow other crops for the next two
to three years as sugarcane cultivation lasts for almost three crops season. The price of
sugarcane does not serve as an incentive to other competing crops as economics of sugarcane
possesses high risks. The price of the crop depict the income of the farmers on which
investment on crop cultivation depend. The area response to price is highly sensitive. As well
known the sugarcane is labour intensive crop, the farmers in the state have been facing the
problem of labour scarcity, alarming fall in ground water table and delayed payment. This
brings threat in the sugarcane production in the state. Moreover, delay payment of the crop
contributed to declining area under sugarcane in the state.
The continued high cyclicality and low mill profitability may reduce the investment
attractiveness of the sector. All of this may have adverse impacts on the social objectives for
farmers, mills and consumers. In the absence of improvement in farm productivity, cane
expansion may continue to be driven by horizontal growth at the expense of other crops. The
sugar industry aspires to continue to serve the domestic demand, while it also aims to enhance
the value addition from sugarcane by focusing on emerging by-products through integrated
sugar complexes.
Farmers seek for increasing yields, higher cane prices and timely payment of cane
prices to drive higher economic profit at the farm side. For minimizing crop risks, farmers
aspire for effective extension services, crop off take assurance, accessibility of timely finances
and improved harvesting and transport infrastructure. Millers aim for increasing economic
6
profit through higher availability of cane, better sucrose content in sugarcane, better sugar
realizations in domestic market, flexibility to export sugar, higher value addition from byproducts including alcohol and removal of competition distorting policy interventions. At the
same time, millers in general were looking to reduce sugar price risk through hedging.
Overall, millers aspire for ease of regulations and greater influence over business levers.
Consumers' primary aspirations appear to be the availability of quality sugar at affordable
prices. Both household and industrial consumers also seem to aspire for availability of sugar
variety in terms of sugar forms like liquid sugar and processed sugar products, albeit on a
lower priority. These highlight problems at every phase of the sugarcane cultivation up to the
final product.
Therefore, giving due consideration to the above described problems of the sugar
mills especially under cooperative sector and the sugarcane growers in Punjab, the present
study was taken up.
Objectives of the study
An attempt has been made in the present study to answer uncertainties faced by the
sugarcane farmers and sugar industry in the state as an increasing failure of sugar industry
greatly affects the economy of the state. In order to ascertain the root causes of such failures,
case study was taken up. Keeping in view above stated facts the present study was taken up
with following specific objectives:
i.
to study the trends in production of sugarcane in Punjab and India,
ii.
to determine the factors affecting sugarcane acreage in Punjab,
iii.
to examine the physical and financial performance of sugar industry in cooperative
vis-à-vis private sector in the state,
iv.
to examine the various socio-economic problems faced by the cane growers and sugar
mills and
v.
to carry out a case study of a cooperative sugar mill under liquidation and suggest
policy measures to build up an efficient base industry in the state.
Scope of the study
The present study would show trends of sugarcane area, production and productivity
in the country and in Punjab. It studies the variation in sugarcane production and important
contribution in the change of sugarcane production. In addition, growth in sugar production
and factors affecting its production were studied. It would also bring out important factors
that determine sugarcane acreage response. The study of physical and financial performance
of the sugar mill would be helpful for the policy makers and researchers to frame effective
policy and in the development of new technology. The empirical study of liquidated sugar
mill would be useful to sugar manufacturers and policy maker to rehabilitate and rejuvenate
the existing sick sugar mills.
7
Limitation of the study
The present study could not be able to cover certain areas such as economics of
sugarcane and sugar production, cost benefit ratios, etc. which might be helpful in the study
due to limited time and area. The sample survey method was adopted for the collection of
relevant data at a particular period of time. A. B. Sugars Limited., Dasuya was not selected
for the present though mill has highest TCD among private sugar mills due to difficulties in
collection of information and at the most data required for the study were not rendered by the
mills authority.
Plan of work
The thesis has been divided into six chapters including the introductory chapter. The
second chapter deals with review of related studies. The third chapter deals with methodology
used in the process of analysis of the study. The fourth chapter deals with the results and
discussion of the findings. The case of liquidated sugar mill was discussed in fifth chapter.
This is followed by the presentation of the summary and suggestions.
8
CHAPTER II
REVIEW OF LITERATURE
The purpose of this chapter is to present a review of literature relating to the present
study. As such the previous studies were grouped into four broad classes-growth analysis,
acreage response, constraints in production of sugarcane and sugar and performance of sugar
industry.
Growth analysis
Alagh and Sharma (1980) analyzed the differences in agricultural growth
performance in India, 1960-61 to 1978-79, by taking 1969-70 as the cut-off point for
comparison. The period is divided into two 1960-61 to 1969-70 and 1970-71 to 1978/79. The
trends for the entire period are also studied. Estimated trend growth rates are presented for
foodgrains, sugarcane, major oilseeds, cotton, jute and Mesta for India as a whole and the
major states. The estimated growth rates for the crop groups are generally higher in the
second sub-period and growth is more evenly spread. The variation around the growth trend is
still large. Anti-cyclical policies either of the buffer stock variety or of consideration of
forward markets for selected crops are important. The agricultural sector is now less of a
problem as a constraint to the planning of a higher growth rate for the Indian economy. The
more important problem lies in the areas of financial intervention to permit orderly growth of
public investment, and the use of trade policies to permit price stability.
Nair et al. (1982) estimated the trends in respect of area, production and productivity
of coconut in Kerala across districts during the sixties and seventies. Area under coconut was
found to be rapidly expanding during the sixties and the first half of the seventies. However,
the production of nuts started declining by early 1970s. By comparing the yield performance
over the period of Alappuzha district, situated at the heart of the coconut root (wilt) disease
belt and other districts, he repudiated the oft-repeated villainous portrayal of the root (wilt)
disease in the coconut economy of the state.
Naik and Patnaik (1984) estimated compound growth rates of area, production and
productivity of potato in Orissa during the period 1971 to 1981. The growth rates of area (3.5
percent), output (3.08 percent) were found statistically significant but growth rate of
productivity (-0.0049 per cent per annum) was found to non-significant. The harvest price had
therefore, an explanatory significance in a study of price impacts on area allocation and
9
output. The results of the study revealed that output and area under potatoes were dependent
upon the harvest price of potatoes lagged by one year in this area.
Parthasarathy (1984) examined inter-district variation in agricultural production in
Andhra Pradesh and degree of instability in agricultural production from 1955-56 to 1978-79.
It was found that the degree of instability in agricultural production is high in all the districts.
It was higher for foodgrains than for 'all crops'. The districts of North coastal Andhra combine
high instability with low growth. Nalgonda district in Telangana was rather unique in having
experienced high growth rates of production with low instability. The post-green revolution
period shows a higher degree of instability. It has been suggested that districts which have
achieved higher growth rates were subjected to greater instability.
Yeledhalli (1987) computed growth rates of area, production and productivities of dry
chillies in Dharwad district by using the compound growth rate method. The growth rate in
area (6.73 per cent) was found to be higher compared to the growth rates of production (3.42
percent) and productivity (0.14 percent). The decomposition of growth in dry chillies
production was the interaction effect of area and productivity.
Grover (1991) studied the instability due to variation in sugarcane production and
presence of more competitive gur and khandsari industry. The author determined the factors
responsible for fluctuating cane supplies to the sugar factories by simultaneous equation
model (three stages least square method). The study indicates that the sugarcane supply to the
sugar factory was positively and significantly influenced by price and production of
sugarcane, and negatively and significantly influenced by the price of gur. The cane price was
positively and significantly influenced by the price of sugar, gur and sugar supply. On the
other hand, the price of gur was positively and significantly influenced by the sugarcane price,
but negatively influenced by the cane supply to the factories. The average annual free market
wholesale price of sugar was influenced the sugarcane price and the government policy of
partial decontrol.
Krishnan et al. (1991) worked out trends in growth rates of area, production and
productivity of major crops in Kerala for the period 1970-71 to 1986-87 and compared them
with the corresponding trends at the national level. The negative growth rates of output were
registered by four crops out of the ten crops studied namely, rice, tapioca, areca nut and
coconut. The growth rates of production were positive and significant for only two crops
namely, dry ginger and rubber. The negative and significant growth rates were found for area
under rice and tapioca indicating a shift in cropping pattern in favour of cash crops or
plantation crops.
Raju and Luckose (1991) analyzed the trends in production and yield per acre for
chillies in India during the period 1951-52 to 1987-88. The area, production and productivity
of chilli have increased during the period under reference. The area under chilli was increased
10
from 540 thousand hectares in 1951-52 to 814 thousand hectares in 1986-87. The
corresponding figures for production were 347 and 780 thousand tonnes to and productivity
of 620 and 958 kg per hectare respectively.
Bhowmick and Ahmed (1993) examined the growths in area, production and yield of
major oilseed crops in Assam during the pre and post Green Revolution periods. During the
period from 1950-51 to 1988-89, rapeseed and mustard registered 3.34 per cent growth in
production which was contributed by 2.96 and 0.35 per cent growth in area and productivity
of the crop respectively. The results indicated that area under crop was found to be an
important factor to increase oilseed production rather than intensification of production.
Patil (1995) worked out compound growth rates of area, production and productivity
of groundnut in Dharwad district and at the State level for the period from 1984-85 to 199394. The results revealed that the growth rate in area (0.51 per cent) was positive but nonsignificant statistically. There was a significant growth rates in production (6.89 percent) and
productivity (6.34 percent) of groundnut. At state level, the growth rates for area (5.24 per
cent), production (10 percent) and productivity (4.63 per cent) of groundnut were estimated to
be positive and significant statistically.
Kaur et al. (2000) worked out the growth rates of area, production and yield of
sugarcane in the state from 1970-71 through 1994-95. There was a cyclical movement in the
growth of area, production and productivity of sugarcane in the state during the study periods.
This dwindling performance of sugarcane production affects the sugar industry in Punjab. The
economics of sugarcane cultivation relating to wheat-paddy crops grown in a single rotation
showed that the net return from the cultivation of sugarcane as sole crop exceeds those from
wheat and paddy crops rotations by 20 per cent. The reasons for decrease in area under
sugarcane were analyzed at two levels- quantitatively and qualitatively. Quantitatively it was
estimated that the growth rates of all the factors affecting the area under sugarcane were
positive and significantly high, while for the area under sugarcane, the growth rate negative
and significantly at 10 per cent level. And qualitatively it was shown that the most severe and
most pronounced problem as limiting the area under sugarcane in the state was the marketing
of sugarcane followed by non-mechanization of sugar cane cultivation operation, delayed
payment by sugar factories.
Guledgudda et al. (2001) analysed the trend in area, production and productivity of
tea production in India from 1973-74 to 1997-98. The results revealed that the growth in area,
production and productivity over the years were positive but growth rate was negligible. Both
area and productivity partially contributed towards positive growth in production.
Pervez (2001) examined the growth in area, production and yield in the major crops of
Pakistan for a period 1970-71 (Period I) to 1984-85 (Period II). The study revealed that the
increase in crop production was contributed largely by area than by productivity in Punjab and
11
Sindhu during Period I. The Sindhu region recorded a higher growth in area, production and
yield as compared to Punjab in Period II. It was also observed that Punjab recorded a low
degree of instability in growth rates in most of the crops as compared to Sindhu region in Period
II.
Ramasamy et al. (2001) analyzed the trend in area, production and productivity of
sugarcane for Coimbatore district for 32 years ending 1996-97. The trend equation was fitted
following the Ordinary Least Square Method for the three sub-periods, Period-I (1965-67 to
1972-73), Period-II (1973-74 to 1985-86) and Period-III (1986-87 to 1996-97). The results
revealed that there was deceleration in area and production and no significant increase in
yield. An analysis shows that the mean yield of sugarcane substantially increased in Period-II
over Period-I but marginally declined in Period-III. The coefficient of variation in yield was
8.88 percent in Period-I which was decreases to 8.45 and 7.75 per cent in Period-II and III
respectively. The finding revealed that the area under sugarcane and yield were showing
stability over the years.
Chahal et al. (2003) examined growth of maize in Punjab for the period of 1950-51 to
1998-99. The compound growth rates for area, production and productivity of maize were
3.13, 2.60 and 5.81 per cent per annum respectively. The corresponding figures for the
periods of 1965-66 to 1985-86 were -3.31, 0.74 and -2.59 per cent per annum with similar
trend was observed for the periods of 1985-66 to 1998-99. The growth rates were significant
for the three parameters through periods. The decline in production was attributed to decline
in area continuously. The decomposition in maize production shows that yield was important
factor that contribute to increased maize production.
Singh and Srivastava (2003) investigated the growth rate and instabilities in
sugarcane production through time series data for the three regions of Uttar Pradesh. The
study made use of semi-log equations to estimate compound growth rates in area, production
and productivity of cane. The coefficient of variation analysis of detrended data and
decomposed analysis were used to examine the magnitude of instability in area, production
and productivity of cane. The results showed that the area, production and productivity of
cane registered a significant and positive growth in all the three regions as well as at the state
level, with different magnitude. The growth rate of 1.60, 3.48 and 1.85 per cent per annum
were registered for sugarcane acreage, production and productivity. The instability in area,
production and productivity of sugarcane were prominent in the central region. The instability
in production and productivity was the lowest in western region and area instability was the
lowest in eastern region. However, instability in production of sugarcane registered the
highest at the state level. Further, it was observed that variability in area under sugarcane was
the major problem of production instability, accounting for more than half of the production
12
variability of the state. The cane area and cane yield variability together account for more than
80 per cent of the total production variability in Uttar Pradesh.
Varghese (2004) worked out the trend in area, production and productivity of
cardamom in Kerala for a period from 1970-71 to 2002-03 using semi-logarithmic growth
equation. The area under cardamom registered a negative growth rate (-1.216%) which was
significant statistically. The output grows at an average annual trend growth rate of 4.14 per
cent and yield registered an average annual growth rate of 5.51 per cent.
Lathika and Kumar (2005) analyzed the growth trends in area, production and
productivity of coconut for different coconut producing states/union territories in India. The
period has been divided into two sub-periods as Phase-I (1951 to 1995) and Phase-II (1996 to
2002). Area shows positive growth in both phases for selected states except for the Andaman
and Nicobar islands where the growth was negative (-9.69) in Phase-II. The production also
showed a positive growth in all the states in both the phases and Andhra Pradesh has highest
growth in Phase-II (16.69%). The growth rate of productivity shows negative growth in
Kerala and Orissa in the Phase-I, Karnataka in the Phase-II.
El-Sharif et al. (2009) study the main axes to improve rates of self-sufficiency of
sugar through increasing the volume of supply of sugar and by rationalization of the
assumption of sugar. There was a need to increase the area under sugarcane and sugar beets
and their productivity in order to increase the supply of sugar. Moreover, the productivity of
sugarcane and sugar beet can be achieved through farmers adoption of the modern
technologies and modernization of manufacturing processes used in sugar production.
Nevertheless, the study recommends the necessity to set a pricing policy of the sugar crops
and to increase investment directed to the sugar industry to open new production lines in the
sugarcane factories.
Geol (2009) reported that the cane production in the state Punjab has increased
overtime. The area under sugarcane has been fluctuated over a time which leads the
production and productivity remains low. The author study that there is shortage of supply of
sugarcane to mills as cane production concentrated in fewer districts, which adversely affect
the function of industries such cane crushed (lakh tonnes), cane utilization (%) and number of
working days. The decline in the area, production and productivity in the state indicates that
at farm level cane production has not kept pace with capacity expansion at the industry level
in the state. The cooperative and private mills extend several facilities to farmers to sustain
their interest in cane cultivation. It was indentified that private mills were comparatively more
economically efficient than cooperative sugar mills.
Rehman et al. (2011) investigates the trends in area, production and yield of major
crops (wheat, rice, sugarcane and cotton) of Pakistani agriculture by using component
analysis model. The study period has been divided into two periods: Period-I, 1972 to 1988,
13
represents the pre structural adjustment period, and Period-II, 1989 to 2009, was the post
structural adjustment period. The comparison of production and acreage growth rates in both
periods revealed that wheat, sugarcane and cotton, but not rice, show better performance in
Period-I. The yield growth rate comparison shows that wheat and cotton have better growth
rates in period one while rice and sugarcane performed better in Period-I. The results that
growth rates in both periods were different for individual as well as aggregate crops. The
results clearly show that the growth performance of major crops, except rice, was better in
pre-structural adjustment period than under the post-structural period in which subsidy for
agriculture was reduced. The main focus of structural adjustment program prescribed by IMF
was to reduce budget deficit by reducing subsidies and financial sector reforms. The results of
decomposition analysis for examining the sources of output growth show that sources of
output growth were different in both periods. During the pre-adjustment period, increase in
output was predominant in the case of wheat, rice and cotton, and this growth was mainly due
to the yield effect. In the case of sugarcane, the area effect was found to be a key source of
output growth. In the post structural adjustment period, the source of output growth in wheat
and cotton was due to yield effect. However, in the case of sugarcane and rice, the major
source of growth was accounted for by the area effect. There is an urgent need to increase
crop production, particularly the food grains production, which will become inevitable in
view of population growth.
Acreage response to sugarcane production
Krishna (1963) studied farm supply response in India and Pakistan. A Nerlovian
Adjustment Model for 11 crops was adopted in the study for the period of 1914-15 to 194546. The variables such as price of the crops, rainfall, yield of perspective crop and total
irrigated area in the relevant season was included in the model. It was found that only price of
maize, sugarcane and cotton was an important factor responsible in the allocation of area
under the crops. In the case of sugarcane, adjustment of acreage was more responsive in the
long-run (0.60) than in the short-run (0.34).
Raj (1963) study is the first study among those studies that used Nerlove framework
in Indian context. The pre-Independence data for Punjab (Undivided) was used and concluded
that the Punjab farmers have responded to economic stimuli.
Krishana and Rao (1965, 1967) tried quite a few price formulations to specify the
price variables and those on which farmers base their expectations. It was found that
traditional regression models give satisfactory results if not superior results compared with
those obtained by using adjustment lag model as far as proportion of explained variation in
wheat acreage is concerned.
Kahlon et al. (1965) studied price and cross elasticity of crop acreage of wheat,
sugarcane, paddy and other crops of Punjab for the period of 1950-51 to 1961-62. The results
14
indicated that wheat acreage was significantly responded to price changes. The coefficient of
price elasticity of production of wheat, sugarcane and paddy were higher than that for the
other crops. The price elasticity of sugarcane acreage was 0.642. Whereas, the cross elasticity
of sugarcane acreage relative to maize and cotton were -0.571 and -1.083 respectively.
Parikh (1967) work of supply response through the distributed lag models comes very
close to the Nerlovian framework. Both adjustment lag and price expectation models along
with the distributive lags were used. After analyzing different formulations with the data it
was arrived at the result that non-price factors are quite important as compared to the price
factors. It was worth noting here that the data set covered the period prior to 1939.
Herdt (1970) has evaluated supply response at aggregate output level for period 1907
to 1964 for Punjab agriculture. The reference period was divided into two sub-periods: 1907
to 1946 and 1947 to 1964. It was concluded that the 1907-1946 period tends to support the
hypothesis of a positive, although small, aggregate supply response of agriculture. The results
for 1951-1964 suggest the opposite, or at least do not support the hypothesis. The
disaggregated approach given by Tweeten and Quance (1963) was to measure supply
elasticities.
Jha (1970) viewed that it might not be possible to obtain larger output through
expansion of acreage in the long-run; the same might be realized by superior production
technology. In other words, the response of output might be elastic in spite of inelastic
acreage response. Hence it was concluded that the impact of price could be more
meaningfully measured in terms of variations in production rather than variations in terms of
acreage.
Maji et al. (1971) argued that in the times of changing technology, there might be a
considerable discrepancy between the acreage elasticities estimates based on the time series
data and the actual current estimates. This problem would become severe if the technological
change was one of the land savings types. It was advocated that price elasticity of output
would be more realistic than that of acreage.
Madhavan (1972) utilized a production function framework to arrive at the desired
demand for land. A production function under the assumption of constant ratios of elasticity is
maximized to obtain the factor demand equation. The estimated equation indicated that actual
planted area of a crop in the given period is a function of the log of relative price of the crop,
the expected yield of the crop under consideration as well as that of the competing crop and
the weather index.
Acharya and Bhatia (1974) analyzed acreage response to price, yield and rainfall
changes of different crops in Rajastan. The harvest prices was used assuming that the harvest
prices to be exercising more influence on the decisions of the farmers as majority of the
farmers dispose off their produce immediately after harvest. In order to compare the effect
15
and obtain better estimates, both relative and absolute prices were studied. The price-relative
for each crop was computed by deflating the price of the crop in question with respect to the
price of its most competing crop. The positive price elasticity of the crop was found.
Singh et al. (1974) analyzed the cost and returns structure based on various cost
concepts of different size group of sugarcane farms in Uttar Pradesh. The average expenditure
on working and fixed cost amounted to `3122.26 and `7255.36 per hectare respectively. It was
analyzed that the working expenditure was higher on small farms in comparison to the
medium and large size farms. The fixed cost was found to be higher in medium farm than
small and large size farms. It was noticed that the total cost of cultivation has been reduced
with the increase in the size of farms. The net return per hectare was highest in large size
farms in comparison to the other farms and the net monetary returns depend upon the
including and excluding labour on the farm. Therefore, the cost of cultivation of sugarcane is
high and is not proportionate to the sugarcane price.
In the same study some of the methodological issues in supply response was
examined namely the relative superiority or otherwise of the Nerlovian Lagged Adjustment
Model vis-a-vis traditional model. The appropriate proxy for price expectation and
quantification and incorporation of inter-regional characteristics in the macro models to yield
more meaningful results, with the help of data on lndian Virginia tobacco for the period 194041 to 1967-68. It was found that both traditional and Nerlovian Lagged Adjustment Model
with appropriate price specifications and with the inclusion of the relevant non-price variables
proved to be equally efficient in regard to the estimates of short-run elasticities. However,
Adjustment Lag Model explained supply variance better by yielding consistently higher
values of R2. The inclusion of lagged acreage in the model also led to the reduction of positive
serial correlation in the 'errors'. With regard to price specification in addition to Zero-Order
Correlation analysis, it was suggested that separate regression analyses be run with alternate
price specifications with regard to the commodity's own prices as well as that of the
competing commodities. An aggregate supply functions must also make adequate allowance
for the inter-regional characteristics and their impact on the magnitudes of supply and
variation therein for, this would help to establish more reasonable picture of supply response
behaviour.
Batra (1976) argued that if land was heterogeneous and if other inputs constrained
production, farmers might decide to increase the planned output of a specific crop by devoting
less but better land to the crop. Therefore, it was assumed that elasticity of planned output
would be equal to the sum of elasticities of area and yield. It was concluded that there was
negative acreage response of the crop with respect to its price.
16
Sawant (1978) claimed that land would be good proxy for production so long as it
was a major input and other inputs were closely complementary to it. But it was argued that in
a situation where it was not so, the use of non-land inputs should be explicitly considered
while determining supply response. The results so obtained showed that the contribution of
yield per acre to supply response was distinctly higher than that of acreage and thus,
suggested the inadequacy of acreage response.
Narayana et al. (1981) estimated farm supply response and acreage allocation. The
improvement was made upon the conventional econometric techniques. The necessity for
improvement arises because the traditional Nerlovian Model of adaptive expectation does not
separate past prices into stationary component and random component. It attaches same
weights to both the components for predicting future prices. The study uses expected revenue
instead of expected price and formulate revenue expectation function for each crop by
isolating stationary and random components in past prices and attach suitable weights for both
in prediction. The method was based on ARIMA technique combined with BOX-Jenkins
procedure for estimations.
Basavaraja (1982) felt that it would be better to estimate both acreage and yield
responses with a view to properly gauging the impact of price and non-price variables on the
supply of cotton in Karnataka State. The production response in addition to area and yield
responses were estimated for the purpose of comparison. The results revealed that there was
positive response of the farmers in terms of acreage under cotton to its price.
Narayana and Shah (1982) analyzed farmers’ acreage response in Kenya by adopting
Nervolian Model. The study mainly distinguished between the responses of small farmers visà-vis large farmers. The small farmers’ area adjustment parameters towards the desired
acreage in the case of food crops were much higher than for non-food crops; whereas for large
farms, the adjustment towards desired acreage was higher for commercial crops like
sugarcane.
Bapna et al. (1981) derived a system of output supply and factor demand equation
from the profit function. They began with monotonically increasing profit function and
derived output supply and factor demand curves. Two systems are derived from the
maximization of the profit function, namely, Generalized Leonteif and Normalized Quadratic
Systems. The authors pooled the time series and cross section data by following error
component model. It is confirmed by the authors that a Maximum-Likelihood Estimation
procedure would be better than the three-stage least-squares procedure. The results were
obtained for 96 districts spread over semi-arid tropical regions of the country. The authors
indicated that 25 out of the 32 own elasticities had the anticipated sign and also demonstrated
remarkable extent of price responsiveness of the semi-arid tropical farmers. The high supply
elasticity was noted for sorghum despite the small proportion of its marketed surplus.
17
Gajja et al. (1983) found that decisions regarding area allocation for groundnut in
Rajasthan corresponded strongly with the harvest price lagged by one year. It was concluded
that price behaviour was a decisive factor for area allocation for groundnuts in conjunction
with such factor as its own productivity performance, prices of competing crops and rainfall
patterns in Rajasthan.
Lal (1987) in the study on response of sugarcane producers to price and non-price
factors examined the impact of price and non-price factors on sugarcane acreage and
estimated the short and long run supply elasticities. It was found that the major factors
significantly and positively influencing sugarcane area in different districts of Uttar Pradesh
were the farmers' own adjustment lags in area (their previous year cane acreage), relative
sugarcane profitability, rainfall during sowing months and time trends. The study suggests
that the price of competing crops must be taken into account when evolving a suitable price
structure for sugarcane. The risk arising out of price fluctuations needs to be minimized. If the
farmers of the area are assured of irrigational facilities from canals or other sources, there was
great scope for increasing sugarcane area in spite of low rainfall in the pre planting period.
Mahajanshetti et al. (1990) estimates area response functions of sorghum for 12
Districts in Karnataka state, and for the state as a whole, using data covering the period
1962/63-1983/84. The area under competing crops of jowar was used to deflate the relative
price factors and incorporated this relative price of jowar into the area, yield and production
response models. The higher expected yields generally encourage farmers to allocate smaller
areas to the crop with the anticipation that on-farm consumption requirements, generally
fixed, will not be reduced. The greater influence of non-price variables over the price variable
indicates the subsistence nature of this staple food crop.
Janaiah et al. (1991) while studying the farm supply response of cotton in Andhara
Pradesh for the period 1956-57 to 85-86, used both the farm harvest price of cotton and its
competing crop (chillies). The results revealed that the previous year’s price had exerted
significant positive influence on current area in the state as a whole and its regions except in
Rayalaseema, whereas the price of competing crop (chillies) in Rayalaseema region and the
state as a whole was observed to have negative relationship with current year’s area.
Murthy et al. (1992) in the study on supply response of turmeric in Guntur district of
Andhra Pradesh estimated the supply response of turmeric to price and non-price factors in
Guntur district of Andhra Pradesh state, using data for the period 1972/73-1984/85. Neither
yield nor acreage found to be responsive to the level of prices observed.
Bhowmick and Ahamed (1993) studied the supply response of major oilseed crops in
Assam for the period 1972-73 to 1988-1989. The results showed that increase in oilseeds
production had been related to increased acreage rather than intensification of oilseed crops
production.
18
Grover (1993) studied sugar price model and identified various factors responsible for
fluctuations in the price of sugar and other sweetening agents like gur and khandsari. The
Three Stage Least Square Method was used to estimate the factors that influence the price of
sugar, sugarcane, gur and sugarcane supply to the factories. The free market wholesale
average price was found to influence positively and significantly by price of sugarcane, gur
price and negatively influence by supply of sugar. It was found that the price of sugarcane
was positively influenced by the price of sugar and supply of sugar. Similarly, the price of gur
was positively and significantly influenced by supply of sugarcane to the factories, price of
sugar and negatively affected by production of sugar. The price of sugarcane, sugarcane
production and daily installed crushing capacity were the important factors which have
positive influenced on supply of cane to the sugar factories.
Tripathy and Gowda (1993) by making use of one year lagged harvest price in the
model to study the area response of groundnut in Orissa obtained a positive and significant
impact of harvest price on the area under groundnut. The short-run elasticity was 0.334 while
the corresponding long-run elasticity turned out to be 0.3619. Monthly groundnut wholesale
price data for all districts of Orissa state (India) for the period 1974-90 were collected and
used in the analysis of groundnut prices in Orissa market and its impact on area and
production by Mohanty (1995). The findings revealed that both monthly and annual
wholesale prices of groundnut vary significantly in most districts as well as at the state level.
A significant relationship between groundnut price and groundnut area and production was
observed.
Deshpande (1994) studied supply response of chilli in Karnataka State for the period
1969-70 to 1990-91 and concluded that the increase in the total output of chilli in the state
was the result of shifting land from other crops rather than by increasing the yield of the crop.
Grover (1994) analyzed acreage response of sugarcane in Punjab. The area under
sugarcane was affected by both price and non-price factors such as weather, yield and
irrigation. In addition, government policies and disposal problems faced by the cane growers
were also included as an important explanatory variable. It was found that 88.00 per cent of
the total variation in dependent variable was explained by the explanatory variables. The
results revealed that the area under sugarcane crop was positively and significantly influenced
by the lagged area under sugarcane, lagged relative profitability of sugarcane with respect to
competing crops, price of gur and government policies. While, the lagged year disposal
problems faced by the growers was negatively and significantly affect the area allocation
under sugarcane. However, installed capacity of the sugar factories, lagged price of sugarcane
and sugar price does not affect the acreage response of sugarcane, but price of sugarcane play
its role through relative profitability of sugarcane.
19
Hazell et al. (1995) estimated aggregate supply elasticities for Indian agriculture
using national and state level data. The results from the national and state level analyses were
found to be similar, and show that aggregate supply was inelastic. Both levels of analyses
showed that growth in agricultural output in India in recent decades is largely attributable to
increased irrigation.
Palanivel (1995) estimated the aggregate agricultural supply response by using more
appropriately constructed variables for the period 1951-52 through 1987-88. The model was
developed within the basic Nerlovian Partial Adjustment framework. The farm harvest prices
and retail prices were used in estimating the index for prices received and the index for prices
paid by farmers, respectively. It was argued that since farmers sold bulk of their products
immediately after the harvest, farm harvest prices seemed to be a better approximation for the
prices received. Similarly, it was also pointed that as farmers purchase their requirements
(particularly family consumption items) from retail markets, rural retail prices seemed to be a
better approximation for the prices paid. The results indicated that the elasticity of aggregate
agricultural output with respect to TOT (terms of trade) was positive and statistically
significant but non-price factors are equally, if not more, important.
Omezzine (1996) studied the winter tomato farmers’ response in Tunisia. The
adaptive expectation geometric distributed-lag model was used to test farmers’ reaction to
expected prices of inputs and outputs as well as to other determinants of supply. The results
indicated that farmers’ reaction to the price they expect depends on previous year’s prices.
Ravikumar and Raju (1996) studied the marketing system of jaggery and producer’s
share of consumer rupee in the regulated Anakapalle jaggery market. It was observed that
there were a large number of middlemen and market functionaries involve in the marketing of
jaggery. There was lack of storage facilities of jaggery and basic amenities expected for a
market during peak season. There is a need to strengthen the credit facilities, development of
transport and other infrastructural facilities. The spread of the consumer’s price was worked
out to `637.75 per quintal as the net amount received by the producer and `774.56 per quintal
as the purchase price of the consumer. Thus, the total marketing charges paid by the
producer’s exporters and retailers was `63.74 constituting 8.23 per cent of the price paid by
the consumer. The producer’s share in the price paid by the consumer was found to be 82.34
per cent.
Dhindsa and Sharma (1997) had used lagged relative price to study the supply
response of prices in Punjab state and arrived at non-significant negative impact of the
variable on area under gram in two regions and the state as a whole. It was contend that the
non-significant impact of relative price variable would show that the farmers in various
20
regions of Punjab did not take into consideration the changes in relative price of the crop
(gram) while allocating area under this crop.
Kumar and Rosegrant (1997) worked on the dynamic supply analysis of cereals with
an intention to separate the output decision in to area and yield per hectare decisions. The
study used pooled cross section- time series data across regions of India pre reform period
1970-71 to 1990-91. A joint estimation of area, yield and input demand in recursive block
system has been adopted by employing Zellner’s SUR estimation technique. The expected
revenue has been used as a price incentive indicator. The dynamic response has been
estimated within a static framework by including lagged dependent variable. The results
revealed that non-price factors mostly explained shift in cropping pattern.
An empirical investigation on the supply of maize and tobacco for commercial
agriculture in Zimbabwe was presented by Townsend et al. (1997). The Error Correction
Model, which employs the concept of co-integration to avoid spurious regressions, was used
in the analysis. The factors affecting percentage area planted to maize were, expected real
maize price, real price of tobacco, real price of fertilizer and government intervention. The
factors affecting percentage area planted to tobacco were real price of tobacco, expected real
price of maize and institutional factors. The price elasticity of maize was 1.44 and 1.76 in the
short and the long run respectively. For tobacco, these were 0.28 and 1.36 in the short and
long-run, respectively. The results revealed that acreage response of farmers towards maize
was more than tobacco in the both short and long-runs.
Dixit et al. (1998) mentioned that in modern agriculture, at the advent of land saving
technologies, land becomes a secondary factor in production. Hence results found that the
yield/output response was pleaded rather than the area response. Another group of
researchers, Batra (1976), Basavaraja (1982), and Kumar and Rosegrant (1997), however,
worked on both area and yield responses in order to assess the farmers response to price and
non-price factors.
Mishra (1998) attempted to assess the impact of economic reforms initiated in 1991
along with price and non-price factors on aggregate supply in the Post-Green Revolution
period. The results assured that aggregate supply measured either through aggregate output or
marketable surplus does respond significantly positively to terms of trade.
Singh (1998) approximated the output decisions of farmers in terms of area under the
crop rather than its yield while studying supply response of oilseeds in Uttar Pradesh. The
Nerlovian Lag Adjustment Model was employed by using farm harvest price to study the
supply response of oilseeds in Uttar Pradesh for the year 1966-67 to 1989-90. The results
revealed that the area enjoyed by the crops can be considered as a barometer of the farmers
land allocation decision. Further, the area allocation under a crop was a function of several
endogenous factors, whereas, the yield was influenced by several exogenous factors. It was
21
further revealed that the farmers could keep area constant and increase output by varying
yield level. The result showed that the price variable had negative impact on area allocation
for groundnut, linseed and rapeseed-mustard. It was statistically significant only in the case of
groundnut. In the case of sesame, there was positive significant acreage response.
Gulati et al. (1999) analysed supply response using pooled data for 23 crop zones in
India. By utilizing cross-sectional district data covering the period 1970-71 to 1990-91, the
estimates were derived zone-wise for various crops. The study found that non-price factors
mostly explain shift in cropping pattern.
Kale et al. (1999) studied the cost of cultivation of the three planting types of
sugarcane namely Adsali, Suru and Ratoon. The average cost of cultivation of Adsali, Suru
and ratoon sugarcane during 1987-88 estimated at `28472, `22515 and `15493 respectively,
increased by 26, 35 and 45 per cent respectively during 1992-93. The net returns for three
crops were increased by 62, 107 and 114 per cent respectively due to increase in the price of
sugarcane paid to the sugarcane cultivators. The cost A for all these crops was accounted for
50 to 62 per cent (Adsali), 46 to 58 per cent (Suru) and 32 to 50 per cent (ratoon) to the total
cost. It was observed that there was a decrease in cost on account of hired human labour and
fertilizer and increase in cost on account of family labour and rental value of land. Therefore,
the ratoon crop was analyzed to be more remunerative than Adsali and Suru crop because of
no expenditure on preparatory tillage and planting material.
Ramasamy et al. (1999) studied the supply response of cane producers to price and
non-price factors. The coefficients were found to be positive and statistically significant
indicating responsiveness of the farmers to changes in the price variables defined as weighted
index of sugar and jaggery. The irrigation was found to be important non-price factor. Yield
risks and dummy variables representing policy regime of partial decontrol were not found to
influence sugarcane acreage. There has been quick area adjustment to price changes (0.7311
and 0.8047 respectively for state and district) which attributed to the high level of technology
adopted in sugarcane cultivation and absence of major production constraints in sugarcane
production. The long-run elasticities of acreage response were larger than short-run
elasticities allowing producers adequate time to fully adjust their resources.
Arega (2000) studied the supply response of maize in Karnataka to evaluate the
impact of relative price and selected non-price factors and to analyze the short and long run
price elasticities. The results indicated that relative price factor had positive and significant
bearing on acreage of maize in none of the selected districts but at the state level. Districts
namely Belgaum and Bijapur evidenced significant negative impact of price on acreage of
maize.
22
Mushtaq and Dawson (2002) quantified the acreage responses of wheat, cotton,
sugarcane and rice in Pakistan using co-integration techniques and impulse response analysis.
The results indicate that acreages of wheat and basmati rice do not respond significantly to
shocks in own-price while cotton, sugarcane and high yielding variety (HYV) rice do, and
that long-run equilibrium was re-established after about four years. An irrigated area was an
important determinant of acreage.
Brauw et al. (2003) studied both flexibility and supply responsiveness of Chinese
farmers using pooled cross section, time-series data for the period 1975-1995. The supply
responsiveness of Chinese farmers has been studied introducing a new concept of degree of
flexibility in the adjustment of quasi-fixed factors. The quasi fixed was defined as those
inputs which take more than one period to adjust to changes in relative prices or other
exogenous factors. The simultaneous estimation of input demand and output supply was
adopted following Gallant (1992) method of Non-Linear Three Stage Least Square estimation
simultaneously for two quasi fixed inputs and three outputs. It was found that land and labour
were less flexible for adjustment in the early reform period and the flexibility has significantly
increased in the late reform period where market was fully liberalized. The dummy variables
representing early reform period and late reform period have been introduced. It was found
that the price responses to change between early reform and late reforms periods. The results
showed that the own price response variable displayed significant increase in the late reform
period especially for labour but not much change was seen in the case of area response.
However, farmers increased their speed of adjustment between early and late reforms periods.
The study confirmed that gradual reform process has worked to the advantage of Chinese
agriculture.
Deb (2003) explored the presence of long-run relationship between terms of trade
(TOT) and agricultural output by using cointegration analysis and error correction model. The
bivariate results between TOT and output level in agriculture reflect no statistically significant
cointegration. The non-cointegratedness indicates that no direct long-run relationship exists
between TOT and output level in Indian agriculture. This, in turn, would suggest that a
favourable TOT structure alone may not be effective in sustaining higher agricultural growth.
Further, irrigation ratio was included as a technology between TOT and output. Then it was
found that variables were cointegrated. Finally it was concluded that growth in agricultural
output may respond better if specific structural variables were suitably combined with the
price variables.
El-Batran (2003) conducted a study on supply response for wheat in Egypt. The
wheat acreage supply response in Egypt during the period 1980-2001 examined using
different models. The results indicated that there was a positive supply response to the relative
price of wheat and competing crops (sugarcane and faba beans) and to the relative net profit
23
between wheat and multi cut berseem. The positive supply response reflected the role of
technical change to increase the cultivated area under wheat.
Alagh (2004) studied aggregate agricultural supply function in India and examined
price elasticity of the aggregate agricultural supply function. An acreage response function for
the period 1950-51 to 1996-97 corroborates the findings of earlier scholars that India's
aggregate supply function was not price responsive. However, periodizing the framework of
analysis, due to changed growth rates and policies after 1980-81, suggests a weak relationship
between acreage response and terms of trade for the latter period. The agrarian economy
reflects the transitional nature of the policy regime since 1980.
Rao (2004) examined agricultural supply response at aggregate level for Andhra
Pradesh by using Nerlove Partial Adjustment Model. It was found the short-run elasticities of
output with respect to TOT for aggregate agriculture vary from 0.20 to 0.29 and the long-run
elasticities vary from 0.21 to 0.31. The results also indicated that non-price factors are more
important determinants in aggregate agricultural supply than price related factors in the state
of Andhra Pradesh.
Abrar et al. (2004) explained the crop level supply response by region wise in
Ethiopia. The results showed that the output prices are clearly an important part of the
incentive structure, but non-prices factors are the binding constraints. This is most apparent in
the relatively non-commercial Northern highlands where these factors were far more
important in affecting production and resource use than price incentives.
Surekha (2005) developed a non-linear autoregressive distributed lag models to study
supply response for rice. The standard methods was criticized saying that most of the
structural form parameters are either non linear functions or ratios of reduced form parameters
and as a result the structural form parameters do not possess finite moments. Such estimators
were likely to be inconsistent and also very often lead to low estimates. This could be one
source of trouble in wide range of studies obtaining low elasticities from Nerlovian Supply
Response Models. As a method to overcome this problem, an alternative estimation method
was used based on Bayesian Paradigm, which takes care of the problem stated above. Taking
into account appropriate variance covariance structure of the error term, the parameters was
estimated using Bayesian two step procedure. Using the two stages Bayesian estimator it was
found that a large value for supply response as compared to the estimated derived standard
least square method. This seems to have explained the low supply response estimated by
many empirical researchers. It was further found that low adjustment coefficient that explains
farmers’ reluctance to make larger changes in main cereal crops like rice. The results revealed
that the farmers adjust slowly toward the desired acreage where farmers were reluctant to
make larger adjustments in main cereal crops that are used for self-consumption. It was
24
further found that a long run elasticity of 1.9 following Bayesian estimation method against
0.538 obtained which indicated high sensitivity of estimates to estimation techniques.
The same study was also conducted in Pakistan in which it was estimated the
responses of cotton, wheat and sugarcane crops’ area to changes in their prices and other
relevant factors using Nerlovian Model covered time series data from 1970-71 to 2006-07
(Nosheen and Iqbal, 2008). The coefficient of the area response models from respective crops
were estimated through Ordinary Least Squares Method. The short run price elasticity of
cotton area has been estimated at 0.263 while the long run price elasticity works out to 1.09.
The short run and long run price elasticity of wheat has been calculated at 0.045 and 0.105
respectively. In the case of sugarcane, the short run and long run price elasticity has been
worked at 0.229 and 0.653 respectively. The adjustment coefficients of cotton, wheat and
sugarcane have been estimated at 0.241, 0.435 and 0.350 respectively. The results have shown
that farmers do response to price incentive. The adjustment of area response to price
movement shows moderate pace of adjustment in the long run by the farmers in the case of
cotton and sugarcane. The rapid adjustment of wheat area in response to price was indicated
by the farmers. The study reveals that there were powerful monopolies and oligopolistic
structure in cotton, wheat and sugarcane markets which distort the incentives for the
producers resulting in wasteful and inefficient use of national resources. There was a need to
remove these distortions and correct market imperfections so as to make best use of the
available resources and increase farm production and improve competitiveness in world
market.
Mythili (2008) estimated supply response for major crops during pre-and post-reform
periods using Nerlovian adjustment-cum-adaptive expectation model. The estimation was
based on dynamic panel data approach with pooled cross section-time series data across states
for India. The study found no significant difference in supply elasticities between pre-and post
reform periods for majority of crops. The study also indicated that farmers increasingly
respond better through non-acreage inputs than shifting the acreage. This includes better
technology, use of better quality of inputs and intensive cultivation.
Many more studies (Thamarajakshi, 1977; Krishna, 1982; Mungekar, 1997; Desai
and Namboodiri, 1997) were also available in the context of Indian agriculture.
Thamarajakshi, (1977) reported a statistically significant and effective relation between
aggregate farm output and non-price factors (irrigation) but the author could not detect any
statistically significant impact of TOT on agricultural output. Krishna, (1982) also drew same
conclusion but difference between both the studies was that Krishna observed a marginal
impact of TOT on agricultural output. Mungekar, (1997) and Desai and Namboodiri, (1997)
reported negative impact of TOT on agricultural output. Both studies also observed
25
significant impact of non price factors such as irrigation, rainfall, area under high yielding
verity seeds, fertilizer use, rural roads and other infrastructure facilities.
Kumawat and Prasad (2012) examined the supply response of sugarcane in India, U.P
and Maharashtra using Nerlovian model. The area under sugarcane was affected mainly by
sugar prices in India and U.P and rainfall in Maharashtra. The elasticity of area with respect to
sugar price was very low (0.19) in U.P and high (1.13) in Maharashtra. The yield of sugarcane
was affected by rainfall in India and in tow individual states. Thus, non-price factors are more
important factors in the farmers’ decisions about inputs other than area.
The total supply response is the response of the total output to price and non-price
factors. In fact, it was the planned output that should respond to changes in these
variables. In other words, growers tended to plan certain level of output to be produced in
response to price and non-price factors and it was this planned output that had to be
considered as a response variable. However, the non-availability of time series data on
planned output made it necessary to use some appropriate proxy. The response variable
through which the farmers’ decisions are reflected, however, there is little consonance
amongst the researchers. Some researchers claim that area under the crop could be a
better proxy for the planned output. The area statistics were not only readily available and
more dependable but also least influenced by external factors. The protagonist of area
response are Sinha et al. (1934), Candler (1957), Nerlove (1958), Mangahas et al. (1966),
Jakhade and Mujamdar (1964), Sahay (1971), Madhavan (1972) and Cummings (1975).
Constraints in production sugarcane and sugar
Grover (1987) identified the problems faced by the sugar industry at the mills and
growers levels. The fluctuation of area under sugarcane was the important problem faced by
the sugar industry which leads to fluctuation in sugarcane supply to the mills. This fluctuation
gave rise to instability in production and prices of sugar and other sweetening agents. The
other important problems were low recovery of sugar, high cane price fixed by the State
Government and larger diversion of sugarcane produce to sweetening agents other than sugar.
The cane growers faced problems regarding obtaining of cane requisition slips, delayed
payment, problems of weigh-men and transportation, delayed in unloading of sugarcane and
malpractices in the distribution of cane indents by the sugar mills.
Rais and Rath (1990) examined and identified the problems that causes the sickness
of the sugar industry in Uttar Pradesh clustering of small sized plats without much foresight
for the future development and expansion have been one of the foremost reasons for the
technical and financial sickness of the sugar industry. It has been reported that 50-60 per cent
sugar mills in the state were sick. The sickness of mill was defined as the mills which had
incurred cash losses for the last three consecutively or more should be clubbed into the
category of sick. The results revealed that cooperate sector has higher sick mills than the
26
private sector. The sickness of mills has been cause by inefficient management, obsolete plant
and machinery, low capacity utilization, low recovery rate, high loss of sugar in bagass and
high cost of conversion as internal factors. While inadequate supply of sugarcane and
inconsistencies in the government policies related to pricing of inputs and output levy on
sugar and on the by-product of the sugar industry as external factors.
Arulraj (1998) analyzed the constraints affecting sugarcane planting productivity. It
was found that high fertilizer cost, non-availability of labour, delay in harvest, difficult in
cane harvest, difficulty in cane transport, non-availability of skilled labour for various
operations, lodging of cane, flowering of cane, poor cane yield from ratoon, lower income
obtained from sugarcane crop as compared to other crops were the constraints faced by the
cane growers .
Tarimo and Takamura (1998) analyzed the constraint of sugarcane production in
Tanzania. The study found out various constraints related to edaphic such as unreliable
seasonal rainfall and poor irrigation in the sugarcane fields resulting in salinification of soils,
biological such as low productivity of sugarcane, husbandry (used of obsolete technology in
sugarcane production such as lack of pest control such as for rats and the use of fire before
cane cutting), processing (used for processing sugarcane are old and generally crude in
performance), marketing infrastructural conditions and insufficient storage facilities during
the peak production season cause imbalances in sugar distribution to the country. The
sustainable sugar production in the country depends on improved production technology,
marketing and storage infrastructures at factories and regional centers. The marketing
infrastructure was laden with exorbitant storage overheads which have to be paid by the endconsumers. Therefore, it was found that there is a need to strengthen research in the sugarcane
industry to ensure availability of high-yielding, disease-and-pest resistant clones which are
adapted to the Tanzanian soil and climate conditions.
The study conducted by Nain et al. (2002) found irregularity in the distribution of
sugarcane purchase indent delay in payments of sugarcane to the farmers (by Cooperative
sugar mill), delay in unloading, lack of transportation facilities as the major problems reported
by the farmers in Haryana in the marketing of sugarcane to the sugar mills. All the problems
faced by the farmers need to be attended by the sugar mills on priority basis for the
development of sugar industry in the state.
Abdel-Maksoud and El-Sharabassy (2007) identified production and marketing
problems facing sugar cane growers in Qena governorate, Upper Egypt as perceived by
farmers and extension personnel of the governorate. The most important production problems
perceived by focus groups of farmers and extension personnel were spread of different kinds
of weeds and insects, weak role of agricultural extension, shortage and high costs of fertilizers
and labor, high costs of production, insecticides and irrigation. The high costs and
27
unsystematic cutting, shortage and high costs of transportation, delay of cutting and delivery
of product to the factory, inaccurate weigh and low prices of the product were the most
important marketing problems mentioned by farmers and extension personnel in Qena
governorate. With regard to marketing problems, members of the three focus groups in the
first village agreed upon the existence and priorities of delay of cutting, high costs of
transportation (Livre égyptienne (L.E.) 15 per tonnes), stealing of product during
transportation, delay of transportation and delivery, and inaccuracy of sugar cane weigh at the
factory. In the second village, high costs of transportation and inaccuracy of sugar cane weigh
were mentioned by members of the three focus groups. Non-availability of loading machines,
delay of cutting, lower price of product and high ratio of defects were mentioned by only one
or two focus groups held in the village.
Mahlangu and Lewis (2008) found that there were a range of factors at farm level,
contract level, institutional and mills level that affect small scale growers’ (SSG) sugarcane
production. There was indication of trend of decreasing production levels and yields of
sugarcane among small scale growers. It has been analyzed that SSGs were not making the
effort to improve farming practices as returns are declining and provide little incentive to
invest resources. The study identified shrinking yields and associated financial returns as a
major challenge. The other challenges were lack of integrity among individuals and
dishonesty. SSGs were facing the problem of high wage rate which make them to find good
workers to assist. Yet, the poor communication between SSG structure, harvest contractors,
haulers and the mill were other major challenges. The authors revealed that the challenges
need to be holistically addressed if farming practices are to be effectively improved and the
sustainability of SSG sugarcane production enhanced. Therefore, the study recommends that
the introduction of the best management practices (BMP) project should be accompanied by
parallel intervention.
Shinde et al. (2009) analyzed the problems of the farmers in the sugarcane production
in Raibag taluk of Balgaum district. It was found that the majority of farmers faced the
problems on account of low price of the produce, price fluctuation, high cost of production,
high wages for hired labour, lack of labour availability, pest and disease infestation, scarcity
of own fund and lack of crop cutting order from sugar industry, which lead to uncertainty of
income to the farmers. The increase in profitability of sugarcane production and adoption of
intercropping system would increase return per rupee of investment. Moreover, the better
management practices and efficient utilization of family labour will compensate the labour
problems.
Lahoti et al. (2010) studied was carried out, in the year 2005, to identify the
constraints in adoption of sugarcane production technology by interviewing 150 sugarcane
growers from ten different villages of command area of Vaidyanath Co-operative Sugar Mill
28
Limited, Pangari, (Maharashtra). The constraint variable was operationalized as the
difficulties faced by sugarcane growers for adoption of sugarcane production technology. The
constraints encountered by most of the respondents in adoption of sugarcane production
technology were irregular supply of electricity, high cost of pesticides, and inadequacy of
irrigation water at required time, non availability of labour for intercultural operations, high
cost of fertilizers, and non availability of good quality manure and lack of knowledge about
spraying of insecticides. Non availability of contact office near the village and transportation
of sugarcane sets were also the constraints faced by the sugarcane growers. Timely and
regular supply of inputs at cheaper rates, with regular supply of electricity and ensuring
remunerative price to sugarcane were some of suggestions made by sugarcane growers.
Alcudia et al. (2011) identified the main socio-economic and technological factors
influencing yields in sugar cane at Benito Juarez Sugar Mill Factory (BJSMF). A total of 150
growers were interviewed, whose information was analyzed with descriptive statistics. The
relevant socio-economic characteristics were age (51 per cent growers were 50 to 70 years
old); school attendance (40 per cent coursed primary school); lack of family labor, among
others. Relevant technological issues were the higher yields in a smaller area planted with
variety MEX 79-431, mean yields ranged from 50 to 60 tonnes per hectare, commonly
applied fertilizers are based on the formula known as triple 17 by 30 per cent of growers and
the 20-10-10 fertilizer mix is used by 26 per cent. The lack of technical advisory access was
reported by 58 per cent of them.
Murali and Balakrishna (2012) identified the labour problems in the sugarcane
production in Tamil Nadu. The labour scarcity coupled with high wage rate of labour was
found affected timely irrigation and harvesting of the crop to a greater extent. It reduces area
under sugarcane cultivation (from 3.91 lakh ha 2006-2007 to 3.14 lakh ha in 2009-2010) in
the state. Modern sugarcane machinery and labour saving devices were introduced at large
scale to reduce the dependency of labour, and complete the farm operation in time.
Mechanical operations proved that it was superior to manual operations. It reduced cost of
production and enable efficient utilization of resources with better work output. It was
estimated that furrow method of irrigation requires about 320 man-hours as against 30 manhours for drip irrigation. The manual harvesting required about 1,000 man-hour with the cost
of `55,000 to harvest 100 tonnes per ha (`550 per tonnes) against `32,500 per ha (`325 per
tonnes) with the labour engagement of 12 man-hours per ha. Now it is inevitable to use
modern sugarcane machinery, which is now available in the-country like sugarcane planters
weeding machinery and imported harvesters.
2.1 Performance of sugar industry
29
Puri (1963) highlighted that the sugar industry was faced problems, such as small
number of sugar mills, lower percentage recovery of sugar, lesser supplies of cane sue to
diversion to Gur and Khandsari units which paid higher prices to the cane growers, controlled
price and distribution of its bye-product (molasses) in Punjab. As a result, the working of
many sugar factories became un-economic.
Ahmed (1972) observed that the sugar industry expressed dissatisfaction with the low
levy prices. The government started taking into account the escalation (increase in railway
freight rates, dearness allowances, parking charges, higher depreciation and emergency risk
assurance premium) suggested by Tariff Commission. Thereafter, notified levied prices in
certain zones became lower than the fixed ex-factory price (exclusive of excise duty) at which
sugar was to be delivered to the Government to maintain buffer stock under Public
Distribution System (PDS).
Bahl (1972) observed the existence of wide gap in the granting of license and the
installation of capacity in the sugar industry. On the other hand, internal demand for sugar
was growing. Therefore, to bridge the gap between demand and supply it required an increase
in the production of sugarcane by paying higher prices to the cane growers so that they could
augment the production of sugarcane.
Kanoria (1978) pointed out that due to wide disparities in cane payment, cane
supplies from Gur and Khandsari units were diverted to the sugar industry during 1977-78.
This brings the sugar industry to increased its capacity utilization and hence, sugar production
but despite the excise rebate concession on additional production, cost of production
increased for the sugar industry. It was due to an extension of its crushing season to the hot
summer months which steeply reduced sugar recoveries, though; the cane price paid by the
mills remained above their statutory level. As a result, the industry had to incur heavy losses
since the mills were forced to deliver large quantities of levy sugar at uneconomic rates while
its market prices had fallen rapidly.
Bura (1979) stated that decontrol of sugar led to fall in its prices and brought heavy
losses to the industry. It was due to tremendous increase in sugar production during 1977-78.
So, it failed to pay a remunerative price to the cane growers and make their due payments.
Thereby, an ordinance was promulgated by the Government to take over the management of
those sugar factories which had failed to start crushing operations in time and reduce their
dues.
Grewal and Rangi (1982) acknowledged the problem of fluctuating supplies of cane
that engulfed the Indian sugar industry so the mills in Punjab had to run after farmers when
this failed to get adequate supplies of cane on the other hand, cane growers had to face
problems in the disposal of their crop when mills failed to crush the available supplies. The
fluctuations in cane supplies resulted from the prices of sugarcane, Gur and due to the
30
problems faced by the farmers in the disposal of cane. Besides this Government policy for the
regulation of sales of sugar (it manifested itself in several forms) also affected the sugar
market. The control of sugar (nearly for a year that is from August 1978 to June 1979)
initially brought a slump in its price and thereby increased its domestic demand tremendously.
But later on it led to a peak hike in the price of sugar and Gur.
Attwood and Baviskar (1987) studied a comparative sociological analysis of the cooperative sugar factories in Maharashtra in order to pinpoint the organizational factors which
are crucial for their success. A comparative analysis of privately-owned sugar factories in
India revealed a basic weakness in the cane supply relationship between the private factories
and the sugarcane growers-a weakness which the co-operative factories have overcome. As a
result, the co-operatives can operate at higher technical and economic efficiency than the
private factories. Moreover, although the co-operatives received some helpful subsidies from
the government, much larger subsidies were directed to the private factories at the expense of
the more efficient co-operatives. The success of the co-operative sugar factories depends not
only on a superior cane supply system (which resolves a problem specific to the sugar
industry), but also on their ability to generate a stable alliance among the small, medium and
large cane growers who were the shareholders. This alliance was made possible by two sets of
factors: internal factors, which are specific to the technical requirements of sugar production;
and external factors, which are rooted in the agrarian system of the region where these cooperatives have flourished. Comparisons with other types of co-operatives in other regions of
India show that the presence or absence of similar factors determines whether a given type of
co-operative will succeed or fail. Detailed comparisons with the successful dairy cooperatives of Gujarat show that co-operative alliances between small and large farmers may
take different organizational forms under different regional conditions. The political
organization was also influenced by the nature and scale of the production process. The
general conclusion was that the probable success or failure of co-operative organizations can
be predicted through such comparative analyses-analyses which compared co-ops with other
types of private and co-operative enterprises, taking into account the technical and
organizational requirements of the production process, the distribution of interests and
possibilities for a stable alliance among the members, and the regional agrarian systems which
determine the natural and social environments of the co-operatives.
In the study conducted by Grover (1987) estimated the performance of sugar mills in
Punjab. The performance of the sugar mills was judged on the basis of several efficiency
criteria such as cane crushed, recovery, sugar production, mechanical breakdowns,
operational efficiency, capacity utilization and cost of sugar production. The results revealed
that Batala Sugar Mill showed highest recovery followed by Morinda and Phagwara
respectively. It was found that Phagwara gave lowest time losses due to mechanical
31
breakdown followed by Batala and Morinda respectively. The results further revealed that
Phagwara Sugar Mill had highest operational efficiency followed by Morinda. Also Phagwara
Sugar Mill showed better performance in terms of capacity utilization. Comparatively, Batala
Sugar Mill had the lowest cost of sugar production.
Nikam (1988) conducted a study of three co-operative mills (Terana, Siddheshwar
and Madhukar) located in Central Maharashtra. The results indicated that the average
recovery of sugar varied across the mills. All the three mills showed general efficiency during
most of the years but both in the case of early start and late crushing, shortage and poor
quality of sugarcane reduced the recovery of sugar.
Azad et al. (1990) determines the disposal pattern of sugarcane and cost structure
involved in the processing of sugar in sugar factories for public, cooperative and private
organizations. The results indicate that the organization, management and supervision of
private sugar factories were in the hands of experienced, efficient and responsible persons as
compared to those in the public and cooperative sectors. The results further showed that
private sector sugar mills in Meerut district of Uttar Pradesh crushed nearly 2-3 quintals of
total cane crushed 2/3 quantity of the total cane crushed and were bigger in size. It has a
higher recovery of sugar due to the efficiency of management and technical staff and better
maintenance of plant and equipment compared with public and co-operative sector mills.
Therefore, variable cost per quintal of crystal sugar for private sector remained low. But the
total fixed cost due to big size of the plant and large strength of the permanent labour and
technical staff was higher. However total processing cost per quintal o sugar remained the
lowest for them which increased their net returns per quintal of output.
Dawar (1990) study the performance of sugar industry in Punjab and Haryana which
evaluated in terms of returns to scale. The contribution of inputs such as labour, capital and
raw materials in sugar manufacturing process were highlighted and explored. The inputs were
found to be efficiently managed and productively utilized. The results revealed that the
performance of cooperative sugar factories has been performed better than in Haryana. The
input capital has performed well while labour and raw materials did not yield the desired
results. But in Haryana there is a need for reorganization and rehabilitation of the existing
sugar factories rather than expansion and installation of new factories.
Dhanuka (1990) observed that the sugar industry was facing financial crisis due to the
lack of availability of sufficient quantities of sugarcane and other restrictions such as higher
excise duty imposed on the sale of free sale sugar. The cost of sugar production had increased
for the mills due to a number of factors, such as an increase in the price of sugarcane, working
of sugar mills during hot summer months which reduced the recovery of sugar, higher wages
of labour, cost of transportation, spares and packing materials and other cost ingredients. The
cost of production was even higher than the price of sugar realized by the industry. Due to an
32
increased gap between the cost of production and the price of sugar led the industry to incur
losses. As a result, industry’s dependence on the borrowed funds had increased which got
reflected in lower production.
Singh (1998) found that the sugar recovery in Muzaffarnagar district of Uttar Pradesh
was more for the Shamli Sugar Mill compared with that of Mansurpur Mill. But both the
sugar mills faced the problems either of excessive or short supplies of sugarcane during the
crushing season. The crushing capacity of the mills was too low as compared to the supply of
sugarcane to the mills. The capacity of the mills could not be increased due to the refusal of
permission by Government and lack of funds.
Goel and Kaur (2000) examined the performance of Bhogpur and Jagraon sugar mills
in Punjab. Jagraon mill daily crushing capacity (2500 tonnes) has been more than double
Bhogpur sugar mill (1100 tonnes). The mill with higher TCD met the major chunk of its cane
requirements from the mid maturing varieties of cane. Bhogpur, oldest sugar mill keep the
plant running for a longer period in order to keep the cost of capital lower together lower
labour cost of running a plant. While, Jagraon, new sugar mill increase the use of installed
capacity by lowering the number of working days so as to reap the benefit of economics of
scale. Due to availability of several tax concessions and policy bias of the Government,
Jagraon sugar mill tends to keep per unit cost of production for drastically low which
increases per unit profit margins.
Gohil (2000) analyzed the profitability of Bardoli Cooperative Sugar mill and
represented by straight-line trend based on least square method. It was analyzed that the net
profit ratio, the return on net capital employed, return on owner’s fund and earnings per
share trend were declined continuously during 1997-98 and 1988-89 as base year. It was
shown that the profitability was decreasing and adversely affected. The owners fund was
not used properly on the unit. The value of one equity share of the unit was `500 and during
the last three year, earning per share trend was `10 on an average-based, which was only
two per cent of its share-price. A major portion of cost comes from operating expenses and
the trend during 1997-98. This indicates that there was need to control the operating
expenses. The management was failed to earn enough return on total capital employed. The
rate of recovery of the unit was 11 per cent on an average based during 1997-98 and was
more than the normal rate (8.5 per cent) as it was the key indicator for productivity and
profitability. Further it was noticed that the sugar mills faced problem of low profitability
which can be control by adopting prudent measures.
Goel (2002) opined that a large number of sugar factories faced an unbearable heavy
losses on their operation due to several factories such as higher SMP (Statutory minimum
price) coupled with precipitous decline in sugar prices. An increase in price of sugarcane
33
bring more area under sugarcane lead to large sugar production vis-à-vis massive build up of
stocks which grew from 54 lakh tonnes to 109 lakh tonnes during 1998-99 and 2002-03.
Under this circumstances industry fail make to payment to the sugarcane farmers. Several
measures were suggested to combat these problems to some extent, such as relief in excise
duty on sugar, molasses and central cess, regulated release mechanism, buffer stocks, future
trading in sugar, to encourage sanction of adequate cash credit limited by the banking sector
and classified the sugar industry as advances to the priority sector.
Nain et al. (2002) examined the comparative economics of sugarcane processing in
the Public/Cooperative sector and Private sector. It was observed that the processing cost of
sugarcane for manufacturing one quintal sugar was found higher in Cooperative sector
sugar mill (`193.50) in comparison to Private sector (`113.44). The processing efficiency in
terms of value addition per unit cost of processing was found higher in Private sector
(837.45 %) in comparison to Cooperative sector (465.12 %). The higher processing
efficiency in Private sector may be attributed to lower fixed as well as overhead expenses
and more quantity of sugarcane crushed.
Shinde et al. (2002) evaluate performance of cooperative sugar factory in
Ahmednagar district over the period of 1990-91 to 1999-00. The study showed that the
technical health of the sugar factory considering the health components such as crushing
capacity, daily average cane crushed, total cane crushed and the quality of cane crushed
from the mill was good during the year under study. The regression analysis revealed that
the factors such as per quintal cost of sugar and percentage of sugarcane crushed from the
outside jurisdiction of the factory turned out highly significant and explained 79.94 per cent
of variation by the factors.
Singh et al. (2007) analyzed the efficiency of the sugar factories across the different
regions of the state Uttar Pradesh. It was observed that the average crushing capacity of sugar
mills in the private sector of Western Region was highest followed by the Central and Eastern
Region of the state. The average capacity and number of operating days was at satisfactory
level which influence in deriving the benefits of economies of scale. The profitability and
efficiency was estimated in the private sector factories in the Western Region and least
efficient in cooperative sector in Eastern Region. The overall efficiency of the sugar industry
was 73.5 per cent on account of assured cane supply in the crushing season in Western
Region. The increase used of the variables such as raw materials and stores, manufacturing
and depreciation cost has a significant contribution in sugar production. The firm/factoryspecific efficiencies ranged from 45 to 92 per cent. Half of the sugar mills in the state were
operating above 75 per cent level of efficiency, most being in the Private sector. The
variability in the level of efficiencies was largely due to the nature and scale of operation.
34
Shinde (2011) analyzed the pre and post performance of Ajara Talika Shetakari
Sahakari Sugar Factory Limited., Kolhapur in Maharashtra. The sick cooperation sugar
factory has been leased out to survive in the changing environment. The author defined preleasing period as cooperative management while post leasing period as private management
period. The seven key parameters such as cane crushed, sugar produced, recovery, capacity
utilization, reduced mill extraction, gross season and cane price paid to cane growers were
used for analysis. The students’t-test was adopted for the evaluation. The study revealed that
there was no significant difference in the performance of pre and post leasing period for the
parameters cane crushed and gross season taken. It was analyzed that the performance of
private management were better than the cooperative management for sugar produced,
reduced mill extraction, capacity utilization, recovery and cane price paid. The author
concluded that the factory which was on threshold of closure can survived by better
management practices adopted by the private management during post leasing period.
Bhagat (2010) revealed that under utilization of production capacity is a common
issue for Nepalese manufacturing enterprises and sugar industry is no exception to this. The
study was mainly deals with the cause of underutilization of production capacity of Nepalese
sugar mills as well as the market situation of sugar and sugarcane. In spite of sufficient
production of sugarcane, the sugar mills do not get adequate quantity and proper quality of
sugarcane at right time. Almost half of the sugarcane production has no market which
revealed the poor procurement system. The approved production capacity of Nepalese sugar
mills was more than domestic requirement of sugar. However, the unfulfilled demand for
sugar is fulfilled mainly by imported as well as smuggled Indian sugar. The capacity
utilization rate of Nepalese sugar industry, which has been decreasing, dropped to 45 percent
in 2008-09. The main identified reasons are stoppage, breakdown and slow motion of
machines, delay in settlement of minimum support price of sugarcane and late
commencement of production season, political instability, less operation days of sugar mills
and ultimately the overlook of sugar producers to utilize their full capacity of production.
Measures to improve the capacity utilization rate of sugar mills have become an urgent need.
Nandhini et al. (2012) study the effectiveness of performance appraisal system in
sugar mills in Tamil Nadu. The performance appraisal has been defined as a process of
evaluating an employee’s performance of a job in terms of its requirement. The performance
appraisal has been considered as a most significant and indispensable tool for an organization,
for the information it provides is highly useful in making decisions regarding various personal
aspects such as promotions and merit increases. It has been done to maintain individual and
group development by informing the employee of his performance standard, to suggest ways
of improving the employee’s performance when it was not found to be up to the mark during
the review period, to identify training and development needs and to evaluate effectiveness of
35
training and development programmers and to plan career development, human resources
planning based on potentialities. The sugar industry in Tamil Nadu has achieved a high
degree of stability and there has been a steady increase in the output. During the crushing
season, the cane planning was done to achieve the timely completion of crushing and the Co operative and Public Sector Sugar Mills were envisaging 110 per cent capacity utilization.
The Chi-square test shows that there was a significant relationship between educational
qualification and monthly income of the employers.
Ray (2012) evaluated the economic performance of Indian sugar industry in view of
capacity utilization measured econometrically at the aggregate level of over a period from
1979-80 to 2008-09. The trend in growth rate of capacity utilization follows a decelerating
path during the post reform period as there was a sharp decline in average capacity
utilization rate in post-reform period as compared to pre-reform period. Secondly, annual
average growth rate of capacity output shows steep upward trend but actual output grows at
a much slower rate than capacity output resulting declining growth rate in capacity
utilization (CU). Thirdly, the liberalization process was found to have its significant
negative impact on capacity utilization since there was a fall in average growth rate of
capacity utilization during the post-reform period. Fourth, the empirical findings suggest
that there exist considerable variations in the capacity utilization rates over years within
same industry. Finally, it was noticed from the results that capacity utilization has more
sensitive to the extent of capital deepening of the sugar sector. In order to utilize its
capacity fully and run efficiently, the sugar mills within the industry should get
uninterrupted supply of raw sugar cane uniformly throughout the seasons and the
government should ensure the supply of raw inputs. There is a need of coordinated and
concerted effort for appreciation and consolidation of the needs of the consumer, farmer,
and processor and to address to various above issues if India has to attain the glory of self
sufficiency and attain the status of net exporter and an important significant player in the
international market. There is an urgent need to improve in productivity both in terms of
yield as well as sugar contents and recovery by adopting better harvesting practices and
close coordination of sugar mills with farmers. It has been estimated that better farming and
harvesting practices could result up to one per cent improvement in extraction which can
lead to 10 per cent increase in production. Therefore, mills and farmers to work together to
improve yield and extraction through better harvesting in order to become internationally
competitive that is cost effective and quality producer.
Presented reviewed of the literature have brought out that none of the study was
done on growth of sugar production, its instability and decomposition of sugar production
into different effects. Many studies were on acreage response for price and non-price
factors using Nerlovian Model. But the relative income of sugarcane farmers against it
36
competing crops namely paddy and wheat as independent variables was included in few
studies. An attempt has been made to compare the Linear Model and Nerlovian Model of
sugarcane acreage response so that true picture of acreage response under sugarcane crop in
the state could be highlighted. The comparison of these two models was not found in the
literature reviewed. The physical and financial performance of the sugar industries was not
analyzed minutely based on different parameters by any researchers. A few studies have
compared the economics of the two sectors of the sugar mills but not even a single study
was found to compare the two sectors based on physical and financial performance of the
sugar mills. The constraints faced by various interest groups involve in production and
processing of sugarcane and its marketing was studied by many researchers but few studies
was on constraints faced by the farmers right from the production of sugarcane to
processing and marketing of sugarcane and sugar. Moreover, in-depth study of the sick
sugar mill was not done so far. Therefore, in the light of above stated facts an attempt has
been made in the present study to examine and identify various problems in production and
processing of sugarcane in the state.
37
CHAPTER III
MATERIAL AND METHODS
The chapter describes and explains the methodology deployed in the present study.
The chapter was organized in sub-heads such as the sampling procedure, sources of data,
analytical technique, and operational definition.
In order to draw a representative sample, the detail sampling procedures is discussed
as under:
Sampling Procedures
The procedures for the selection of ultimate respondents for fulfilling the stipulated
objectives have been divided into different phases. A Simple Random Sampling technique
was followed to select the respondents. The different phases for the selection of respondents
were discussed as follows:
Selection of sugar mills
In Punjab, there were 24 sugar mills with a crushing capacity of 70016 TCD, 8.80 per
cent recovery and production of 302.3 thousand tonnes of sugar in 2010-11 (Anonymous,
2011). Out of the total sugar mills in the state, 15 sugar mills were in cooperative sector and
nine in private sector. Among the cooperative sugar mills, only nine were functioning in the
study period and seven sugar mills under liquidation. The crushing capacity of the functioning
sugar mills under cooperative and private sector was listed down. The simple random
sampling method was used to select mill, as such two mills each from cooperative and private
sector were selected randomly based on highest crushing capacity (TCD) of the sugar mill.
Accordingly, two cooperative sugar mills namely Morinda and Nawanshahr Cooperative
Sugar Mills Limited, each having crushing capacity of 2500 TCD, were selected for the
present study. Similarly, Wahid Sandhar Sugar Limited, Phagwara and Indian Sucrose
Limited, Mukerian having daily crushing capacity of 4500 and 5000 TCD respectively were
selected from private sector. Thus, a sample of four mills was taken for the present study.
The sugar mills under cooperative sector in Punjab has suffered from the malady
of sickness over last decade and there assumed to unmanageable dimension and no sign
of abatement. There was indeed call for timely and proper monitoring of the mills in the
state. Therefore, it has been realized to have in-depth knowledge about the sugar mills
under liquidation and to find out the root causes of the mill sickness in the state. Keeping
in mind the stated problem and to help the policy makers to frame an efficient plan and
policy measures to build an efficient based sugar industry, Zira Co-operative Sugar Mills,
Limited, Zira was selected purposively for the fulfillment of the stipulated objective.
38
Selection of sugarcane farmers
A simple random sampling technique was adopted to select the sugarcane farmers.
The farmers residing in vicinity area of the selected sugar mills were considered to be the
population for the present study. Accordingly 15 sugarcane farmers were selected randomly
from each area of selected sugar mills. Hence, there were a total of 60 sugarcane farmers
comprising 30 each from cooperative and private sugar mills respectively. For examination
of various constraints regarding the sugarcane production and its disposal, and socioeconomic problems faced by the cane growers, 60 famers were interviewed personally.
Besides, 15 sugarcane farmers were selected randomly from the vicinity area of selected
liquidated sugar mill and interviewed personally to analyze minutely the problems faced by
them. Therefore, the total representative sample for the present study was 75 sugarcane
farmers.
Collection of Data
The present study was based on the primary and secondary data. The collection of the
data from different sources is discussed under the following sub-heads:
Secondary sources
The secondary data for the last 61 years, a period from 1950-51 to 2010-11 based on
various parameters relating to sugarcane and its competing crops such as wheat and rice were
collected. The requisite time-series data pertaining to the area, yield and production of
sugarcane and cane crushed, recovery and production of sugar in India and Punjab were
collected from various issues of the Statistical Abstract of Punjab, Economic Survey of India,
Agricultural Statistics at a Glance, Indian Sugar and from websites like www.indiastat.com.
To study and estimate the physical and financial performance of the sugar mills vis-àvis the problems faced by the sugar mills, the relevant information were obtained from the
Punjab State Federation Cooperative Sugar Mills Limited and Statistical Abstract of Punjab,
etc. Further, the data pertaining to crushing capacity, capacity utilization, sugar recovery,
sugar production, average crushing days, molasses production, etc. and mill information such
as working at a glance, balance sheet, income statement were collected from the sample sugar
mills.
Primary sources
The primary data and other relevant information for the present study were collected
from the selected sample farmers with the help of pre-tested well structured schedule through
personal interview for the year 2010-11.
Data on demographic characteristics like age, economic status, family size,
educational level and economic parameters such as land inventory, farm buildings, area under
sugarcane and experience in sugarcane cultivation were collected. The opinion of the farmers
on the various constraints in sugarcane production, its disposal, the financial problems and
39
socio-economic problems faced by the cane growers were collected. Besides, measures to
overcome the problems have also been suggested for sustainable development of sugarcane
and sugar production in Punjab. The information related to the problems faced in processing
and production of sugar from the concerned officers of the mill was interviewed personally.
Analytical Techniques
The study examines the growth rates of area, production and yield of sugarcane, and
cane crushed recovery of sugar and sugar production for Punjab and the country for last 61
years. The study period has been divided into three periods to appraise the impact of preGreen Revolution from 1950 to 1965, post-Green Revolution from 1966-1990 and postliberalization from 1991-2010 on sugarcane and sugar production. The estimation of growth
rates was mostly done by linear growth rate and compound growth rate (CGR). Therefore,
CGR was followed to estimate the growth rate of area, productivity and production of
sugarcane for each of the three periods. The same estimation method was followed for the
growth rate of cane crushed, sugar recovery and sugar production for each of the three
periods. It is the most appropriate and appreciable to analyze the movement of agricultural
crops in terms of compound growth rate rather than linear growth rate for the study. As the
linear growth rate has inherent limitations to perform the comparison of growth rates between
periods and crops (Dandekar, 1980, Mohammad T A S, 2008, Rehman et al., 2011).
Compound growth analysis
For evaluating the trend in production of sugarcane and sugar in Punjab and India, an
exponential form of the growth function was used as follows:
Yt = ABt
Where,
Yt = Production/ area/yield of a crop or production/cane crushed/recovery of sugar
for the year‘t’.
A = Intercept indicating Y in the base period (t = 0).
B = (1 + r).
r = Compound growth rate.
t = time period.
The model was linearized by means of logarithmic transformation, which was given as
ln Yt = ln A + t (ln B)
The slope coefficient of B measures the relative changes in Y for a given absolute
change in the value of explanatory variable in period t. Therefore, the compound growth was
estimated finally by using the following equation;
ln B = ln (1 + r)
r = [antilog (ln B) -1]
CGR = [antilog (ln B) -1]100 or[r100]
40
The t-test was applied to test the significance of B.
Instability in area, production and productivity was measured through coefficient of
variation (CV) analysis using de-trended data. It was given as
CV =
Standard Deviation
× 100
Mean
Decomposition of growth analysis
The relative contribution of area and productivity towards the total production of
sugarcane was measured by using the Component Analysis. Similarly, the relative
contribution of cane crushed and sugar recovery to the total production of sugar was also
measured. The model has been used to study growth performance of the crops by several
researchers (Siju and Kombairaju, 2001, Rehman et al., 2011). The form of the model is
given as:
∆P = (∆A*Yo) + (∆Y*Ao) + (∆A*∆Y)
Change in production = Area Effect + Yield Effect + Interaction Effect
Or
Change in production = Cane crushed Effect + Recovery Effect + Interaction Effect
Where,
∆P = Change in production/ Difference in average production during two periods
∆A = Difference in average area/cane crushed during two periods
∆Y = Difference in average yield/average recovery during two periods
Ao = Average area under sugarcane/average cane crushed of sugarcane during the
base year
Yo = Average yield /average sugar recovery of sugarcane during the base year
Therefore, the total production of sugarcane was attributed due to area and yield that can be
decomposed into three effects viz; yield, area and interaction effects. Similarly, the total sugar
production of sugar was decomposed into cane crushed, recovery and interaction effects.
Acreage response
The area and yield of sugarcane has declined considerably over the last decades. This
was largely due to shifting of cropping pattern in favour of rice and wheat from sugarcane
cultivation. Over the last 61 years, area under sugarcane has declined with fluctuation from
1.51 lakh hectares during 1950-51 to 0.70 lakh hectares in 2010-11 in Punjab. Sugarcane is an
annual crop which occupies land for 12 to 18 months followed by its ratoon crop for two to
three crops. Thus, the area planted under sugarcane is not available for other crops for the
next two to three years. There were various price and non-price factors which influenced the
farmer’s decision in allocation of area under sugarcane. Therefore, considering the factors at
41
once, the acreage response of sugarcane in Punjab was analyzed by employing the Nerlovian
Model. The model was described as under:
Model specification
Most of the econometric analyses on acreage response have been carried on annual/
seasonal crops. The underlying objective of the acreage response is to find out how farmers
react to movements in price and non-price factors related to the crop that they intends to
produce. The non-price factors are yield risk, marketing problems, economics of other
competing crops, etc. When more than one crop is being cultivated the aim is to find out how
the farmers intend to allocate the resources between the various crops in response to change in
the relative price level and relative profitability. Therefore, to empirically estimate the
magnitude and nature of the acreage response to change in price and non-price factors, Marc
Nerlovian Model was used for the present study. The model has been extensively used over
the last three decades. The significant features of the model are as follows:
i. The rational farmer is more likely to respond to the price he expects rather than to the
price of the previous period and the expected price will depend only to the limited
extent on the actual price in the previous period. Further, for each period the farmer
revises the price he expects to prevail in the coming year which is taken as weighted
moving average of the past price, the weights decline exponentially as one goes back in
time (Sangwan, 1985).
ii. The model reflects technological and institutional constraints which allowed the
farmers only a fraction of the intended acreage of the current planted area to the desired
area in the current production year.
In the specification of sugarcane acreage response model, the two crops paddy and
wheat was considered as competing crops. This was mainly because of extensive cultivation
of these crops in the state. Moreover, sugarcane is an annual crop which competes for the land
and other resources with both the crops. The three crops have been cultivated in the state for
commercial purpose so to say the cash crops of the state; they meet the cash requirement of
the farmers. The comprehensive (including the additional variables) Nerlovian Adjustment
Model was used in the present study. The model has been presented in the following way:
A∗t = a + b1 SPt∗ + b2 It∗ + b3 SYt∗ + b4 RPR t + b5 RYR t + b6 GPt∗ + b7 Dt + Ut … … … … (1)
The independent variables included in the model were explained as under:
Area under sugarcane in period‘t’
The model was intended to explain the variations in planned or desired area of
sugarcane in the state. However, the area planned to grow sugarcane was an unobservable
variable which cannot be estimated. So a proxy for this variable was use. The assumptions of
the model were presented as in the following ways:
42
A∗t = At
At − At−1 = β(A∗t − At−1 ), 0 < 𝛽 < 1
At = β(A∗t − At−1 ) + At−1
At = βA∗t − βAt−1 + At−1
At = βA∗t + At−1 (1 − β) … … … … … . . (2)
Where,
A∗t = Desired area under sugarcane crop (000’hectare) in period t
At = Actual area under sugarcane crop in (000’hectare) period t
At−1 = Actual area under sugarcane crop (000’hectare) in period t-1 and
β = Coefficient of acreage adjustment
The equation highlights that the actual planted area of sugarcane in period ‘t’ was
equal to the actual planted area in period t-1 plus the proportion of the difference between the
desired planted area in period ‘t’ and actual planted area in period t-1. This implies that the
farmers cannot fully adjust their actual planted area to the desired area in response to the
explanatory variables. The coefficient of acreage adjustment (β) indicates the speed of
adjustment between desired and actual area in the previous period. If β approaches to unity,
adjustment was instantaneous while if β approaches to 0, area remains unchanged from year
to year. Basically, technological and institutional factors such as price, risk, relative income,
etc. prevent the intended area for being realized during the period.
Expected price of sugarcane
The farmers make the decision of growing sugarcane crop on the basis of expected
price. The rational farmer is more likely to respond to the price that is expected rather than to
the price of previous period. The expected price of sugarcane depends only to a limited extent
on the actual price in the previous period. The expected price of sugarcane was also
unobservable. According to Adaptive Expectations Hypothesis proposed by Nerlove the
expected price was expressed in terms of directly observable variable.
𝑃𝑡∗ = 𝑃𝑡−1 … … … … … … . . (3)
∗
∗ ),
Pt∗ − Pt−1
= α(Pt−1 − Pt−1
0 ≤ α ≤ 1 … … … … (4)
Where,
Pt−1 = Actual price of sugarcane crop (`q-1) in period t-1
Pt∗ = Expected price of sugarcane crop in period t
∗
Pt−1
= Expected price of sugarcane crop in period t-1
α = Coefficient of expectations
The equation states that for each period the farmer revises the price he expects to
prevail in the coming period in proportion to the mistake he made in the expected previous
price. If α is equal to zero, previous year actual price of sugarcane will have no impact on the
43
current year expected price of sugarcane, and if α is equal to one, current year expected price
of sugarcane will be equal to last year’s actual price of sugarcane.
Expected yield of sugarcane
An expected yield of sugarcane was considered to be another important variable
which influence the desired area under sugarcane in Punjab. This was because relative income
of the sugarcane as compared to paddy and wheat not only depend on expected price but also
on the expected yield of sugarcane. The hypothesis was framed to measure the expected yield
of sugarcane which states as:
Yt∗ = Yt−1 … … … … … … . . (5)
Where,
Yt∗ = Expected yield of sugarcane (quintal/hectare) in period t
Yt−1 = Actual yield of sugarcane (quintal/hectare) in period t-1
Relative price and yield risk of sugarcane
Risk is an important factor in the decision making process of the farmers. The relative
price and yield risk of sugarcane to the competing crops paddy and wheat was unobservable.
It was measured by the ratio of standard deviation of three preceding prices and yields of
sugarcane to the standard deviation of three preceding prices and yields of combination of
paddy and wheat. Mathematically, these were expressed as:
3
̅̅̅ 2
√∑i=1(SPt−i − SPt )
3
RPR t =
3
̅̅̅̅̅̅ 2
√∑i=1(PPWt−i − PPWt )
3
Where,
RPR t = Relative price risk of sugarcane to combine price of paddy and wheat
in period t
SPt−i = Price of sugarcane (`q-1) in period t-i
SP
̅̅̅
SPt = ∑3i=1 3t−i
PPWt−i = Combine prices of paddy and wheat (`q-1) in period t-i
PPWt−i
̅̅̅̅̅̅
PPWt = ∑3i=1
3
Mathematical expression of yield risk is given as follows:
3
̅̅̅ 2
√∑i=1(SYt−i − SYt )
3
RYR t =
3
̅̅̅̅̅̅ 2
√∑i=1(YPWt−i − YPWt )
3
Where,
44
RYR t = Relative yield risk of sugarcane to combine yield of paddy and wheat
in period t
SYt−i = Yield of sugarcane (quintal/hectare) in period t-i
̅̅̅t = ∑3i=1 SYt−i
SY
3
YPWt−i = Combine of paddy and wheat yield (`q-1) in period t-i
YPW
̅̅̅̅̅̅
YPWt = ∑3i=1 3 t−i
Relative expected income of sugarcane to paddy and wheat
This was also another important variable which effects allocation of area under
sugarcane. It is the ratio of gross income from sugarcane to gross income from paddy and
wheat in combination. The studies of Krishna (1962) and Behrman (1966), pointed out the
need to consider the income elasticity of consumption within the farm household. The
assumption was that expected current relative income is equal to previous year actual relative
income of sugarcane to competing crops. Mathematically, it is expressed as follow:
It∗ = It−1 … … … … … … . . (6)
It can be obtain by the following mathematical form,
It−1 =
(PPt−1
(SPt−1 × SYt−1 )
× PYt−1 ) + (PWt−1 × WYt−1 )
Where,
It∗ = Expected relative income from sugarcane to competing crops paddy and
wheat in period t
It−1 = Actual relative income from sugarcane to competing crops paddy and
wheat in period t-1
PPt−1 = Actual price of paddy (`q-1) in period t-1
PYt−1 = Actual yield of paddy (quintal/hectare) in period t-1
PWt−1 = Actual price of wheat (`q-1) in period t-1
WYt−1 = Actual yield of wheat (qha-1) in period t-1
Expected price of gur
The expected price of gur was also one of the variables which are believed to
influence the acreage in sugarcane response model. Since gur is an alternative end product of
sugarcane beside white sugar. An assumption was made that the expected price of gur
depends on the previous year actual gur price. As the expected price is unobservable, it can be
expressed as
GPt∗ = GPt−1 … … … … … … . . (7)
Where,
45
GPt∗ = Expected gur price (`q-1) in period t
GPt−1 = Actual gur price (`q-1) in period t-1
A dummy variable (Dt) was included in the sugarcane acreage response model to
measure the effect of sugarcane marketing problems on the planted area. In order to highlight
the marketing problem the average sugarcane crushing days in a year by the mills in the state
was taken. It was tallying with the state average sugarcane crushing days in a year (150 days).
The variable takes a value of one in year in which average crushing days is more than 150
days considering existence of marketing problem and zero otherwise. Now, the estimating
model has been obtained by substituting equations (3), (5), (6) and (7) in equation (2) and
rearranging as follows:
At = β(a + b1 SPt−1 + b2 It−1 + b3 Yt−1 + b4 RPR t + b5 RYR t + b6 GPt−1 ) + (1 − β)At−1 + β(b7 Dt + βUt … … (8)
Where,
Ut = Error term in period t.
All the variables were in logarithmic terms for convenience of mathematical
manipulations and for direct estimation of elasticities. The coefficient of adjustment β
provides link between short-run and long-run elasticities. The long-run price elasticities were
the ratio of short-run elasticities to the coefficient of adjustment β.
In the final estimation of final sugarcane acreage response model, only those
variables are retained which entered significantly in step-wise regression analysis. The
variables in the sugarcane acreage response model were in logarithmic form for convenience
of mathematical manipulation and for direct measurement of short and long run elasticities
(Niamatullah and Khiar-uz-Zaman, 2009).Therefore, the statistically better equation (8) is
presented as follows:
At = β(a + b1 SPt−1 + b2 It−1 + b3 Yt−1 ) + (1 − β)At−1 + βUt … … … … (9)
The sugarcane acreage response model was estimated by the Ordinary Least Squares
(OLS) technique. The estimation of the model was done using the data from 1980-81 to 201011. F–statistics was followed to test the overall significant of the model. The lagged
dependent variable (At-1) was included as one of the explanatory variable in the model. The
inclusion of lagged dependent variable in the model might cause serial correlation with the
residuals which underestimated the model. Thus, Durbin-Watson test was adopted to test the
presence of autocorrelation in the model. Also, independent variables were tested for the
stochastic independent.
Linear sugarcane acreage response model was also estimated by OLS technique for
those retained variables. A comparison was studied between log-linear and linear model.
Physical and Financial Performance of Sugar Industry
46
The detailed procedure to examine the physical and financial performance of sugar
mills is represented separately as under:
Physical performance of the sugar industry
The physical performance of the selected sugar mills was estimated through tabular
analysis. The analysis was worked out for average crushing capacity per day, total cane
crushed, sugar and molasses production and crushing seasons (day) for the period 2006-07 to
2011-12. The capacity utilization of the selected sugar mills was worked out to ascertain the
production level of the sugar mills where the maximum sustainable level of output could be
attain for the above said periods. The capacity utilization is an economic concept which refers
to the extent to which an enterprise actually uses its installed productive capacity (Ray, 2012).
It is a short run concept which is measured as the ratio between the actual canes crushed to the
potential cane crushed times duration of crushing (days per year). It is also defined as the
output which can be produced at minimum average total cost, given by the existing stock of
plant and equipment, existing techniques and factor prices (Hickman, 1964). Capacity
utilization is given as
Capacity utilization (%) =
Actual cane crushed in a year
× 100
Potential cane crushed × Duration of crushing (days per year)
The potential cane crushed was considered separately for those selected sugar mills
and 150 days as duration of crushing. The capacity utilization of the selected sugar mills
measures the mill performance which depends on the external factors which were beyond the
control of management such as supply of raw materials and government policies on pricing of
sugarcane. A comparison was workout between the Cooperative sectors and Private sectors of
the selected sugar mills for the periods under study. In order to verify the significant
difference between the two sectors, Student’t-test was employed.
Financial performance of sugar industry
Financial performance was an important indicator of the financial position of a firm at
a point of a time and over a given period of time. In boarder sense, financial performance
refers to the degree to which financial objectives has been accomplished. It measures the
results of a firm’s policies and operations in monetary terms. Basically, financial performance
refers to the act of performing financial activities of a firm. In order to study the financial
activities of the sugar industry, financial performance has been analyzed. The financial
analysis involves the use of financial statements such as balance sheets and income statements
of the sugar industry. The analysis assesses the sugar industry profitability performance,
liquidity performance, operation or efficiency performance and leverage of the firm.
The Ratio Analysis has been adopted as a tool to analyzed financial performance of
the selected sugar mills for a period from 2006-07 to 2011-2012. It expressed the numerical
47
relationship between the two or more financial parameters. It has been used for the present
study since it determined the financial strength and weakness of the sugar mills. It also
reveals whether the mills’ financial position has been improving or deteriorating over time.
The financial ratio analysis has been classified into different categories which were as
follows:
Profitability Ratios
The profitability ratios give a good understanding of how well the mill utilized its
resources in generating profit and shareholder value. There were two types of profitability
ratios such as profit margin ratios and rate of returns ratios.
Profit margin analysis
The profit margins such as gross profit margin, operating profit margin, pretax profit
margin and net profit margin were work out to display the amount of profit the sugar mill
generated. The ratios were expressed as a ratio specifically “earning” as a percentage of the
sales. It detects the consistency or positive/negative trends in the mills’ earnings. A positive
profit margin translated into positive investment quality. The four profit margins were
estimated as:
1.
Gross profit margin ratio: It is the ratio between gross profit and sales.
Gross profit margin =
Gross profit
Sales
The ratio shows the margin left after manufacturing costs. It also measures the efficiency of
production and pricing of the mill.
2.
Operating profit margin ratio: It is the ratio of operating profit to sales.
Operating profit margin =
Operating profit
Sales
It measures the efficiency of management decisions. It was used as preferred metric of
investment analyst for making inter-firm comparisons and financial projection.
3.
Pretax profit margin ratio: It is the ratio between profit before tax and sales of the firm.
Pretax profit margin =
Pretax profit
sales
It measures the efficiency of tax management, which allows manipulating the timing and
magnitude of the mill taxable income.
4.
Net profit margin ratio: It is the ratio between net profit and sales.
Net profit margin =
Net profit
sales
The ratio shows the earning left for shareholders (both equity and preference) as a
percentage of sales. It also measures the overall efficiency of production, administration,
selling and financing. Higher the margin, the more effective the mill convert revenue into
48
actual profit. A low profit margin indicates a low margin of safety, higher risk that a decline
in sales erases profits and result in a net loss.
Rate of Returns Ratio
The ratio reflects the relationship between profit and investment. The ratio measures
the mill effectiveness in generating income from its resources. The important rate of returns
ratios were discussed as follows:
1.
Return on assets: It is the ratio between the net incomes (profit) to the average total
assets. It is expressed in percentage. For the present study annual total assets of the
mill were used instead of average total assets.
Return on assets =
Net income (profit)
Average total assets
The ratio measures the capital used efficiency of the mill total assets. It
indicates the mills’ profitability to its total assets. Higher the return, the more efficient
management was in utilizing the mills’ total assets.
2.
Return on equity: It is the ratio between the net income and average net worth or
average shareholder equity and is expressed as a percentage. The total net worth of a
year has been used in place of average net worth.
Return on equity =
Net income
Average shareholder equity
The ratio measures the shareholders’ equity earnings from their investment in
the mill. It reflects the productivity of the ownership capital employed in the mill.
Higher the ratio percentage, the more efficient management was in utilizing the mill’s
equity and better returns to its shareholders.
3.
Return on capital employed: It is the ratio, expressed as a percentage, between the
net income and capital employed.
Return on equity =
Net income
Capital employed
It gives the clear picture of impacts of leverage used on the mills’ profitability. It also
gauged the management ability to generate earnings from the mills’ total pool of capital.
Operating Performance or Efficiency Ratios
The ratios measures how well the mill turns its assets into revenue and how
efficiently the mill converts its sales into cash. The ratios were based on the relationship
between the level of activity, represented by sales or cost of goods sold, and level of various
assets. Basically, the ratios measures the efficient and effectiveness of the mill in using its
resources to generate sales and increase shareholders value. Better the ratios, better is for
shareholders. The important efficiency ratios were explained briefly as under:
49
Fixed turnover ratio: The ratio is defined as the ratio between the sales and average fixed
assets. The annual fixed assets were used in place of average fixed assets.
Fixed turnover ratio =
Sales
Annual fixed assets
The ratio was used to measure the productivity of the mills’ fixed assets with respect
to generating sales. In other sense, it was used to measures sales per rupee of investment in
fixed assets. The ratio measures the efficiency of the mill with respect to fixed assets
employed. A high ratio indicates high degree of efficiency in the assets utilization and low
ratio indicates inefficient use of assets.
Total assets turnover ratio: It is the ratio between the sales and the average total assets of the
mill. The annual total assets were used instead of average total assets.
Total assets turnover ratio =
Sales
Annual total assets
The ratio measures utilization of assets of the mill. Low asset turnover ratio means
the mill was not managing its assets wisely and also indicates the assets were obsolete. The
mill with low asset turnover ratios was likely to operate below its full capacity.
Working capital turnover ratio: It is the ratio between the sales and working capital of the
mill. The working capital turnover ratio is used to analyze the relationship between the money
used to fund operations and the sales generated from these operations. It is given as
Working capital turnover ratio =
Sales
Working capital
The ratio measures how well the mill was utilizing its working capital to support a
given level of sales. A high turnover ratio indicates that management was extremely efficient
in using the mill’s short-term assets and liabilities to support sales. In a general sense, the
higher the working capital turnover, the better because the mill was generating a bunch of
sales compared to the money that uses to fund the sales. However, an extremely high working
capital turnover ratio indicates that the mill does not have enough capital to support it sales
growth and collapse of the mill may be imminent. This was particularly a strong indicator
when the accounts payable component of working capital was very high.
Current assets turnover ratio: It is ratio of sales to the current assets of the mill. It was given as:
Current assets turnover ratio =
Sales
Current asset
The ratio indicates how efficiently the mill used its current assets to generate revenue.
Inventory turnover ratio: It is defined as the ratio between cost of sales and average
50
inventory of the mill. For the present study annul inventory was used in place of average
inventory of the mill.
Inventory turnover ratio =
Cost of goods sold
Annual Inventory
The ratio measures how many times per period; the mill sells and replaces its
inventory. It also measures the inventory management efficiency of the mill. In general, a
higher value indicates better performance and lower value means inefficiency in controlling
inventory levels.
Debtors turnover ratio: It is also called accounts receivable turnover. It is the ratio of
cost of goods sales to average accounts receivable. It is an activity or efficiency ratio
that measures average number of times the mill collects its receivables during a year.
Debtors turnover ratio =
Cost of goods sold
account recievable
An accounts receivable turnover measures the efficiency of a business in collecting its
credit sales. Generally a high value of accounts receivable turnover shows greater efficiency
of credit management. And lower value indicates inefficiency in collecting outstanding sales.
Solvency or Leverage Ratios
Financial leverage refers to the use of debt finance. The leverage ratios help in
assessing the risk arising from the use of debt capital. The ratios measure ability of the mill to
pay its long term debt and interest of debt. The important solvency ratios were discussed as
under:
Debt-equity ratio: It was the ratio of total liabilities to the shareholder’s equity which
measured in percentage. It measures the relative contribution of creditors and owners. Lower
values means mills were using lesser leverage and has higher degree of protection enjoyed by
the mill. The ratio was given as follows:
Debt − equity ratio =
Total liabilities
Shareholder ′ s equity
Liquidity Ratios
The ratios measure the ability of the mill to pay off its short term obligations. The
ratios were generally based on the relationship between current assets (the source of meeting
short term obligations) and current liabilities. The ratios show the number of times the short
term debt obligations were covered by the cash and liquid assets. Generally, the higher the
liquidity ratios are, the higher the margin of safety that the mill posses to meet its current
liabilities. Liquidity ratios greater than 1 means the short term obligations were fully covered
indicating the good financial health of the mill and less likely fall into financial stresses. The
51
most important liquidity ratios were current ratio, acid/quick test and cash ratio which were
discussed as under:
Current ratio: It was the ratio between the current assets and current liabilities. The ratio was
measures to ascertain the ability of the mill to meets its current liabilities. It was given as
Current ratio =
Current Assets
Current Liabilities
The higher the ratio better was the short term liquidity of the mill. According to
Chandra (2003) it was state that a firm with a high proportion of current assets in the form
of cash and account receivable is more liquid than a firm with a high proportion of current
assets in the form of inventories even though both firms have the current ratio. The
current assets include cash and balance, loans and advances, debtors and inventories.
Current liabilities consist of loans and advances taken, trade creditors, accrued expenses
and provision.
Acid test / Quick ratio: It was the ratio between the quick assets and current liabilities. The
quick assets were defined as total current assets excluding inventories. By excluding
inventory, the quick ratio focuses on the more liquid assets of the mill. It was given as:
Acid test/Quick ratio =
Quick Assets
Current Liabilities
The Acid test ratio was fairly stringent measure of liquidity because it was based on
those current assets which were highly liquid. The ratio measures ability of the mill to meet
its short-term liabilities with its short-term assets. A higher ratio indicates the more liquid
current position of the mill. It was used to compare with current ratio. If the current ratio was
significantly higher, it is clear indication that the mill’s current assets are dependent on
inventory.
Cash ratio: It is ratio between the sum of cash and cash equivalents or invested fund of the
mill to the current liabilities. It is given as:
Cash ratio =
Cash + Cash equivalents + Invested fund
Current Liabilities
The ratio was more stringent and conservative than current and quick ratios. It
considered only the most liquid short-term assets of the mill, which were those that can be
most easily used to pay off current obligations. It ignores inventory and accounts receivable.
Socio-Economic Problems
The demographic features of the sample farmers were presented and analyzed by
using the tabular analysis. The farmers’ ages, family size, income level, area under sugarcane
crops, experience in sugarcane cultivation and contact of the farmers with cane expert were
categorized by using Cumulative Cube Root Method. The percentage of each constraint faced
52
by the respondents was worked out to show the degree of constraint percept by the
respondents in sugarcane cultivation. Besides, 15 farmers in the hither land of selected
liquidated sugar mill were interviewed personally regarding the constraints faced by them
with the closing of sugar mill and the suggestions regarding the re-establishment of sugar
mill.
A Case Study of Liquidated Sugar Mill
The brief description for the analysis of sick sugar mill is presented in the given
Figure I:
Study of stages
of sickness
Symptoms
Comparison between
sick and non-sick
sugar mill
Causes
Financial
ratios analysis
Ratios analysis
Profitability
ratios
Trends analysis
Selection of
successful
Cooperative sugar
mill
Student’ t-test
Liquidity ratios
Non-financial
analysis
Fig. I: Framework for the analysis of sick sugar mill
Analysis of Financial Health of Sick Sugar Mill
The financial health of sick sugar mill is discussed as under:
Stages of sugar mill sickness
An individual unit passes through several stages before it becomes sick. The
knowledge about the various stages of sickness is very essential for taking corrective and
appropriate measures in appropriate time. The different stages of sickness along with the
determinants which identify these stages as per the guidelines of Reserve Bank of India (RBI)
are given below:Normal unit
A normal unit is characterized by the efficient functioning of its functional areas like
production, marketing, finance and personnel. In other words, a unit can be called healthy or
in a normal state (NS) when it is earning profits, the current ratio is more than one, net worth
is positive and debt-equity ratio is good.
53
Tending towards sickness
At this stage a unit shows certain initial aberration in any of its functional areas. In
other words, the unit faces some environmental constraints. At this time, the unit is said to be
tending towards sickness (TS). The distinctive features of this stage are decline in profit in the
last year as compared to the previous year and loss estimated in the current year.
Incipient sickness
The continuation of the deterioration in the functional areas of the unit, results in the
actual setting in of industrial sickness. This stage is termed as incipient sickness (IS). At this
stage, the unit incurs cash losses but imbalance in the financial structure may not be apparent.
Analysis of Causes and Symptoms of Mill Sickness
There were many factors which bring the sugar mill into failure. Some of the factors
were financial and others were non-financial. In-depth analysis of the financial statements of
the mill foresees the factors proceeding towards sickness. Liquidation of the mill does not
happen at sudden but it takes certain years to collapse the mill. Certain signs and symptoms of
the sickness have manifested in either ways which needed proper and timely monitoring of
the mill. The symptoms are the sure signals that something is wrong and impel management
to find the causes and correct them. Many causes and symptoms have been identified which
was relevant to the present study. Therefore, addressing the objectives of the study, based on
the John Argenti’s Model of Cooperative failure, two symptoms were identified. The causes
of the mill were identified based on two categories.
Symptoms
1. Financial Ratios
2. Non-financial symptoms
Causes
1. External causes
The external causes of sickness are beyond the control of the promoters and it is
genuinely not at fault. The external factors usually effects all the units of the same industrial
group simultaneously (Singh, 2011)
2. Internal causes
The internal causes imply those which originate within the unit and can be controlled
by the management, if properly tackled (Arora and Sood, 2003). According to Singh (2011),
in most of the cases, the sickness was bred within the unit itself.
Operational Definitions
The operational definitions of the terms used in the analysis based on the present
study were given as under:
54
Gross profit: It is the difference between the sales of sugar and its by-products and cost of
goods sold in a year.
Cost of goods sold: It is sum of expenses on raw materials, manufacturing and labour. It can
also be defined as sum of opening stock, purchases and direct expenses less closing stock of
the mill.
Operating profit: It is the difference between the operating income and operating expenses
(expenses on selling, general and administrative such as provident fund, bank charges, hire
charges for vehicle).
Net profit: It is the difference between gross profit after meeting all the expenses including
interest and tax.
Assets: It is defined as resources of the sugar mill which have some value to the mill. It
includes cash, cash equivalent, marketable securities, receivable accounts and inventory,
investment, raw materials, finish goods, prepaid expenses, goodwill, loans and advances.
Fixed assets: The assets which are not mean for sale such land, sugar mill, building, crushing
machines and others machines used for different purposes.
Current assets: It is defined as cash and balances, inventory and loan and advances of the
mill. The asset is held for short period of time.
Liabilities: The business entity that has be paid. It includes notes payable, current portion of
term debt payable, accrued expenses and taxes, capital, reserves and surpluses, bank term
loan, unsecure long term loan, expenses payable, provisions equity capital, preferences share.
Current liabilities: An obligations which are expected to mature in a year. It include loans
and advances taken, trade creditors, accrued expenses and provision.
55
CHAPTER IV
RESULTS AND DISCUSSION
Keeping in view the specific objectives of the present study, the results of the analysis
are reported in this chapter under the following heads:
Growth of Sugarcane and Sugar in Punjab and India
Sugarcane is a competing crop with paddy and wheat in the state. The cultivation of
sugarcane was highly affected by the development of technology (seeds, plant protection,
etc.). Besides, dual pricing policy by the government and behaviour of sugar mills during
surplus season affect the farmers’ decision on allocation of area under sugarcane which in
turns affect sugarcane production. The year-wise changes in area, production and
productivity of sugarcane in the country and in Punjab from 1950-51 to 2010-11 is
presented in Table 4.1.
The data for the periods 1950-51 to 1965-66 of the state was estimated to segregate
from combine data of Haryana and Punjab on area, production and productivity of sugarcane.
The perusal of Table 4.1 and Fig. II shows that trend in area under sugarcane of the country
has been increasing over last six decades. On an average, area under sugarcane was estimated
to be 3105 and 109 thousand hectares at national and state level. The area under sugarcane at
the state level, has been declining over the periods but remained stagnant in Period-I and II
(108 thousand hectares). This may be due to shifting of cropping pattern in favour of paddy
and wheat due to favourable government policies of these crops. The yield of sugarcane at the
overall was worked at 54.95 and 49.00 tonnes per hectare at national and state level
respectively. It was observed to be substantially higher from 40.88 tonnes per hectare in
Period-I to 67.38 tonnes per hectare in Period-III at the national level (Fig. III). Similar, result
was obtained for the state sugarcane yield, it was recorded highest in Period-III (60.62 tonnes
per hectare) and lowest in Period-I (31.00 tonnes per hectare). The sugarcane production
shows increasing trend over the years at the national and state level (Fig. IV). On an average,
production of sugarcane at national level was found to be 180131 thousand tonnes and 5339
thousand tonnes at the state level.
The relative share of area and production of sugarcane of the state to the country
presented in Table 4.1 shows that there has been declining share through periods. The
state share at overall was found to be 3.51 and 2.96 per cent of area and production of
56
sugarcane respectively to the country’s area and production of sugarcane. The highest
share of area and production was estimated at 5.44 and 4.16 per cent respectively. The per
cent of area and production was declined to 2.56 and 2.31 per cent during Period-III
respectively.
Table 4.1: Trends in area, yield and production of sugarcane through 1950-51 to 2010-11
(Area = '000 hectare, Yield = tonnes per hectare and Production = '000 tonnes)
Period
Punjab
Contribution of
Punjab (%)
India
Area
Yield
Production Area Yield Production
Area
Production
I
113#
31.00#
3574#
2076
40.88
85940
5.44
4.16
II
108
52.26
5496
2886
54.03
157865
3.75
3.48
III
108
60.62
6554
4201
67.38
283316
2.56
2.31
Overall
109
49.00
5339
3105
54.95
180131
3.51
2.96
# indicate estimated values
5000
4500
4201
4000
Area ('000 ha)
3500
3105
3000
2886
2500
2076
2000
1500
1000
500
0
Area (India)
Area (Punjab)
113
I
2076
113
108
II
2886
108
108
III
4201
108
Fig. II: Trends in area under sugarcane
57
109
Overall
3105
109
Yield (tonnes/hectare)
140
67.38
120
54.03
100
80
54.95
40.88
60
60.62
52.26
49
40
31
20
0
I
40.88
31
Yield (India)
Yield (Punjab)
II
54.03
52.26
III
67.38
60.62
Overall
54.95
49
Fig. III: Trends of sugarcane yield
Production ('000 tonnes)
350000
300000
283316
250000
200000
180131
157865
150000
100000
85940
50000
0
Production (India)
Production (Punjab)
5496
II
157865
5496
3574
I
85940
3574
6554
III
283316
6554
5339
Overall
180131
5339
Fig. IV: Trends of sugarcane production
Growth of sugarcane production in India and Punjab
The growth of sugarcane production, productivity and area under sugarcane in the
country and in Punjab was worked out for different periods and the same are presented in
Tables 4.2 and 4.3, Fig. V and VI.
The perusal of Table 4.2 and Fig. V shows that area under sugarcane has been
decreasing over the years in the country with compound growth rate of 1.69 per cent per
annum.
58
Table 4.2: Growth of sugarcane through different periods in India
(Per cent)
Periods
Area
Production
Productivity
I
3.40*
5.34**
1.88**
II
1.60**
3.09**
1.48**
III
1.27**
1.24**
-0.03NS
Overall
1.69**
2.87**
1.16*
** and *significant at one and five percent level respectively
NS: Non-significant
6
Area
5.34
Production
Productivity
5
Growth rate (%)
4
3.4
3.09
3
2.87
2
1.6
1.88
1.24
1.27
1.48
1
0
I
III -0.03
II
1.69
1.16
Overall
Periods
-1
Fig. V: Growth of sugarcane in India
The sugarcane acreage registered a significant and positive growth rate in all the
periods which was highest in Period-I (3.40 per cent) followed by Period-II (1.60 per cent)
and III (1.27 per cent). At the state level, the declining trend of sugarcane area was observed
at the rate of 0.28 per cent annum over the years (Table 4.3 and Fig.VI). Sugarcane area
registered a significant growth only in Period-I and negative growth in the two sub-periods.
The growth rate was highest in Period-I with a growth rate of 3.23 per cent prior to Green
Revolution. The negative growth rate was obtained in Period-II (-1.88 per cent) and Period-III
(-1.85 per cent).
59
At the national level, sugarcane production registered a compound growth rate of 2.87
per cent per annum. Sugarcane production showed significant and positive growth rates in all
the sub-periods. The highest growth rate was found in the Period-I (5.34 per cent per annum)
followed by Period-II (3.0 per cent per annum) and Period-III (1.24 per cent per annum). At
the state level, the annual compound growth rate of sugarcane production show a significant
and positive growth of 1.26 per cent per annum. However, there has been significant positive
growth in Periods-I and II, and significant negative growth in Period-III (2-02). The highest
growth was found in Period-I (4.92 per cent per annum) followed by Period-II (0.79 per cent
per annum).
Table 4.3: Growth of sugarcane through different periods in Punjab
(Per cent)
Periods
Area
Production
Productivity
I
3.23**
4.92**
1.69**
II
-1.88**
0.79*
2.65**
III
-1.85*
-2.02*
-0.24NS
Overall
-0.28*
1.26*
1.54**
** and * significant at one and five percent level respectively
NS: Non-significant
6
Area
5
Production
Productivity
4.92
Growth rate (%)
4
3.23
3
2.65
2
1
1.54
1.26
1.69
0.79
0
I
III -0.24
II
Overall -0.28
-1
-2
-3
-1.85
-1.88
-2.02
Periods
Fig.VI: Growth of area, production and productivity of sugarcane in Punjab
The sugarcane productivity in the country was significant and had positive growth
rate with an annual growth of 1.16 per cent. The highest growth was observed in Period-I
60
(1.88 per cent per annum) which was followed by Period-II (1.48 per cent per annum). The
non-significant negative growth was found in Period-III (0.03 per cent per annum). At the
state level, the annual compound growth rate of sugarcane productivity was registered at 1.54
per cent per annum. The sugarcane productivity registered a significant and positive growth
rate in all the periods except Period-III which show non-significant negative growth rate (0.24 per cent per annum).
Therefore, the CGR of area and production of sugarcane in the state was
comparatively lower than the country growth rate. The CGR of sugarcane acreage at both
national and state level during Period-I indicated a highest growth which enhanced the growth
rate of sugarcane production in the same period. But the yield growth for the state was higher
than the country yield growth. Further, the results revealed that at both national and state
levels, the CGR of area, production and yield of sugarcane has been declined and least growth
was obtained during post Green Revolution and liberalization periods. The main reason for
the deceleration of growth during these periods was deceleration in investment in irrigation
and other rural infrastructure and non-availability of yield raising cost reducing new
technology. The same reason was reported by Bhalla and Singh (2010). In addition, postGreen Revolution period marked by development seed-fertilizer technology was spread in
irrigated Punjab state which was considered as an instrumental in raising the yield and output
levels of wheat and paddy only. While these technologies remain untouched for sugarcane
crop in the state as well as the diversification of cropping pattern to wheat and paddy causes
declined in growth of area, production and productivity of the crop.
Instabilities in Sugarcane Production
Instability in area, productivity and production at state and national levels for all the
sub-periods were determined through coefficient of variation and is presented in Table 4.4.
Wide fluctuation in the area under sugarcane cultivation was noticed as could be observed
from the coefficient of variation (CV) at both national and state levels. For the country as a
whole, CV of area was to the tune of 29.76 percent recording a highest variation. The area
instability of the country was found to be higher in Period-I (17.62 per cent) which eventually
declined to 10.77 per cent during Period-III.
The area under sugarcane shows comparatively higher variability in all the three sub periods
in Punjab. Overall, CV of sugarcane acreage worked out to be 22.02 per cent. The lowest
variability (17.88 per cent) was recorded in Period-I (prior to Green Revolution period) which
indicated lower fluctuation in area under sugarcane. While CV of acreage in Period-III was
recorded to be highest (26.31 per cent) was followed by 20.61 per cent in Period-II. This was
mainly due to shifting of area to paddy and wheat cultivation in the state and technology
development in favour of paddy, wheat and high value crops.
61
The coefficient of variation in sugarcane yield was 20.47 per cent at the national
level. The variability remained constant during Period-I (11.02 per cent) and Period-II (11.35
per cent). The yield variability of the country was greatly declined to 4.45 per cent showing
more stable in productivity of sugarcane after liberalization of the economy. This was due to
development of new technology, improvement in sugarcane cultivation and change of the
cropping pattern to high value gain the yield of sugarcane in some major sugarcane producing
states in southern region of the country. Similar results were reported by Bhalla and Singh
(2010).
Table 4.4: Period-wise variability in sugarcane area, production and productivity
(Per cent)
Periods
Punjab
India
Area
Productivity
Production
Area
Productivity
Production
I
17.88
9.35
26.15
17.62
11.02
25.69
II
20.61
19.69
15.03
13.29
11.35
23.39
III
26.31
4.90
28.38
10.77
4.45
12.42
Overall
22.02
27.24
32.19
29.76
20.47
46.82
The results presented in Table 4.4 further indicate wide fluctuation in sugarcane yield
of the state with average variability of 27.24 per cent. The CV of sugarcane productivity was
estimated to be 19.69 per cent in Period-II which was twice the magnitude in Period-I (9.35
per cent) and Period-III (4.90 per cent).
In the case of sugarcane production, the country has registered high variability with
CV of 46.82 percent on an average. The highest CV was obtained in Period-I (25.69 per cent)
which gradually declined to 12.42 per cent in Period-III. The declined in variability in area
and productivity of sugarcane leads to gradual decline in fluctuation of sugarcane production
over the periods. At the state level, average variability of sugarcane production was worked to
be 32.19 per cent. The CV was found to be highest in Period-III (28.38 per cent) showing
wide fluctuation in sugarcane production. This was accompanied by high variation of
sugarcane acreage and low variation of yield during this period. The fluctuation was lowest
during Period-II (15.03 per cent).
Thus, area, production and productivity of sugarcane in Punjab showed year to year
fluctuation. However, variation in area under sugarcane contributed more than that in yield
and production (Ramsamy et al., 2001). The variation in sugarcane production in the country
was contributing more than that in area and yield at the overall level. However, the stability of
sugarcane acreage, production and productivity at the national has increased over the periods.
62
But, at the state level, fluctuation in the stability of sugarcane acreage, production and
productivity was observed over the periods. Therefore, the results clearly evinced that there
was a wide fluctuation of sugarcane acreage, production and productivity at the state level
over the periods. Thus, there was a need to bring stability in area under sugarcane to increase
its production thereby stabilized the supply of raw materials to the sugar mills in the state.
Decomposition of Growth in Sugarcane Production in India and Punjab
The main components of growth of sugarcane production were increase in area and
yield. The relative contribution of area and productivity towards the total sugarcane
production of the country and the state is presented in Table 4.5 and 4.6. It was found that at
the overall, area effect (40.07 per cent) was responsible for increase in sugarcane production
in the country. The contribution of interaction effect of area and yield (36.13 per cent) and
yield effect (23.81 per cent) was also considered to be an important factor for increasing
sugarcane production in the country. In all the three sub-periods, area effect had major
contribution in increasing sugarcane production which was followed by yield effect and
interaction effect.
The perusal of Table 4.6 showed that the decomposition of growth in sugarcane
production in Punjab. The increase in sugarcane production over 61 years was due to yield of
the crop (181.29 per cent). The contribution of yield effect was so high that it could offset the
negative effect of area (-38.59 per cent) and interaction effect of area and yield (-42.69 per
cent). It was observed from the Table 4.1.6 that during Period-I, area effect (59.59 per cent)
was responsible factor for an increase in sugarcane production and followed by yield effect
(27.54 per cent) and interaction effect of area and yield (12.87 per cent). During Period-II,
yield effect was found to be an important factor for an increase in production of sugarcane in
the state. The results further indicated that decline in growth of sugarcane production during
Period-II was due to negative effect of area (99.54 per cent) and interaction of area and yield
(91.49 per cent). While in Period-III, increase in sugarcane production was most importantly
due to area effect (96.26 per cent) and yield effect (5.28 per cent).
Table 4.5: Decomposition of growth in sugarcane production into area, yield and
interaction effect in India
(Per cent)
Periods
Area effect
Yield effect
Interaction effect
TE 1950-51 to 1965-66
51.83
33.68
14.49
TE 1966-67 to 1990-91
45.61
35.79
18.60
TE 1991-92 to 2010-11
86.42
10.87
2.70
TE 1950-51 to 2010-11
40.07
23.81
36.13
63
Therefore, the analysis of the results indicated that change in sugarcane production
over the years was due to area and its interaction effect at the national level. However, change
in sugarcane in Punjab was found mainly due to yield and area effects. Thus, there is need to
bring more area under cultivation and development of new low cost production technology
and high yielding varieties.
Table 4.6: Decomposition of growth in sugarcane production into area, yield and
interaction effect in Punjab
(Per cent)
Period
Area effect
Yield effect
Interaction effect
TE 1950-51 to 1965-66
59.59
27.54
12.87
TE 1966-67 to 1990-91
-99.54
291.03
-91.49
TE 1991-92 to 2010-11
96.26
5.28
-1.58
TE 1950-51 to 2010-11
-38.59
181.29
-42.69
TE: Triennium ending
Growth of Sugar Production
The sugar production was determined by various factors. Most importantly
availability of sugarcane, the basic raw material and per cent recovery of sugar were factors
which determine the parameters of sugar production. Besides, the numbers of normal working
days, price of sugarcane and remunerative returns from the sale of sugar were also providing
incentive to the sugar industry. Therefore, the growth of sugar production over the periods as
well as for the three periods was studied by estimating the total cane crushed by the sugar
mills and per cent recovery of sugar.
Growth of sugar production in India
The growth of sugar production in India is presented in Table 4.7. The results showed
that the average growth rate of sugar production was 5.15 per cent. The growth of sugar
production in all the three periods was found to be positive and statistically significant. The
CGR were estimated to be 7.32, 5.92 and 3.99 per cent in Period-I, II and III respectively.
Though, the growth was positive and significant over the periods yet it was greatly declined
from Period-I (7.32 per cent) to Period-III (3.99 per cent). The total cane crushed by the sugar
mills in India was showing positive growth to the tune of 4.99 per cent per annum. In all the
three periods, significant growth of cane crushed was observed. However, the highest growth
was obtained in Period-I (7.44 per cent) and lowest growth in period-III (3.16 per cent). This
shows that the growth of cane crushed by the sugar mills has been declining through periods.
Further, the percent recovery of sugar presented in Table 4.7 showed an average growth of
0.07 per cent per annum for the composite periods of 61 years. The average growth of percent
recovery of sugar was very small; however, it has been increased in the segregated periods. In
64
Period-I, non-significant negative growth (-0.06 per cent) was obtained. While in Periods-II
and III, the per cent recovery of sugar was significantly increased from 0.15 to 0.18 per cent
but at mere margin.
The study of the growth of sugar production for the last 61 years and for the
segregated periods indicated highest growth of sugar production in Period-I at both state
and national level. This was due to larger availability of sugarcane to the mills for crushing
which was indicated by the highest growth rate of cane crushed in the same period. The
period under study also showed that the per cent recovery of sugar minimally affect the
sugar production.
Table 4.7: Growth of sugar production through different periods in India
(Per cent)
Period
Cane crushed
Recovery
Production
I
7.44**
-0.06NS
7.32**
II
5.77**
0.15*
5.92**
III
3.16**
0.18*
3.99**
Overall
4.99**
0.07**
5.15**
** and * significant at one and five percent level respectively
NS: Non-significant
Growth of sugar production in Punjab
The growth of sugar production in the state presented in Table 4.8 showed that at the
overall the growth was found to be 5.50 per cent per annum. In Periods-I and II, the growth
rate of sugar production was positive significant and more than that of the average growth rate
(5.50 per cent). It was 15.33 and 9.43 per cent per annum for Period-I and II respectively but
declined through periods. The value in Period-III shows that growth of sugar production was 1.62 per cent which was non-significant statistically.
Table 4.8: Growth of sugar production through different periods in Punjab
(Per cent)
Period
Cane crushed
Recovery
Production
I
14.44**
-1.02**
15.33**
II
8.44**
0.95**
9.43**
III
-1.68NS
0.04NS
-1.62NS
5.17**
0.08NS
5.50**
Overall
** and * significant at 1 and 5 percent level respectively
NS: Non-significant
65
The results pertaining to total cane crushed by the sugar mills in the state shows that
the growth was 5.17 per cent per annum and found to be statistically significant. During
Periods-I and II, the growth rate was estimated to be 14.44 and 8.44 per cent respectively. The
growth was positive and significant statistically but declined in Period-II. However, in PeriodIII, there was non-significant declined in the growth of cane crushed (-1.68 per cent). The per
cent recovery of sugar also affects the sugar production in the particular crushing season. It
has a direct relationship with the production of sugar. On an average, the growth of recovery
was estimated to be 0.08 per cent per annum which was non-significant. The results revealed
that growth of per cent recovery have been significantly declined by -1.02 per cent in PeriodI. While in Periods-II and III, positive growth was obtained which was significant in Period-II
(0.95 per cent) but non-significant in Period-III (0.04 per cent).
The results revealed that highest growth of sugar production was found in Period-I
due to highest growth of total cane crushed by the sugar mills in Punjab. Therefore, growth of
sugar production was largely contributed by availability of sugarcane and least by recovery of
sugar in the state.
Decomposition of Growth of Sugar Production
The change in sugar production was decomposed into effect of cane crushed by the
sugar mills, recovery effect and interaction effect of cane crushed and recovery. The study of
decomposition of change in sugar production into different effects determined the important
factors which was responsible for change and brings out the extent of factors effectiveness.
Decomposition of growth in sugar production in India
The growth of sugar production was decomposed into three effects and is presented in
Table 4.9. The decomposition of sugar production at the overall level shows that 79.22 per
cent of growth of sugar production was due to cane crushed effect. The interaction effect and
recovery effect contributed 19.33 and 1.44 per cent in the growth of production respectively.
In the segregated periods, the cane crushed effect has also been the important that affects the
growth of sugar production in the country.
Table 4.9: Decomposition of growth in sugar production into cane crushed, recovery
and Interaction effect in India
(Per cent)
Period
Cane crushed effect
Recovery effect
Interaction effect
TE 1950-51 to 1965-66
101.19
-0.50
-0.70
TE 1966-67 to 1990-91
96.77
0.83
2.40
TE 1991-92 to 2010-11
66.00
19.99
14.01
TE 1950-51 to 2010-11
79.22
1.44
19.33
66
It was estimated to be 101.19, 96.77 and 66.00 per cent in Period-I, II and III
respectively. But in Period-I, negative effect of recovery (-0.50 per cent) and interaction effect
of cane crushed and recovery (-0.70 per cent) was offset by the positive effect of cane
crushed. In Period-II, besides cane crushed effect, 19.99 and 14.01 per cent of sugar
production was due to recovery and interaction effect of cane crushed and recovery.
Decomposition of growth of sugar production in Punjab
The decomposition of growth of sugar production is exhibited in Table 4.10. The
results showed that increase in sugar production was due to the stated three effects. At the
overall, cane crushed effect was found to be an important factor responsible for the
growth of sugar production with the contribution of 93.27 per cent. The remaining
contribution of 6.24 and 0.49 per cent was due to interaction of recovery and cane crushed
effect and recovery effect respectively. In all the three periods, cane crushed by the mills
was found to be an important factor affecting the sugar production. In Period-I, 95.66 per
cent of the total effect of sugar production was due to cane crushed and the remaining
3.39 and 0.95 per cent due to interaction and recovery effect respectively. In Period-II
growth of sugar production was mainly due to cane crushed effect (82.21 per cent),
interaction effect 15.20 per cent) and minutely by recovery effect (2.58 per cent). While
in Period-III, 87.21 per cent of growth of sugar production in the state was due to cane
crushed effect which was followed by 18.65 per cent of recovery effect. But, negative
effect of interaction of cane crushed and recovery (-5.86 per cent) was found in Period-III
which was offset by positive effect of cane crushed and recovery.
Table 4.10: Decomposition of growth in sugar production into cane crushed, recovery
and interaction effect in Punjab
(Per cent)
Period
Cane crushed effect
Recovery effect
Interaction effect
TE 1950-51 to 1965-66
95.66
0.95
3.39
TE 1966-67 to 1990-91
82.21
2.58
15.20
TE 1991-92 to 2010-11
87.21
18.65
-5.86
TE 1950-51 to 2010-11
93.27
0.49
6.24
Therefore, the results of decomposition of sugar production revealed that the total
cane crushed by the sugar mills was an important factor that affects the growth of sugar
production in both the state and national level. Besides, percent recovery of sugar was found
to be another important factor that affects the sugar production by about 20 per cent at both
state and national level.
Acreage Response of Sugarcane in Punjab
67
The results pertaining to sugarcane acreage response analysis and related statistics
were presented in the Table 4.11. The plausibility in terms of economic theory and logic and
priori expectations of signs of the estimated coefficients was examined. The entered variables
have logical signs and are consistent with economic theory.
Table 4.11: Estimated coefficient of sugarcane acreage response function, 1980-81 to
2010-11
Dependent variable = ln (sugarcane area)
Variables
Coefficients Standard error t-statistics
p-value
8.794***
2.334
3.768
0.001
**
0.197
2.057
0.050
0.174
***
0.048
3.654
0.001
0.033
***
0.008
4.224
0.000
Log lagged sugarcane yield
-0.768**
0.300
-2.559
0.017
Mean of dependent variable
8.229
F-statistics
Standard deviation of
dependent variable
0.164
Standard error of the
estimates
0.069
R2
0.844
Sum of square estimates
0.660
0.819
Durbin Watson test
Intercept
Log lagged sugarcane area
0.406
Log lagged sugarcane price
Log lagged relative income ha
2
Adjusted R
-1
33.766***
1.540***
***, ** and * significant at 1, 5 and 10 per cent level
NS: Non-significant
In the present study, sugarcane acreage response model included only those suitable
explanatory variables which entered the model through step-wise regression method. The
estimated coefficients show a good fit to the data. The Coefficient of Multiple Determinant (R2)
was quite high which explained 84.4 per cent of the variation in the dependent variable during the
period under reference. The F-statistics was found to be statistically significant, which confirmed
the overall fitness of the model. The inclusion of lagged dependent variable as one of the
explanatory variable might bring serial correlation of the residual terms in the model. Therefore,
Durbin-Watson Test was used to shows the absence of autocorrelation. The Durbin-Watson
statistics was estimated to be 1.540 at k = 4 (k is number explanatory variable) and was
statistically significant at one per cent level, indicating absence of autocorrelation in the model.
Table 4.12: Estimated coefficient of sugarcane acreage response function by linear
regression analysis (1980-81 to 2010-11)
Variables
Intercept
Lagged sugarcane area
Lagged sugarcane price
Lagged relative income ha-1
Lagged sugarcane yield
F-value
R2
Adjusted R2
Coefficients
3464.59**
0.58**
4.81*
-621.11NS
-2.52NS
18.11***
0.74
0.70
68
Standard error
1679.91
0.22
2.65
463.29
2.14
t-statistics
2.06
2.67
1.82
-1.34
-1.18
p-value
0.05
0.01
0.08
0.19
0.25
Durbin-Watson
1.39NS
***, ** and * significant at 1, 5 and 10 per cent level
NS: Non-significant
The data were analyzed by using Linear Regression method and the results are
presented in Table 4.12. It was found that the model could explain only 74.30 per cent of the
variation in sugarcane acreage. The logical signs of the estimated coefficients were not
consistent with the economic theory. However, the overall fitness of the model was observed
as the value of F-statistics was statistically significant. Durbin-Watson Test shows
inconclusive value which could not indicate the absence of autocorrelation in the model.
Comparatively, Log-linear analysis of the data was found to be economically and statistically
relevant in explaining the sugarcane acreage response for the period under study.
The coefficient estimated indicates elasticities of sugarcane area with respect to the
respective variables. The coefficients of the explanatory variables included in the function are
discussed as under:
Lagged sugarcane area
The coefficient of sugarcane lagged area was estimated to be 0.406 and was
statistically significant (Table 4.11). The farmers have a positive response to sugarcane lagged
area in allocation of area under sugarcane for coming season. Thus, experience in sugarcane
cultivation, management, technology and institution seems to play a significant role in
expansion of area under sugarcane. The findings are in line with the study conducted by
Nosheen and Iqbal (2008).
The perusal of Table 4.11 further shows the pact in which the farmers adjust the
acreage under sugarcane in response to the change lagged area under sugarcane. This can be
seen from the numerical value of the adjustment coefficient (β). The adjustment coefficient
(β) was worked out to be 0.594 which is quite large and indicate rapid adjustments of area
under sugarcane by the farmers. The estimated coefficient implies that one per cent increase
in sugarcane area in previous season; the farmers expand acreage by 0.406 per cent in next
season. It may also be pointed out that, the long-run elasticity was 0.683 which was higher
than the short-run elasticity (0.406) (Table 4.13). This indicates rapid adjustment of area
under sugarcane in the long-run.
Lagged sugarcane price
The elasticity coefficient of sugarcane area with respect to one year lagged sugarcane
price was positive and highly significant (Table 4.11). This brings into light positive response
of the farmers to changes in sugarcane price in deciding the allocation of area under
sugarcane. These findings are in line with the findings of Jaforullah (1992). In the findings of
Ramulu (1996), it was revealed that increase in price of sugarcane might improve production
of sugarcane considerably and more area under sugarcane. The estimated coefficient of
sugarcane price implies one percent increase in sugarcane price, ceterus paribus, was
69
expected the farmers to expand their area under sugarcane by 0.174 per cent in the short–run.
The long-run price elasticity of sugarcane area was estimated at 0.293 which was higher than
the short-run price elasticity (Table 4.13).
Table 4.13: Estimates of short and long-run elasticities and adjustment coefficient
Variables
Short-run elasticities
Long-run elasticities
Lagged sugarcane area
0.406
0.684
Lagged sugarcane price
0.174
0.0293
Lagged relative income ha-1
0.033
0.0556
Lagged sugarcane yield
-0.768
-1.293
Adjustment Coefficient (β)
0.594
Hence, one percent increase in sugarcane price there is likely to increase the area
under sugarcane by 0.293 per cent in the long-run. The same findings have been reputed by
Rahman and Yunus (1993), in which the long-run price elasticity with respect to sugarcane
acreage was higher than short-run price elasticity by almost 55 per cent. The higher
magnitude of long-run price elasticity indicates there is essential scope for price policy in
farmers’ decision of allocation of area under sugarcane in the study area. Therefore, the
results of the analysis have shown the farmers responses to price incentive both in long and
short run.
Lagged relative income of sugarcane to competing crops
The influence of relative income of sugarcane to competing crops such as paddy
and wheat on sugarcane acreage response in the state was highly significant. The elasticity
coefficient of lagged relative income of sugarcane was found to be positive and statistically
significant at one per cent level of significant. These findings are in consonance with the
study of Narayan and Parikh (1981). The results presented in Table 4.11, revealed that
higher relative income of sugarcane leads to larger area to sugarcane crop in the next year.
The area elasticity with respect to relative income of sugarcane was worked out to be 0.033
in the short-run. The long-run relative income elasticity of sugarcane area was estimated to
be 0.056 (Table 4.13). The short-run elasticity of relative income was lower than the longrun elasticity. This indicates that the acreage response seems to be higher in the long-run
than in the short-run. The results further revealed that 10 percent increase in relative income
from sugarcane to competing crops leads the farmers to increase their area by 3.3 per cent
in the next season. The relative income effect of sugarcane was small on the acreage
70
response of sugarcane because of lower relative price of sugarcane with respect paddy and
wheat.
Lagged sugarcane yield
The estimated coefficient of lagged sugarcane was quite higher, negative and
statistically significant. The coefficient indicates negative relationship between the lagged
sugarcane yield and sugarcane acreage. This implies that one per cent increase in lagged
sugarcane yield leads to 0.768 per cent decline in sugarcane area in the next crop season.
The significant negative relationship between the acreage response and sugarcane yield may
explained by the crop being long duration as compared to competing crops such as paddy
and wheat. The short-run lagged sugarcane yield was -0.768 while the long-run yield
elasticity was works out to be -1.293 (Table 4.13). This indicated the extent to which
sugarcane yield is considered by the cane growers in the decision of area allocation under
sugarcane. The results revealed that sugarcane own yield plays a less important role in
acreage decisions. As the years proceed in sugarcane cultivation, the contraction of
sugarcane acreage seems to be more as the lagged yield of sugarcane increases. This was
very crucial since normally as yield increases the area under crops increase. But as the case
of the present study, there exist, alternative results this may be due institutional constraints
such as delayed in payment, relative lower price for sugarcane as compared to paddy and
wheat.
The results of the sugarcane acreage response indicate that decision of the farmers in
the allocation of area under sugarcane was affected by both price and non-price factors. The
farmers respond positively to the change in lagged sugarcane area, price of the cane and its
relative income. But, an increase in yield of sugarcane in the previous season leads to the
contraction of sugarcane area in the current season. An adjustment coefficient showed rapid
adjustment of area under sugarcane by the farmer. However, the adjustment of sugarcane
acreage was higher in the long run than in short-run.
Physical and Financial Performance of Cooperative vis-à-vis Private Sector Sugar Mills
The purpose of the present study was to examine an efficient performance of the
selected sugar mills from two different sectors of Punjab. The efficient performance was
measured in terms of physical and financial performance which is discussed as under:
Physical performance of sugar mills in Punjab
The details of mill-wise performance of various physical parameters such as cane
crushing, recovery, sugar and molasses production, capacity utilization, duration of season
and sugar sold were discussed under the following heads:
Private Sugar Mills in Punjab
The physical performance of sugar mills in private sector are discussed as under:
Indian Sucrose Limited, Mukerian
71
The physical performance of Indian Sucrose Limited, Mukerian is furnished in Table
4.14. The results indicated fluctuation in the crushing of sugarcane by mill over the years. The
mill had crushed sugarcane on an average of 5.16 lakh tonnes. The highest quantity of cane
that crushed by the mill was recorded in 2006 (6.75 lakh tonnes) and lowest in 2009 (3.06
lakh tonnes). The shortage of cane availability to the mills due to contraction of sugarcane
acreage and low productivity often leads to decline in crushing of cane by the mill. Moreover,
the year 2009 was recorded as a drought year as the country received 689.8 mm of average
rainfall against the normal average rainfall of 892.2 mm as such production of sugarcane
declined (Anonymous, 2010).
Table 4.14: Physical performance of Indian Sucrose Limited, Mukerian, 2006-07 to
2011-2012
(Lakh tonnes)
Particulars
2006
2007
2008
2009
2010
2011
Overall
Total sugarcane crush
6.75
6.59
3.43
3.06
5.12
5.98
5.16
Average cane crush/
day (tonnes)
4272.15 4364.24 3536.08 3974.03 4452.17 4564.86 4229.51
Recovery (%)
9.97
9.64
9.54
8.84
9.49
9.92
9.57
Sugar production
0.67
0.64
0.33
0.27
0.49
0.59
0.49
Molasses production
0.37
0.34
0.21
0.13
0.25
0.28
0.26
Capacity utilization
(%)
89.99
87.97
45.77
40.80
68.23
79.75
68.75
Duration of season
158
151
97
77
115
131
122
Sugar sold (`Lakh)
9030.54 8898.73 9888.40 9237.80 9589.00 9554.00 9366.41
The overall per day average cane crushed in the mill was estimated to be 4229.51
tonnes against the potential crushing capacity of 5000 TCD. Though, the total cane crushed of
sugarcane was found to be highest in 2006 but per day average cane crushed was estimated to
be highest in 2011 with quantity of 4564.86 tonnes (Table 4.41). Since 2011, the number of
days that the mill operated and total cane crushed was lowest as compared to that in 2006.
The lowest per day average cane crushed was found to be 3536.08 tonnes in 2008.
The perusal of Table 4.14 revealed that Mukerian Sugar Mill had recorded average
recovery of sugar at the rate of 9.57 per cent. The per cent recovery of the mill has a direct
bearing on the technical efficiency with regards to conversion of sugarcane to sugar (Singh et
al, 2007). The recovery percentage of the mill was found to be in the range of 8.84 to 9.97 per
72
cent, the lowest per cent recovery of sugar was recorded in 2009 (8.84 per cent). However, the
highest recovery (9.97 per cent) of sugar was realized in 2006 which was followed by 9.92
per cent in 2011. An increase in per cent recovery leads to higher production of sugar per unit
cane crushed.
On an average, the mill produces 0.49 lakh tonnes of sugar. The highest sugar
production was recorded in 2006 with production of 0.67 lakh tonnes which was followed
by 0.64 lakh tonnes in 2007. The lowest quantity of sugar (0.27 lakh tonnes) was
produced in 2009. The results presented in Table 4.14 indicate average production of
molasses to the tune of 0.26 lakh tonnes. The highest quantity of molasses was produced
in 2006 (0.37 lakh tonnes) which declined to 0.13 lakh tonnes in 2009. The important
factor that indicates economies of scale of the sugar mill is its capacity utilization. The
capacity utilization of the mill on an average was estimated to be 68.75 per cent. It was
found to be highest in 2006 (89.99 per cent) followed by 2007 (87.97 per cent) while
lowest utilization was recorded in 2009 (40.80 per cent). It was noteworthy that in most
of the time, the mill had experienced low capacity utilization which signified
unsatisfactory performance of the mill.
The number of days that the mill will operate greatly affects the production of
sugar and its by-products. The normal working days of sugar mill are 150 days per year
(Anonymous, 2011). But, Mukerian Sugar Mill on an average operates 108 days per year. The
highest duration of crushing was found to be 158 days in 2006 followed by 151 days in 2007
and minimum being 77 days in 2009. On the other hand the mill accrued an average of
income of `9366.41 lakh per year from the sale of sugar. The highest income of the mill was
found to be `9888.40 lakh in 2008 and lowest in `8898.73 lakh in 2007.
Wahid Sandhar Sugar Limited, Phagwara
The physical performance of Wahid Sandhar Sugar Limited, Phagwara is
exhibited in Table 4.15. The average quantity of sugarcane crushed by the sugar mill was
found to be 3.34 lakh tonnes. The highest cane was crushed in 2007 which stood at 4.52
lakh tonnes and lowest (2.33 lakh tonnes) in 2009. The mill on an average had crushed
3092.59 tonnes of cane per day against average capacity of 4500 TCD. The highest
quantity of cane that mill had crushed daily was worked out to be 3548.08 tonnes in 2008
and lowest quantity at 2775.51 tonnes in 2010. The actual cane crushed was lower as
compared to the potential crushing capacity of the mill. This was mainly attributed to the
shrinkage of area under sugarcane and hence shortage of supply of raw material
(sugarcane) to the mill.
The results presented in Table 4.15 indicate an average per cent recovery of sugar
of the mill which was estimated to be 9.34 percent. The highest recovery of the mill was
73
9.69 per cent in 2006 and lowest recovery was recorded in 2010 (8.75 per cent). The lower
per cent recovery of sugar indicates technical inefficiency of the mill in the conversion of
sugarcane to sugar. The recovery of sugar has been declined throughout the years but still
greater than the state average recovery of 8.8 per cent (Anonymous, 2011). The overall
sugar production of the mill was estimated to be 0.32 lakh tonnes. The sugar production of
the mill has been declining through time from 0.43 lakh tonnes in 2007 to 0.24 lakh tonnes
in 2010. Similarly, production of molasses has also been declined from 0.19 lakh tonnes in
2007 to 0.10 lakh tonnes in 2009. However, the overall production of molasses of the mill
was estimated to be 0.15. The capacity utilization of the sample mill exhibited fluctuation
over the last seven years. On an average, the capacity utilization was 49.51 per cent while
highest utilization was come out to be 66.96 per cent in 2007 and lowest in 2009 (34.52 per
cent). The sample mill in the study period has been under utilization of capacity because the
mill had capacity of 4500 TCD which means mill can crush 4.86 lakh tonnes of sugarcane
for 108 days. The capacity utilization of the sugar mills was less than 50 per cent in the last
three years which indicate that the mill was operating under capacity. This implies that
actual output fell far short of capacity output of the mill, which resulted from the shrinkage
of area under sugarcane and acute shortage in supply of sugarcane-the basic raw material of
the sugar mill. The average duration of cane crushed of the mill was recorded to be 108
days (Table 4.15).
Table 4.15: Physical performance of Wahid Sandhar Sugar Limited, Phagwara, 2006-07
to 2011-12
(Lakh tonnes)
Particulars
2006
2007
2008
2009
2010
2011
Overall
Total Sugarcane
crush
4.13
4.52
3.69
2.33
2.72
2.66
3.34
Average cane
crush/day (tonnes)
3036.76 3348.15 3548.08 2876.54 2775.51 2829.79 3092.59
Recovery (%)
9.69
9.47
9.28
9.39
8.75
9.46
9.34
Sugar production
0.40
0.43
0.34
0.27
0.24
0.25
0.32
Molasses
production
0.18
0.19
0.15
0.10
0.13
0.12
0.15
Capacity utilization
(%)
61.19
66.96
54.67
34.52
40.30
39.41
49.51
Duration of season
(days/year)
136
135
104
81
98
94
108
74
Sugar sold (`Lakh)
6102.25 7763.25 8132.65 9616.31 9244.93 6145.23 7834.10
The results presented in Table 4.15 show that duration of cane crushed has been
declining over the years and even lower than the state average of 150 days per year
(Anonymous, 2011). The duration of sugar mill operation has impacted on mill
performance. Longer the duration of mill operation higher is the capacity utilization and
vice-versa. This is evident from the results where highest duration of mill operation was
recorded in 2008 (136 days) and lowest in 2009 (81 days). Further, the mill earned average
revenue of `7834.10 lakh from the sale of sugar. It has been fluctuating over the last seven
years while the highest revenue was earned in 2009 by `9616.31 lakh and lowest revenue in
2006 by `6102.25 lakh. This was due to fluctuation of sugar price both for free and levy
sugar. Moreover, the sugar was highly politicized which greatly affect the price of the
sugar.
The results revealed that the physical performance of the both private sugar mills was
unsatisfactory. Both the mills were operating under capacity and not able to fully utilize their
existing capacity due to inadequate supply of cane and excessive government intervention in
the operation of the mills. Further, low sugar recovery from sugarcane added up excess
capacity in the sugar mills.
Cooperative Sugar Mills in Punjab
The physical performance of sugar mills in cooperative sector are discussed under the
following sub-heads:
Nawanshahr Cooperative Sugar Mills Limited
The physical performance of Nawanshahr Cooperative Sugar Mill Limited is
presented in Table 4.16. The average total crushing capacity of the sample sugar mill was
estimated to be 2.63 lakh tonnes of sugarcane. The total sugarcane crushed by the mill was
found to be highest in 2007 with total quantity of 3.53 lakh tonnes and lowest (1.66 lakh
tonnes) in 2009. The average crushing capacity was worked out to be 2369.37 tonnes per day.
The results showed that average daily crushing capacity of the mill was found to be static over
the years at around 2400 tonnes which was highest. The lowest daily crushing capacity was
recorded in 2007 (2292.21 tonnes). The percentage recovery of sugar of the sample sugar mill
was estimated to be 9.03 per cent at overall level. The recovery has witness a declined from
9.53 percent in 2008 to 8.60 per cent in 2010. This was due to obsolete machineries used in
sugarcane crushing leads to decline in percentage recovery of sugar. Moreover, lack of
75
technology up-gradation reflects in the declined in percent recovery of sugar and daily
crushing capacity of the mill. The overall production of sugar was worked out to be 0.24 lakh
tonnes. In 2006 and 2007, equal quantity of sugar was produced to the tune of 0.32 lakh
tonnes which was highest over the periods under reference. However, the production of sugar
was declined to 0.15 lakh tonnes in 2009. The lower production of sugar in 2009 was due to
low sugar recovery, low cane crushed and short duration of cane crushed. The molasses
production of the mill was worked out to be 0.12 lakh tonnes at the overall level. The highest
production of molasses was estimated at 0.16 lakh tonnes in 2007 and lowest (0.07 lakh
tonnes) in 2009.
The results presented in Table 4.16 revealed that the overall capacity utilization of
the sample sugar mill was found to be 70.09 per cent. The results showed fluctuation in
utilizing the capacity of the mill. The highest capacity utilization was found to be 94.13
per cent in 2007 and lowest (44.26 per cent) in 2009.The average duration of cane
crushing was 111 days per year. The highest duration of season was recorded to be 154
days in 2007 and lowest duration (69 days) in 2009. Due to short supply of sugarcane for
crushing, duration of season has been shortening in the period under study. The results
further revealed that highest capacity utilization is obtained when large quantity of cane
was crushed by the mill for a longer period of time. Nevertheless, the mill on an average
had earned revenue of `5009.84 lakh from the sale of sugar. The highest revenue
(`7149.47 lakh) was recorded in 2010 and lowest revenue (`2953.70 lakh) was registered
in 2008 on the sale of white sugar.
Table 4.16: Physical performance of Nawanshahr Cooperative Sugar Mills Limited,
2006-07 to 2010-12
(Lakh tonnes)
Particulars
2006
2007
2008
2009
2010
2011
Overall
Total Sugarcane
crush
3.42
3.53
2.09
1.66
2.38
2.69
2.63
Average cane
crushed/day
(tonnes)
2358.62 2292.21 2348.31 2405.80 2404.04 2490.74 2369.37
Recovery (%)
9.26
9.05
9.53
8.97
8.6
8.79
9.03
Sugar production
0.32
0.32
0.20
0.15
0.21
0.22
0.24
Molasses
production
0.15
0.16
0.09
0.07
0.10
0.11
0.12
76
Capacity utilization
(%)
91.20
94.13
55.73
44.26
63.47
Duration of season
(days)
145
154
89
69
99
Sugar sold (`Lakh)
71.73
108
70.09
111
5039.73 4834.64 2953.70 6470.22 7149.47 3611.25 5009.84
Morinda Cooperative Sugar Mills Limited
The results presented in Table 4.17 exhibit the physical performance of Morinda
Cooperative Sugar Mill Limited for the period of 2006-07 to 2011-2012. The average
sugarcane crushed by the mill was estimated to be 1.72 lakh tonnes. The total quantity of
sugarcane crushed in the period under study exhibited erratic trend which varies from 0.75
lakh tonnes in 2009 to 2.65 lakh tonnes in 2007. The overall daily cane crushed by the mill
was found to be 2234 tonnes against the potential crushing capacity of 2500 TCD. It was
found that the daily average cane crushed has been fluctuating over the periods due
fluctuation in sugarcane production in the state. In 2006 and 2007, equal cane crushing
capacity was found (2477 tonnes) which was the highest crushing capacity of the mill during
the periods under study. While, lowest crushing capacity was estimated at 1598 tonnes in
2009.
Table 4.17: Physical performance of Morinda Cooperative Sugar Mills Limited,
Morinda, 2006-07 to 2011-12
(Lakh tonnes)
Particulars
2006
2007
2008
2009
2010
2011
Overall
Total Sugarcane
crushed
2.18
2.65
1.04
0.75
1.58
2.14
1.72
Average cane
crush/day (tonnes)
2477
2477
1891
1598
2257
2308
2234
Recovery (%)
9.58
9.87
9.62
9.05
8.63
8.70
9.24
Sugar production
0.21
0.26
0.10
0.07
0.14
0.19
0.16
Molasses
production
0.09
0.11
0.05
0.03
0.07
0.09
0.08
Capacity utilization
(%)
58.13
70.67
27.73
20.00
42.13
57.07
45.96
Duration of season
(days)
88
55
47
70
93
77
107
77
Sugar sold (`Lakh)
2824.48 2488.00 2126.92 4585.67 3838.91 1782.86 2941.14
On an average, recovery of sugar estimated by the mill was 9.24 per cent. The
recovery of sugar has been showing declining trend over the years. It was 9.87 per cent in
2007 which declined to 9.62 and 8.63 per cent in 2008 and 2010 respectively. This shows
that mill was technically inefficient and also found that the mill was getting cane that have
lower sucrose content. The results presented in Table 4.17 revealed that average production
of sugar was estimated to be 0.16 lakh tonnes. The highest quantity of sugar (0.26 lakh
tonnes) was produced in 2007 which was due to high per cent recovery of sugar, large
quantity of cane crushed by the mill along with longer duration of crushing season in 2007.
The lowest quantity of sugar was realized in 2009 with production of 0.07 lakh tonnes due
to shrinkage in sugarcane supply lead to lowest duration of cane crushing season. Similarly,
the same picture emerged for molasses production with average production of 0.08 lakh
tonnes. The highest production of molasses (0.11 lakh tonnes) was obtained in 2007 and
lowest production (0.05 lakh tonnes) in 2009. The wide fluctuation of capacity utilization
of the mill was observed over the years with average capacity utilization of 45.96 per cent.
The average capacity utilization over the periods showed that the mill had experienced
erratic trends. It was found to be ranging from 20.00 to 70.67 per cent. The reason could be
possible shrinkage in the sugarcane acreage and hence squeezed supply of cane to the sugar
mill. This implies that the sample sugar mill was not enjoying the benefit of economies of
scale. In the case of present study, duration of cane crushing was below 100 days in all the
years except in 2007 that adversely affected the performance of the mill. The mill had
operated on an average of 77 days per year. The longest duration of crushing season was
found to be 107 days in 2007 and shortest (55 days) in 2008. The average revenue earned
by the mill was `2941.14 lakh whereas the highest revenue was `4585.67 lakh in 2009 and
minimum revenue earned was `1782.86 lakh in 2011.
The study of physical performance of cooperative sugar mills revealed that mills were
not performing satisfactorily. In most of the time, the mills were operating under capacity due
to factors such as shrinkage of sugarcane acreage, shortage of cane supply and used of
obsolete machineries restrict the mills to fully utilize their capacity.
Comparison of Physical Performance of Cooperative and Private Sugar Mills
The comparison of physical performance between cooperative and private sector
sugar mills was studied. The comparison between the two sectors is presented in Table
4.18. The results revealed that there was a significant difference in duration of cane
crushing between the two sectors at the overall level. The private sectors have operated
78
for longer duration than the cooperative sector in most of the time. The private sector
have a crushing duration more than 100 days during the study periods except in 2007 (79
days). While in cooperative sector duration of cane crushing was below 100 days during
the study periods. This indicate that the sugar mills in cooperative sector were not getting
sufficient raw materials as cane growers were reluctant to supply sugarcane to the mills
for they were not getting payment in time. Moreover, private mills were taking advantage
of relative price owing to demand and supply of cane in the state. The results of overall
total sugarcane crushed show that there has been significant difference in the average
crushing capacity of the sugar mills in both sectors. It has been observed from Table 4.18
that during the periods under study, the private sector had crushed comparatively higher
quantity of sugarcane than that in the cooperative sector. But, in 2006, difference between
the two sectors was higher by 2. 6 lakh tonnes in terms of total sugarcane crushed where
private mills crushed 5.4 lakh tonnes of cane and the figure for the cooperative mills was
2.8 lakh tonnes.
The perusal of Table 4.18 revealed that per cent recovery of sugar was significantly
higher in private sector than the cooperative sector. The private sector had recorded higher per
cent recovery of sugar than that of cooperative sector during the study period. But in the year
2008, both the sectors obtained same level of sugar recovery (9.41 per cent). This implies that
sugar mills under private sector were technically efficient with regards to conversion of
sugarcane into sugar. Further, the results presented in Table 4.18 indicate that the private
sectors produced significantly higher quantity of sugar and molasses than the cooperative
sectors. In the case of sugar production, the private sector had produced sugar almost double
the quantity produced in the cooperative sector. It was estimated that 0.26 lakh tonnes of
sugar was produced in cooperative while 0.54 lakh tonnes of sugar was produced in private
sectors.
Similarly, production of molasses in private sector was estimated to be twice the
quantity produced in the cooperative sectors. The private sector had produced 0.27 lakh
tonnes of molasses and 0.12 lakh tonnes of molasses was produced in cooperative sector.
This was mainly due to the lower quantity of cane crushed and low recovery of sugar in the
cooperative sectors. It is important to note that longer duration of mills’ operation, high
sugar recovery and high average crushing capacity together determined the total quantity of
finished products during the operating season. Nevertheless, the capacity utilization in both
the sugar mills showed non-significant differences. At the overall level, it was recorded to
be 58.02 and 59.13 per cent in cooperative and private sectors respectively. During the
study, both the sectors utilized less than 60 per cent of their potential crushing capacity
utilization.
79
The findings revealed that there is scope to increase crushing capacity in both the
sectors in the state only if substantial increase in sugarcane availability of cane is there for
crushing. The expansion of crushing capacity will help in revitalization of sick cooperative
sugar mills and stimulating the cane growers to bring more area under sugarcane cultivation.
This showed that comparatively sugar mills under private sector have better performance than
the cooperative sector in terms of sugar recovery, average crushing capacity, number of
operating days, production of sugar and molasses. The capacity utilization in both the sectors
was not the optimum one.
80
Table 4.18: Comparison of physical performance of Private and Cooperative sector sugar mills in Punjab
(Lakh tonnes)
Particulars
2006
2007
2008
2009
2010
2011
Overall
t-values
C
P
C
P
C
P
C
P
C
P
C
P
C
P
Duration of
season (days)
117
147
131
143
72
101
58
79
85
107
101
113
94
115
1.770*
Total
Sugarcane
crush
2.8
5.4
3.1
5.7
1.7
3.6
1.2
2.7
2.0
3.9
2.4
4.3
2.2
4.2
4.056***
Recovery (%)
9.42
9.83
9.46
9.56
9.41
9.41
9.01
9.12
8.62
9.12
8.75
9.69
9.14
9.45
1.988*
Sugar
production
0.26
0.54
0.29
0.53
0.15
0.33
0.11
0.27
0.17
0.37
0.21
0.42
0.20
0.41
4.218***
Molasses
Production
0.12
0.27
0.14
0.27
0.07
0.18
0.05
0.12
0.08
0.19
0.10
0.20
0.09
0.20
4.009***
Capacity
utilization (%)
74.67
75.61
82.40
77.48
41.73
50.19
32.13
37.66
52.80
54.23
64.40
59.58
58.02
59.13
0.129NS
***, ** and * signifies significant at 1, 5 and 10 per cent level
NS: Non-significant
Note: C and P indicate Cooperative and private respectively
81
Financial Performance of the Sugar Mills in Punjab
The financial performance of the sugar mills can be measured in terms of financial
strength of the mill. The financial strength of the mill was measured by the ratio analysis for
various financial indicators such as profitability, operating, solvency and liquidity ratios. The
measurement of financial viability of the selected sugar mills were studied in detail.
Private sector sugar mills in Punjab
The ratio analysis of various financial indicators of the private sector sugar mills were
discussed as under:
Profitability Ratios
The profitability of the sugar mills in a long-run is important for the survival of the
sugar mill and benefit of the shareholders. The study of profitability ratios signifies the
amount of profit that mills able to generate from the sale of manufactured products and give
an insight into the effectiveness in generating the income from their resources. The various
profitability ratios of the two private sugar mills were estimated for the period of seven years
(2006-07 to 2011-12) and presented in Table 4.19.
Indian Sucrose Limited, Mukerian
The gross profit margin ratio of the mill has been found decreasing from 29.16 per cent in
2006 to 16.58 per cent in 2011. The quite erratic trend was observed over the years with lowest
margin (13.76 per cent) in 2008. The continuous decrease in gross profit margin ratio indicates
inconsistent in the earning of mill due to increase in manufacturing expenses. The positive gross
profit margin ratio revealed an efficient management of its resources. The efficient management
decision of the mill was revealed by the operating profit margin. The results presented in Table
4.3.6 indicate a positive margin but a declining trend over the years. The operating profit margin
was found to be highest in 2006 (24.43 per cent) and adversely declined to 6.26 per cent in 2011
due to considerable increase in operating expenses made on salary and wages, repair and
maintenance, trading, administrative, etc. (Appendix-III). The pretax profit margin was found to
be fluctuating through time. The higher pretax margin was found to be 24.43 per cent in 2006
indicating efficient management of taxable income and ability of the management to keep
operating cost low. While the lowest and negative pretax margin was recorded in 2010 (-2.20 per
cent) indicating inefficiency in management of operating expenses especially payment of interest.
The net profit margin of the mill showed a mixed trend during the periods under study. The
positive net margin was obtained in four periods and negative margin in two periods. The net
profit margin was declined from 8.77 per cent in 2006 to -5.00 per cent in 2010. The same has
increased to 14.33 per cent in 2011. The higher net profit margin implies efficiency in processing
of sugarcane to produce sugar and its by-products, administration, selling of products and
financing of the sample sugar mill. The higher net loss of the sugar mill and minimum earning left
for shareholders was found in 2010 with a net loss of 5.00 per cent (Table 4.19).
82
The relationship of the profits and investment of the mill was highlighted by the rate
of returns ratios. These ratios showed effectiveness in generating income from resources of
the mill. The results presented in Table 4.19 showed declining and fluctuating trend of returns
on assets of the mill over the periods. This indicated that the efficiency in management of
assets by the mill was deteriorating over time. The highest returns was estimated to be 8.80
per cent in 2006 and highest negative returns were observed in 2010 (-1.78 per cent). It is
important to note the productivity of the ownership or equity capital employed in the sugar
mill which was reflected by the values of the returns on equity.
Table 4.19: Profitability analysis based on different ratios of private sectors through
2006-07 to 2010-11
(Per cent)
Particulars
2006
2007
2008
2009
2010
2011
Gross profit margin ratio
29.16
20.51
13.76
16.74
20.97
16.58
Operating profit margin ratio
24.43
16.82
9.10
10.44
13.15
6.26
Pretax profit margin ratio
14.25
8.08
0.96
1.94
-2.20
14.15
Net Profit margin ratio
8.77
4.06
-0.09
1.03
-5.00
14.33
Returns on assets
8.08
3.00
-0.06
0.44
-1.78
5.58
Returns on equity
32.08
12.98
-0.31
2.88
-10.85
33.76
Returns on capital employed
10.01
4.06
-0.09
0.75
-3.05
7.41
Indian Sucrose Limited, Mukerian
Wahid Sandhar Sugar Limited, Phagwara
Gross profit margin ratio
22.02
12.03
16.85
15.88
20.33
25.51
Operating profit margin ratio
18.56
8.76
13.27
13.11
17.67
21.48
Pretax profit margin ratio
10.83
2.23
2.20
2.96
5.51
6.46
Net Profit margin ratio
9.61
1.31
1.15
1.26
3.22
4.11
Returns on assets
10.04
0.96
0.70
0.79
1.92
1.70
Returns on equity
27.06
4.36
3.91
3.17
7.31
6.04
Returns on capital employed
12.06
1.05
0.91
0.93
2.18
2.07
The returns on equity was increasing from 32.08 to 33.76 per cent and showing
fluctuating trend during the study period. The mill had highest productivity of capital
employed by owners in 2011 (33.76 per cent) and lowest (10.85 per cent) in 2010. The lowest
returns on equity indicated inefficient in the management of equity capital. The return on
capital employed by the mill presented in Table 4.19 showed consistent decreasing of the
same from 10.01 per cent in 2006 to -3.05 per cent in 2010 and showing fluctuation trend
83
over time. This revealed that the management was failed to utilize its capital efficiently. It
was, however, observed that if management makes good efforts, there is possibility of
improving the ratio, as the ratio was improved to a greater extent in 2011 (7.41 per cent).
Wahid Sandhar Sugar Limited, Phagwara
The perusal of Table 4.19 showed that the gross profit margin of the Wahid Sugar
Mill Limited has been increasing from 22.02 to 25.51 per cent over the study period due to
reduction in manufacturing expenses on raw materials, labour and other manufacturing costs.
This indicated that the mill had an efficient management in the production of sugar. The
operating profit margins over time revealed management has efficient control over operating
expenses than its cost of sales outlay. The margin has been increasing from 18.56 per cent in
2006 to 21.48 per cent in 2011. The pretax profit margin of the mill was decreased but
showing positive trend over the period under reference. The highest margin was worked to be
10.83 per cent in 2006 showing low operating cost and lowest margin (2.20 per cent) in 2008.
The bottom line sugar mill profitability was found a positive trend in all the study period
which indicated that the mill had never in loss during the period under study. The mill had an
overall efficient in production, administration, selling, and tax management. The highest
efficiency was found in 2006 with net profit of 9.61 per cent and lowest (1.31 per cent) in
2007. The positive return on assets was observed during the periods under study which
indicate consistent efficiency in management of assets. The ratio was substantially decreased
from 10.04 to 1.70 per cent over time. However, the highest return on assets was worked to be
10.04 per cent in 2006 and lowest (0.96 per cent) in 2007. The results of return on equity and
returns on capital employed were positive, decreased and showing fluctuation over the
periods. This revealed positive return of investment of the mill over time but the management
of equity and capital was inefficient. The highest return of equity was estimated to be 27.06
per cent in 2006 which drastically declined to 3.17 per cent in 2009. Whereas, the return on
capital employed was found to be highest (12.06 per cent) in 2006 and lowest (0.91 per cent)
in 2008.
Operating Performance or Efficiency Ratios of the Sugar Mills
The operating performance ratios or efficiency ratios measures the managements’
ability to keep overhead costs low and indicates efficiency in converting assets into revenue.
The various efficiency ratios of the two private mills presented in Table 4.20 and discussed as
under:
Indian Sucrose Limited, Mukerian
The fixed assets turnover ratio has been decreasing from 2.00 to 1.32 over time and
showing instable trend during the study period. It was highest (2.09) in 2008 indicating
investment of one rupee on fixed assets realized revenue of two rupees and revealed
efficiency in fixed assets utilization. Thereafter, the ratio has been declined up to 2010 at 1.15
84
indicating decrease in sale of mills’ products and slightly increased to 1.32 in 2011. The
declining trend shows inefficient management of fixed assets over time. The total asset
turnover ratio presented in Table 4.20 showed decreasing trend over the study periods
indicating sluggish sales of the mill, increases in inventories and holding an obsolete assets
through time (Appendix-III). It was found highest (0.92) in 2006 which implies efficiency in
utilizing total assets by the mill in generating income. The lowest total assets turnover ratio
was estimated to be 0.36 in 2010 indicating the mill was operating under capacity. The
working capital turnover ratio of the mill over time was declining from 1.85 to 0.74. This
revealed inefficiency in managing short-term assets and liabilities of the mill in funding for
sales. Moreover, the declining trend of working capital turnover ratio implies slow speed of
sales, as it was controlled by the government and not freed to sell by the mill. The current
turnover ratio indicates the capability of the mill to achieve maximum sales with the
minimum investment in current assets.
Table 4.20: Operating performance or efficiency ratios of private sugar mills during a
period from 2006-07 to 2011-12
Particulars
2006
2007
2008
2009
2010
2011
Fixed assets turnover ratio
2.00
1.80
2.09
1.88
1.15
1.32
Total assets turnover ratio
0.92
0.74
0.71
0.43
0.36
0.39
Working capital turnover ratio
1.85
1.69
1.78
1.10
1.02
0.74
Current asset turnover ratio
1.74
1.27
1.09
0.57
0.52
0.57
Inventory turnover ratio
2.45
1.76
1.89
1.64
1.51
1.06
Debtor turnover ratio
1.66
1.46
1.51
0.99
0.85
0.66
Indian Sucrose Limited, Mukerian
Wahid Sandhar Sugar Limited, Phagwara
Fixed assets turnover ratio
3.31
1.42
1.49
1.01
0.91
0.70
Total assets turnover ratio
1.04
0.73
0.61
0.63
0.60
0.42
Working capital turnover ratio
2.87
1.17
1.13
1.14
1.08
0.82
Current asset turnover ratio
1.53
1.52
1.03
1.67
1.73
1.03
Inventory turnover ratio
1.78
2.06
2.00
2.39
2.40
1.30
Debtor turnover ratio
2.26
1.05
1.03
1.04
0.97
0.76
The current turnover ratio was highest at 1.74 in 2006 indicating efficient utilization
of current assets and lowest at 0.52 in 2010 revealing increased current assets due
accumulation of high inventories. The inventory turnover ratio was showing decreasing trend
over the period. This implies slow speed of converting inventories into sales. It signals
85
inefficiency in the management of inventories due to overstocking of inventories by the mill
(Appendix-III).
The highest inventory turnover ratio was 2.45 in 2006 which signified strong sales
and better liquidity and less cost incur in sales. Whereas, the lowest turnover was estimated to
be 1.06 in 2011 indicating excess inventories due to slow uplift of sugar by the state
government. The debtor turnover ratio was fluctuating during the study period. It varied from
1.66 to 0.66 indicating inefficiency in collecting outstanding sales.
Wahid Sandhar Sugars Limited, Phagwara
The fixed assets turnover ratio of Wahid Sugar Mill showed decrease from 3.31 to
0.70 during the study period (Table 4.20). This indicates decrease in productivity of fixed
assets of the mill in generating sales. The total assets turnover ratio of the mill decreased from
1.04 to 0.42 and was observed fluctuating over the period. It was mainly due to fluctuation in
sale of the mill. The working capital turnover ratio was highest (2.87) in 2006 which indicate
efficient management of working capital and lowest ratio (0.82) was in 2011 revealing failure
in utilization of short-run assets and liabilities.
The current asset turnover showed quite erratic trend over the period because piling
up of inventories block the fund of the mill. It was found to be highest at 1.73 in 2010 and
lowest (1.03) in 2008 and 2011. The inventory turnover ratio of the mill varied from 1.78 to
2.40 and showed fluctuating trend during the study period. The ratio was found to be more
than the standard ratio of 2:1 (Talekar, 2005) in 2007 up to 2010 which showed that the mill
sells through its stock of inventory twice in year. This indicates speedy in sales and utilization
of stores and spares and efficient in managing of inventories. The debtor turnover ratio of the
mill showed inefficiency in management of debtor/receivable account and slow in collection
of credit from debtors. It decreased from 2.26 in 2006 to 0.76 in 2011.
The operational performance was found to be inefficient during the study period.
Inefficiency in the operation of the mill revealed that there is a need to control huge stock of
inventory and speedy sales of the mill’s inventories.
Solvency or Leverage Ratio of the Sugar Mill
The solvency ratio was worked out to determine the overall level financial risk of the
mill and its shareholders. Greater the amount of debt held by the mill, greater is the financial
risk of economic failure. The debt-equity ratio of the mills was estimated and is presented in
Table 4.21.
Indian Sucrose Limited, Mukerian
The perusal of Table 4.21 showed increasing trend of debt-equity ratio during the
period under reference. The equity position of the mill was very weak and less protection
against the risks in using debt finance. The ratio provide vantage point on the mill’s leverage
position. The ratio was highest at 3.55 in 2011 indicating the mill used large debt to finance its
86
operation. It also showed the claim of the creditors was greater than the shareholders. The
lowest leverage ratio (2.20) was estimated each in 2006 and 2007 showing higher protection
enjoyed by the mill during these periods. However, the ratio was more than the standard ratio of
1:1 (Ladha and Shah, 2012) which indicates the increase in debt was more than the increase in
equity.
Table 4.21: Analysis of solvency ratios of private sugar mills for the periods of 2006-07
to 2011-12
Years
Debt-equity ratios
Indian Sucrose Limited, Mukerian
Wahid Sandhar Sugar Limited,
Phagwara
2006
2.20
1.24
2007
2.20
3.14
2008
2.36
3.29
2009
2.83
2.42
2010
2.56
2.35
2011
3.55
1.92
Wahid Sandhar Sugar Limited, Phagwara
The debt-equity ratio of the mill is presented in Table 4.21 and showed relatively
larger contribution of creditors than the shareholder in financing of the mill in most of the
periods. The highest ratio was come out to be 3.14 in 2008 and lowest (1.24) in 2006. The
ratio was found to be decreasing from 3.29 in 2008 to 1.92 in 2011. The decreased in leverage
ratio indicated that the mill had improved their equity position and reduced its dependency on
leverage for financing.
Liquidity Ratios of the Sugar Mill
Liquidity ratio measures the ability of the mill to pay off its current obligations
(liabilities). In fact analysis of liquidity was done by comparing most liquid assets of the mill
with its short-term liabilities. The greater coverage of liquid assets to short-term liabilities
signal an ability of the mill to pay its debts and able to fund to its ongoing operations.
Otherwise, low coverage rate signal raising a red flag for the mill to meet its short-term
obligations and running its operation. The important liquidity ratios were calculated for the
private sugar mill for the period of seven years and are presented in Table 4.22.
Indian Sucrose Limited, Mukerian
The current ratio of Mukerian Sugar Mill showed that the ratio has decreased from
2.74 to 1.64 in the year 2006 and 2010. It again increased to 2.75 in 2011. The current ratio in
87
2006 (2.74), 2007 (2.22) and 2011 (2.75) was found to be greater than the ideal current ratio
(2:1). It implies that the mill was in good liquidity position to cover its current liabilities and
ongoing operations of the mill. The Quick/Acid test ratio was found highest (1.26) in 2011
and lowest (0.62) in 2007. The results further revealed that the Quick test ratio was lower
than the ideal ratio (1:1) in the first three years (2006 to 2008). During these years, major
share of current assets was made from inventory (Appendix-III). The same was found to be
the higher than the ideal ratio in the remaining periods under reference (2009-2011). This
showed an increasing trend over the period indicating improvement in the liquidity position of
the mill through time. The cash ratio of the mill was found to be decreased from 0.36 in 2006
to 0.04 in 2008. The ratio was again increased (0.31) in 2009 which further decreased (0.13)
in 2011. This showed that cash ratio was fluctuating over the periods under study.
Table 4.22: Analysis of liquidity ratios of private sugar mills through periods from
2006-07 to 2011-12
Particulars
2006
2007
2008
2009
2010
2011
Indian Sucrose Limited, Mukerian
Current ratio
2.74
2.22
1.96
1.86
1.64
2.75
Quick /Acid test ratio
0.80
0.62
0.83
1.21
1.08
1.26
Cash ratio
0.36
0.24
0.04
0.31
0.19
0.13
Wahid Sandhar Sugar Limited, Phagwara
Current ratio
4.07
5.67
2.56
2.60
2.83
2.31
Quick /Acid test ratio
0.56
1.49
1.23
0.78
0.80
0.48
Cash ratio
0.14
0.65
0.52
0.16
0.14
0.12
Wahid Sandhar Sugar Limited, Phagwara
The current ratio of Wahid Sugar Mill presented in Table 4.22 shows good liquidity
position of the mill in meeting short-term debt obligations. The ratio was found to be more
than the ideal ratio of 2:1 in all the study periods. It was highest (5.67) in 2007 and lowest
(2.310 in 2011. However, fluctuating trend of current ratio was observed over the period
under reference. The Quick/Acid test ratio decreased from 0.56 in 2006 to 0.48 in 2011 but
fluctuating trends was observed through periods (Table 4.22). The ratio was estimated to be
highest (1.49) in 2007 and lowest (0.48) in 2011. The results revealed that the Quick test
ratio was lower than the ideal ratio (1:1) in most of the time. This indicated a huge stocking of
inventory and poor holding of most-liquid assets to cover the debt obligations. The cash ratio
revealed that the mill had poor cash holding to meet immediate debt obligations of the mill. It
was found highest (0.65) in 2007 and lowest (0.12) in 2011.
88
Therefore, the results of the liquidity ratios revealed that the liquidity position of the
private sugar mills was not showing a good sign.
Cooperative sector sugar mills in Punjab
The ratio analysis of various financial indicators of the cooperative sector sugar mills
were discussed as under:
Profitability ratios
The various profitability ratios of the two cooperative sugar mills were estimated for
the period of seven years (2006-07 to 2011-12) and are presented in Table 4.23.
Nawanshahr Cooperative Sugar Mill Limited, Nawanshahr
The perusal of Table 4.23 exhibit different profitability ratios of Nawanshahr sugar
mill. The gross profit margin shows erratic trend over period. The margin was found to
increase from 15.99 per cent in 2006 to 23.04 per cent in 2010. But, it adversely declined to
2.59 per cent in 2011 due considerable increase in manufacturing cost as well as decrease in
net sales of the mill. The operating profit margin was highly fluctuating over the periods. It
decreased from 10.10 per cent in 2006 to -17.81 per cent in 2008. But it considerably
increased to 18.73 per cent in 2010 and was found to be highest. This was due to inconsistent
management of operating expenses and moreover it was due to simultaneous declined in gross
profit of the sugar mill. Further, the operating profit margin drastically declined and negative
margin was recorded in 2011 (-7.00 per cent). The pretax profit margin and net profit margin
shows fluctuating trend and was found to be negative in three periods (Table 4.23). The
pretax profit margin was highest in 2010 (18.73 per cent) which attributed efficient
management of operating expenses including payout interest. The lowest pretax margin was
estimated to be -17.81 per cent in 2008. The lowest pretax margin during this period was due
to negative gross profit and high cost of sale. The net profit margin of the mill increased from
5.13 to 17.85 per cent over time. This implies an overall efficiency in operation of the mill
and utilizing its resources. The negative net profit was found in 2007 (-13.21 per cent), 2008
and in 2011 (-6.89 per cent). The large negative margin (-22.87 per cent) was found in 2008
which indicated higher net loss in the operation of mill and declined in net sales of the
product.
The return on assets, equity and capital employed showed irregular trend over the
periods under study. All the three rates of return ratios was found to be highest in the same
period 2010 with the estimation of 12.68, 95.44 and 72.29 per cent of return on assets, equity
an capital respectively. The mill during 2010 was found to be most effective in generating
income from its resources (assets, equity shareholder and debt). But the negative and lowest
return ratios were found in different period. In the case of return on assets, higher negative
return (-5.65 per cent) was found in 2007 due to net loss and inefficiency in management of
assets during this period. The lowest return on equity was observed to be highest in 2008 with
89
-44.45 per cent as the net loss of the mill. The ability of the mill to generate income from the
pool of capital employed was found to be lowest (-17.35 per cent) in 2007.
Table 4.23: Profitability analysis based on different ratios of Cooperative sectors
through 2006-07 to 2010-11
(Per cent)
Particulars
2006
2007
2008
2009
2010
2011
Nawanshahr Cooperative Sugar Mill Limited, Nawanshahr
Gross profit margin
15.99
-5.01
-5.74
17.83
23.04
2.59
Operating profit margin
10.10
-11.41
-14.36
13.39
18.49
-7.00
Pretax profit margin
8.60
-12.08
-17.81
9.68
18.73
-5.86
Net Profit margin
5.13
-13.21
-22.87
5.26
17.85
-6.89
Returns on assets
4.29
-5.65
-4.93
5.33
12.68
-2.60
Returns on equity
30.76
-41.78
-44.45
47.35
95.44
-15.90
Returns on capital employed
12.38
-17.35
-12.80
13.07
72.29
-5.77
Morinda Cooperative Sugar Mill Limited, Morinda
Gross profit margin
0.16
-25.72
-22.49
17.98
12.38
-14.54
Operating profit margin
-4.27
-27.42
-24.52
16.34
10.52
-17.83
Pretax profit margin
-7.39
-29.98
-32.21
10.84
7.36
-18.67
Net Profit margin
-12.84
-34.49
-40.23
5.22
4.36
-26.60
Returns on assets
-3.16
-9.77
-7.46
6.48
4.44
-3.93
Returns on equity
-7.74
-25.90
-25.28
21.14
11.45
-13.59
Returns on capital employed
-3.58
-10.93
-8.83
6.82
4.96
-4.17
Morinda Cooperative Sugar Mill Limited, Morinda
The profit margins of the mill are presented in Table 4.23 showing a fluctuating trend
over the periods under reference. The highest negative margins were observed in most of the
periods. The gross profit margin of the mill decreased from 0.16 to -14.54 per cent over the
period. But, highest margin was found to be 17.98 per cent in 2009 and lowest (-25.72 per
cent) in 2007. This indicates a gradual increase in cost of goods sold and declined in net sales
of the mill. The operating profit margin exhibited mixed trend over periods. It was highest
(16.34 per cent) in 2009 and thereafter it decreased continuously to -17.83 per cent in 2011.
This indicated that the management needs to control its operating costs which adversely affect
the profitability of the mill. The pretax profit was lowest (32.21 per cent) in 2008 and highest
90
(10.84 per cent) in 2009 but thereafter it decreased continuously to -18.67 per cent in 2011.
The declining trend of pretax profit margin revealed that the mill was heading towards losses
for there is a need an efficient and timely management of operating and non-operating
expenses. The results of net profit margin of the mill showed negative margin in most of the
years under study. The mill incurred continuous net losses over the period up to 2008.
Thereafter, the net profit margin was found highest (5.22 per cent) in 2009 and again
continuously declined to -26.60 per cent in 2011. Therefore, looking to this fact, the
profitability of the mill has decreased continuously which did not augur good for the mill. The
Morinda Sugar Mill shows poor returns on assets, equity and pool capital employed in the
operation of the sugar mill. It was found that the return on assets was highest (6.48 per cent)
in 2009 and gradually decreased to -3.93 per cent in 2011. It indicates increase in cost of
goods sold, operating expenses and inefficient management of total assets of the mill. The
return on equity of the mill over the period show decreasing trend which indicate losses on
investment of shareholder equity. It was highest at 21.14 per cent in 2009 and further decline
to -13.59 in 2011. The return on capital employed was found highest (6.82 per cent) in 2009
indicating increase in debt for financing the mill operation. Therefore, the profitability of the
mill has been declining over the periods and in most of the periods under study losses was
incurred.
Operating performance or Efficiency ratios
The operating performance or efficiency ratios of the cooperative sugar mills are
discussed for the period of seven years under the following heads:
Nawanshahr Cooperative Sugar Mill Limited, Nawanshahr
The perusal of Table 4.24 represents the operating performance of Nawanshahr sugar
mill. The fixed asset turnover ratio revealed efficiency in productivity of the mill’s assets in
generating sales. The highest turnover was estimated to be 3.23 in 2010 indicating efficient
management of fixed assets in generating income. During 2008 the mill had failed to utilize
fixed assets as the turnover was very low (1.59 times). The total assets turnover ratio was
showing a fluctuating trend over the study period. It was highest (0.68) in 2010 and lowest
(0.28) in 2008. The sales of the mill during 2008 were lower and the total assets were found
to be highest in this period which shows inefficiency in total assets management by the mill
(Appendix-II). The working capital turnover ratio has increased from 2.06 to 4.58 and
showing mixed trend over the years. It has increased up to 2010 at 4.58 and thereafter it
decreased to 0.44 in 2011. This shows that the mill was inconsistent in the management of
working capital to carry out the operation and sales of the mill. The reasons for inconsistency
were excess stock of sugar, government regulation on sales, no internal sources of capital and
depend upon bank finance for working capital every year. The current assets turnover ratio of
the mill shows fluctuation and declining trend in the study period. It indicates uneven
91
decrease in sales of the mill leading to less realization of income over time. The current assets
turnover ratio was estimated to be 1.72 in 2010 and lowest (1.02) in 2006.
Table 4.24: Operating performance or efficiency analysis based on different ratios of
cooperative sectors through 2006-07 to 2010-11
Particulars
2006
2007
2008
2009
2010
2011
Nawanshahr Cooperative Sugar Mill Limited, Nawanshahr
Fixed assets turnover ratio
2.32
2.24
1.59
3.11
3.23
1.71
Total assets turnover ratio
0.50
0.47
0.28
0.55
0.68
0.44
Working capital turnover ratio
2.06
2.79
1.36
1.99
4.58
1.14
Current asset turnover ratio
1.02
1.04
0.56
1.13
1.72
0.63
Inventory turnover ratio
1.26
1.27
0.65
1.43
2.28
0.75
Debtor turnover ratio
2.00
2.55
1.06
1.52
11.42
1.48
Morinda Cooperative Sugar Mill Limited, Morinda
Fixed assets turnover ratio
1.44
1.33
1.21
2.43
1.89
0.88
Total assets turnover ratio
0.43
0.33
0.23
0.60
0.60
0.21
Working capital turnover ratio
1.86
1.26
0.84
1.66
2.32
0.49
Current asset turnover ratio
1.23
0.89
0.54
1.46
1.88
0.43
Inventory turnover ratio
1.38
0.98
0.57
1.56
2.21
0.47
Debtor turnover ratio
0.90
0.79
0.52
0.76
1.04
0.37
The inventory turnover ratio indicates poor performance in management of inventory
and slowed in converting it into revenue. The turnover was highest (2.28) in 2010 indicating
sales of sugar twice in a year and lowest (0.65) in 2008. The debtor turnover ratio was
increased from 2.38 to 14.84 indicating efficiency in collecting outstanding sales. The highest
efficiency (14.84) was found in 2010 which was attributing to high debt in the same period
(Appendix-II). The lowest efficiency (1.06) was found in 2008 revealing inefficiency in
collecting outstanding sales of the mill.
Morinda Cooperative Sugar Mill Limited, Morinda
The fixed assets turnover ratio of the mill decreased from 1.44 to 0.88 during the
study period. The fixed assets of the Morinda sugar mill were not managed properly over
the years. However, the highest turnover of the mill was (2.43) in 2009 indicating that the
mill was efficiently utilizing the fixed assets to generate income and the lowest was at 0.88
in 2011. The total turnover ratio shows that the mill was operating sub-optimally as the
92
turnover ratio was below one in all the study periods. The turnover ratio decreased from
0.43 to 0.21 and showing mixed trend during the study period. The highest asset turnover
ratio (0.60) was in 2009 and 2010 while the lowest (0.21) was in 2011 indicating the assets
were not optimally utilized. The working capital turnover showed poor performance of the
mill in managing working capital. It was decreasing from 1.86 in 2006 to 0.49 in 2011. This
was due to slow and lengthy process in sales of sugar as it was totally regulated by the State
and Central Government. The current assets turnover ratio increased from 1.23 in 2006 to
1.88 in 2010 and thereafter it decreased to 0.43 in 2011. The highest turnover ratio was
(1.88) in 2006 indicated the efficient management of current assets in generating revenue
and lowest (0.43) was in 2011 indicating decrease in sales of sugar. The inventory turnover
ratio showed weak performance of the mill in controlling the inventory. It was found to be
below standard (2:1) in the all study periods except in 2010 where it was slightly above
norm. The lowest turnover (0.47) was in 2011 indicating failure in management of
inventory as stock of sugar was beyond the control of the mill as the sale of sugar was
directed by the government. This restriction slowed the speed of sale of sugar which made
the mill to maintain huge inventory throughout the year and led to management
inefficiency. The debtor turnover ratio shows declining trend over the years which reveal
inefficiency of the mill in collecting its proceeds sales. It was highest (1.19) in 2010
indicating efficient management of credit and lowest (0.32) in 2011 indicating inefficient
collection of accounts receivable by the mill.
Solvency ratios of the sugar mill
The detection of the sugar mill operation and financial difficulties is a subject which
has been particularly amenable with debt-equity ratio. The debt-equity ratio of the selected
cooperative sugar mills were worked out and presented in Table 4.25.
Nawanshahr Cooperative Sugar Mill Limited, Nawanshahr
The debt-equity ratio of Nawanshahr Sugar Mill increased from 1.49 to 1.76 and
showing fluctuating trend during the study period. The ratio was found to be lowest (0.32) in
2010 which is a satisfactory level where the mill enjoyed greater financial protection and used
less leverage for financing its operation. But, overall long-term liquidity position of the mill
was weak as the ratio has been above the standard ratio (1:1). This showed that more leverage
has been used for financing the operation of the mill that is the portion of assets provided by
creditors was greater than the portion of assets provided by stockholders.
Morinda Cooperative Sugar Mill Limited, Morinda
The perusal of Table 4.25 showed that the debt-equity ratio of Morinda Sugar Mill
was substantially increased from 1.16 to 2.26 as the year progress. This revealed that the risk
for increased leverage and operation of the mill was financed largely by the money borrowed
from bank and cooperative society.
93
Table 4.25:
Solvency analysis for cooperative sugar mills in Punjab for period of
seven years
Years
Debt-equity ratios
Nawanshahr Cooperative Sugar
Mill Limited, Nawanshahr
Morinda Cooperative Sugar Mill
Limited, Morinda
2006
1.49
1.16
2007
1.41
1.37
2008
2.47
1.86
2009
2.62
2.10
2010
0.32
1.31
2011
1.76
2.26
Liquidity ratios of the sugar mills
The liquidity position of the mill signifies the ability of the mill to meet the financial
obligation as and when required. The liquidity ratios measure the relationship between current
assets and current liabilities of the mill in meeting short-term debt obligation.
In order to test the liquidity of the cooperative sugar mills, current ratio, quick ratio
and cash ratio were calculated for a period from 2006-07 to 2011-12 and is presented in Table
4.26.
Table 4.26: Liquidity analysis based on different ratios of cooperative sector through
period 2006-07 to 2011-12
Particulars
2006
2007
2008
2009
2010
2011
Nawanshahr Cooperative Sugar Mill Limited, Nawanshahr
Current ratio
1.96
1.58
1.69
2.30
1.58
2.21
Quick /Acid test ratio
0.38
0.28
0.22
0.48
0.39
0.35
Cash ratio
0.06
0.04
0.03
0.04
0.11
0.06
Morinda Cooperative Sugar Mill Limited, Morinda
Current ratio
2.96
3.41
2.77
8.25
5.32
8.52
Quick /Acid test ratio
0.32
0.30
0.16
0.54
0.79
0.65
Cash ratio
0.17
0.17
0.09
0.37
0.47
0.37
Nawanshahr Cooperative Sugar Mill Limited, Nawanshahr
The ideal standard of Current ratio is 2:1 (Talekar, 2005). The Nawanshahr Sugar
Mill had current ratio more than ideal standard (2.30) only in 2009 and 2011 (2.21). During
94
these years current assets increased due to increase in cash and account receivable which
indicated better liquidity position of the mill to meet its current liabilities (Appendix-II).
The lowest current assets were (1.58) in 2007 and 2010 indicate poor liquidity position of
the mill. This was mainly due to decrease in cash and account receivable leading to decline
in current assets. The Quick/Acid test ratio is more stringent test which focused on most
liquid assets of the mill as the test exclude inventory of the mill. The ideal Quick/Acid test
ratio is 1:1 but it was found that the mill had Acid ratio less than ideal ratio during the study
periods. It implies the mill did not have greater liquidity position to cover the short-term
liabilities. The estimation of cash ratio show weak maintaining of cash assets of the mill to
cover current liabilities. The cash ratio was highest (0.11) in 2010 and lowest (0.03) in
2008.
Morinda Cooperative Sugar Mill Limited, Morinda
The current ratio of the mill was found increasing from 2.96 to 8.52 and showing
fluctuating trend during the study period. But the ratio was found to be more than the standard
ratio of 1:1 in all the study period. It is clear from the Table 4.26 that the mill had better
liquidity position to meet the short-term debt obligation when they become due. Nevertheless,
the Quick/Acid test ratio was found less than norm ratio in all the periods. This revealed that
the mill has failed to equalize its liquid liabilities to liquid assets. It has decreased from 0.79
in 2010 to 0.16 in 2008. It implies that the current asset of the mill depend on its inventory.
The cash ratio was found varying over the period under study. It was highest at 0.47 in 2010
and lowest at 0.09 in 2008 which revealed poor cash assets position of the mill.
Therefore, the results of the liquidity ratios revealed that the cooperative sugar mills
have poor liquidity position to meet their short-term debt obligation when they become due.
Comparison of Financial Ratios between the Private and Cooperative Sugar Mills
The comparison between private and cooperative sectors was studied for financial
ratios and is discussed as under:
Profitability ratios
The comparative study was followed between the two sectors on profitability ratios to
determine efficient and financially sound sector in the operation of sugar mill. The perusal of
Table 4.27 exhibit that the two sectors have significant difference on account of gross,
operating, pre-tax and net profit margins. The non-significant difference between the two
sectors was observed for returns on assets, equity and capital employed. The average gross
profit margin for private and cooperative sectors was estimated at 19.19 and 1.37 per cent
respectively. This showed that the private sector has higher gross profit margin revealing
more efficient management in per unit production of sugar and in controlling production cost
than the cooperative sector. The operating profit margin of the private sector was found to be
higher (14.42 per cent) than that of the cooperative sector (-3.16 percent). This revealed that
95
the private sector have good control over the operating expenses indicating low-cost operation
of the mill. The private sector had higher (5.61 per cent) pre-tax profit margin than the
cooperative sector (-5.73 per cent) indicating efficiency of the private mills to keep low
operating cost. This further indicates that private sector was heading towards higher profit in
the process of conversion of sugarcane into sugar. The net profit margin is the profit left with
the shareholder after meeting all the expenses in the operation of the sugar mill. It was found
to be higher in private sector (3.65 per cent) than the cooperative sector (9.94 per cent). This
brings into light that private sector was more efficiently managed in terms of cost structure,
production and higher margin of safety. Nevertheless, the two sectors were not differing on
the rate of returns on investment. At the overall, the private sector was more efficient in the
utilization of their resources in generating profit.
Table 4.27: Comparison of profitability ratios of private and cooperative sector sugar
mills in Punjab
(Per cent)
Particulars
t-values P-values
Averages of
Averages of
private sugar mills
cooperative sugar
mills
Gross profit margin
19.19
(1.413)
1.37
(4.769)
3.583**
0.002
Operating profit
margin
14.42
(1.583)
-3.16
(4.732)
3.524**
0.002
Pretax profit margin
5.61
(1.527)
-5.73
(4.872)
2.222*
0.037
Net profit margin
3.65
(1.481)
-9.94
(5.264)
2.485*
0.021
Returns on assets
2.61
(1.016)
-0.36
(1.960)
1.346NS
0.192
Returns on equity
10.20
(3.971)
2.62
(11.781)
0.609NS
0.549
Returns on capital
employed
3.19
(1.281)
3.84
(6.837)
-0.093NS
0.926
Figures in the parentheses indicates standard-error
** and *significant at one and five percent level respectively
NS: Non-significant
Operating performance or efficiency ratios
The comparative analysis of operating performance of the sugar mill under private
and cooperative sectors is presented in Table 4.28. The results showed that the total assets
turnover ratio and inventory turnover ratio of the two sectors differ significantly. The total
assets turnover ratio was significantly higher in cooperative sector while inventory turnover
ratio was higher in private sector. The total assets turnover ratio of the private and cooperative
sectors was worked out to be 0.631 and 1.132 respectively. The sugar mills under cooperative
96
sector were managing their total assets efficiently and effectively in converting it into revenue
while the private sector was operating below their full capacity. The inventory turnover ratio
of private sector was estimated to be 1.853 which higher than that of cooperative sector
(1.234). It indicates greater efficiency of inventory management by the private sugar mills.
Table 4.28: Comparison of operating performance/efficiency ratios of private and
cooperative sector sugar mills in Punjab
Particulars
Averages of
private sugar mills
Averages of
cooperative sugar
mills
t-values
Pvalues
Fixed assets turnover
ratio
1.590
(0.202)
1.948
(0.213)
-1.221NS
0.235
Total assets turnover
ratio
0.631
(0.061)
1.132
(0.327)
-2.260*
0.034
Working capital
turnover ratio
1.961
(0.173)
1.861
(0.309)
0.282NS
0.781
Current asset turnover
ratio
1.189
(0.133)
1.044
(0.136)
0.763NS
0.454
Inventory turnover
ratio
1.853
(0.127)
1.234
(0.594)
2.904**
0.008
Debtor turnover ratio
1.187
(0.131)
2.368
(1.152)
-1.019NS
0.319
Figures in the parentheses indicates standard-error
** and *significant at one and five percent level respectively
NS: Non-significant
The low inventory turnover ratio in cooperative sector was mainly due to stringent
government intervention and restriction in the disposal of sugar. The sugar mills were not free
to sell the stock of finished goods according to their financial needs. This often makes the
sector to carry huge stock of finished goods continuously for a longer period and leads to poor
management of inventories. The other turnover ratios that signifies operating performance
was found to be indifference between the two sectors.
Solvency ratio of sugar mills in Punjab
The solvency ratio of private and cooperative sectors was compared and is presented
in Table 4.29. The result indicated that there was a significant difference in debt-equity ratio
between the two sectors. The ratio (2.505) in the private sector was found to be higher than
cooperative sector (1.686). The result revealed that the sugar mills in private sector have
greater claim of creditors than the owners indicating higher leverage for financing the mill’s
operation and facing less degree of protection against debt obligation. The lower debt-equity
ratio of cooperative sector indicated that the mills were largely dependent on internal sources
of finance more efficiently and effectively to maximize the profitability.
97
Table 4.29: Comparison of solvency ratios of private and cooperative sector sugar mills
in Punjab
Particulars
Debt-equity ratio
Standard Errors
Averages of private sugar mills
2.505
-0.183
Averages of cooperative sugar mills
1.686
-0.185
t-values
3.149**
P-values
0.005
** and *significant at one and five percent level respectively
NS: Non-significant
Liquidity ratios of sugar mills in Punjab
The perusal of Table 4.30 indicated comparative study of liquidity ratios for private
and cooperative sectors. The results showed significant difference in Acid/Quick test ratio
between the two sectors. The private sector had higher (0.928) Acid test ratio than cooperative
sector (0.406). It shows that the sugar mills under private sector have better liquidity position
to meet short-term current liabilities than the sugar mills under cooperative sector. This was
due to dumping of inventories for longer period of time in cooperative sector. The current and
cash ratio were not showing significant differences between the two sectors.
Table 4.30: Comparison of liquidity ratios of private and cooperative sector sugar mills
in Punjab
Particulars
Averages of
private sugar
mills
Averages of
cooperative sugar
mills
t-values
P-values
Current ratio
2.768
(0.319)
3.523
(0.719)
-0.961NS
.347
0.928
0.406
4.936**
.000
(0.092)
(0.525)
0.250
0.165
0.227NS
0.227
(0.052)
(0.044)
Acid / Quick test ratio
Cash ratio
Figures in the parentheses indicates standard-error
** and *significant at one and five percent level respectively
NS: Non-significant
Therefore, it can be concluded from the results that financial performance of the sugar
mills under private and cooperative sectors was not sound. The financial position of the sugar
mills had been deteriorating over time which was more pronounced in cooperative sector.
Hence, proper and efficient management of assets and liabilities is needed to check further
deterioration of financial position of the sugar mills.
98
Constraints Perceived by the Cane Growers and the Sugar industry
The various constraints faced by the cane growers were studied for the selected
respondents of the study area in Punjab. In order to have indebt knowledge about the
problems in sugarcane cultivation, information about the cane growers needs to be
studied.
Socio-economic aspects of the respondents
The socio-economic aspects of the respondents determine the type and nature of their
livelihood as well as their social life. It helps in making sure that both women and
men of every socio-economic group in a community or a particular location have the
opportunity to participate in a decision making process. The socio-economic analysis and
focus group helps in separating groups of people from different socio-economic categories by
wealth, occupation, farming experience, age, ethnicity, education, marital status. Socioeconomic studies by Wegener (1997) revealed that it was often necessary to ascertain,
information about the respondent and their associated families. This was because the
information will provide good understanding of the characteristic of the sugarcane farmers.
The socio-economic characteristic of the cane growers was studied with respect to their age,
educational background, and occupation, farming experience, family size, source of income
and farm size.
Age of the respondent
The results presented in Table 4.31 showed distribution of the respondents according
to their age. The majority of the respondents (57.33 per cent) who were engaged in the
sugarcane cultivation fall into the age group of 43 to 57 years.
Table 4.31: Distribution of the respondents according to age in Punjab
(Number)
Category (Years)
Frequency
Percent respondent
< 43
20
26.67
43- 57
43
57.33
 57
12
16.00
Total
75
100
This could be considered as productive age group. This is followed by those in the
age group of less than 43 years which constituted 26.67 per cent of the total respondents,
while the remaining 16 percent of the respondents fall into the age group of greater than and
equal to 57 years. Haruna and Kushwaha (2003) in their study opined that age group ranging
from 30-50 years is the active and productive age group which is important for the processors
to optimally utilize their labour for maximum productivity.
99
The analysis further revealed that the minimum group of the respondents was 30
years while the maximum was 70 years. Therefore, the sample famers in the study area were
mostly medium age group and hence in productive age. This age group of farmers was more
innovative and active in the adoption of new production techniques and mechanization in
sugarcane cultivation. Girei and Giroh (2012) reported that this age group of the sugarcane
farmers may have much energy to work for a longer period of time. The younger and middle
age farmers were more active in the adoption of new farming techniques and always willing
to change for better than the older ones who are somehow conservative, adamant to change
and vulnerable to change involving the adoption and application of modern farming
implements and other technologies.
Educational level
The educational level of the farmers has direct impact on the perception and
understanding of the activity in the adoption of new techniques and any changes in the
existing farming system. The present study analyzed the educational status of the sample
cane growers and the results are presented in Table 4.32.
Table 4.32: Distribution of the respondents according to educational level in Punjab
(Number)
Category
Frequency
Percent respondent
Illiterate
1
1.33
Primary (1-5 class)
10
13.33
Middle (5-8 class)
9
12.00
High school
35
46.67
Higher secondary
8
10.67
Graduate
10
13.33
Post-graduate
2
2.67
Total
75
100
It was found that all the sample farmers were literate and majority of them (51.66 per
cent) had an education up to high school level. The results also show that 16.67 and 15 per
cent of the respondent were educated up to graduation and primary level. While 8.33, 6.67
and only 1.67 per cent of the total respondents have higher secondary, middle and post
graduation education respectively. The study revealed that all the farmers in the study area
were literate and in addition majority of the respondents was high school educated and
graduated respectively. Hence, mobilization and sensitization of the sugarcane farming in the
study area could be easy because flexibility in their perception and ability to decide with
minimum guidance will impact positively in their livelihood.
100
Occupation
The occupation of the respondents in the study area was studied and the results are
presented in Table 4.33. It was found that 93.33 per cent of the respondents were absorbed in
agricultural and allied activities while 6.67 per cent of the respondents in non-agriculture. It
can deduced from the results that majority of the farmers devote their time in crop cultivation
and animal rearing.
Table 4.33: Distribution of the respondents according to occupation in Punjab
(Number)
Occupation
Frequency
Percent respondent
Agriculture and allied activities
70
93.33
Non-agriculture
5
6.67
Total
75
100
Income level
The income of the farmers enhances a farmer’s ability to farm. High income of the
farmers has a higher probability to adopt improved sugarcane varieties and go for
mechanization as the problem of labour scarcity prevails in the state. The distribution of
the respondents based on income level is presented in Table 4.34.
Table 4.34: Distribution of the respondents based on income level in Punjab
(Number)
Frequency
Percent respondent
< 6.33
60
80.00
6.33 to 12.67
11
14.67
 12.67
4
5.33
Total
75
100
Income level (`lakh)
The results show that majority of the farmers (83.33 per cent) in the study area have
annual income less than `6.33 lakh. This was followed by seven and three per cent of the
farmers having annual income of `6.33 to `12.67 lakh and more than `12.67 lakh
respectively. Therefore, the analysis of the results revealed that most of the famers were
having less annual family income. This brings hindrance in mechanization of the
sugarcane farming and could not able to adopt new techniques to improve the production
101
of crop. On other hand, low family income of the farmers indicates low standard of living
and less credit worthiness of the farmers.
Family size
The distribution the respondents based on family size is presented in Table 4.35. The
results show that majority of the respondents (55 per cent) has a family size between three to
five persons, followed by those with the family size greater than five persons constituting
43.33 per cent.
Table 4.35: Distribution of the respondents according to family size in Punjab
(Number)
Size
Frequency
Percent respondent
<3
1
1.33
3 to 5
41
54.67
5
33
44.00
Total
75
100
Similarly respondents with family size less than three persons constituted only 1.67
per cent of the total respondents. Family size in traditional agriculture determines the
availability of labour depending on the type of activity to be performed. Therefore, the
analysis of the results revealed that some of the respondents use family labour. Hence most of
the respondents have labour problem as much it could not be supplied within the family.
Welsh (1991) in his study stressed that a farmer incurs less production cost if family labour is
being fully utilized for farm production.
Operational holding
The distribution of respondents based on operational holding is exhibited in Table
4.36. The results show that majority of the farmers in the study area were operating on 2.0-4.0
hectares of land that come under the medium famers (49.33 per cent).
Table 4.36: Distribution of the respondents according to operational holding in Punjab
(Number)
Operational holding
Frequency
Percent respondent
(hectares)
Marginal
1
1.33
Small
2
2.67
Semi-medium
17
22.67
Medium
37
49.33
Large
18
24.00
Total
75
100
102
This was followed by large farmers constituting 24.00 per cent for owned land and
semi-medium farmers (22.67 per cent). There were meager 2.67 and 1.33 per cent of
respondents under small and marginal farmers.
Experience in sugarcane production
The person who could gain experience in sugarcane production and cultivation
pattern enhances in specialization in cane production and by implication will help to reduce
unemployment and poverty among the respondents. The perusal of Table 4.37 shows the
distribution of the respondents based on an experience in sugarcane production. It was found
that 38.33 per cent of the respondents gained an experience of between 15-22.5 years in
sugarcane production followed by those with experience greater than 22.5 years, constituting
31.67 per cent. Also, 23.33 and 6.67 per cent of the respondents had experience in sugarcane
production of between 7.5-15 and less than 7.5 years respectively. The results revealed that
farmers Therefore, it can be deduced from the analysis that the respondents have keen interest
and was gradually increase in sugarcane production as shown by the level of experience
recorded in Table 4.37.
Table 4.37: Distribution of the respondents based on experience in sugarcane production
Category (years)
Frequency
(Number)
Percentage
< 7.5
7
9.33
7.5-15
20
26.67
15-22.5
26
34.67
 22.5
23
30.67
Total
75
100
Contact with cane experts
The distribution of the respondents based on the contact with cane experts is
presented in Table 4.38. The results show that majority of the farmers (80.00 per cent) have
regular contact with the cane experts of nearby mills and experts of Punjab Agricultural
University (PAU), Ludhiana.
Table 4.38: Distribution of the respondents based on contact with cane experts
(Number)
Category (Years)
Frequency
Percentage
Yes
60
80.00
No
15
20.00
Total
75
100
103
The percentage of the respondents that were not having contact with the can experts
was found to be 20.00 per cent. Therefore, the analysis of the results revealed that majority of
the farmers was aware about package and practices of cane production adopted in research
station and recommendations of PAU in the cultivation of sugarcane.
Constraints Perceived by the Respondents in Sugarcane Cultivation
Sugarcane is an annual crop which remains in the field for almost a year before
harvesting. The crop does not yield any returns during this period. But most of the sugarcane
growers were in immediate need of money. The farmers faced various kind of constraints
right from the time of sowing till the marketing of the crop. No doubt, the farmers are wellexperienced in the cultivation of sugarcane. Nevertheless, either due to lack of scientific
knowledge or ignorance of the ongoing information about the crop, the state witnessed a
decline in production of sugarcane in recent period. As such some of the cooperative sugar
mills have closed down, due to inadequate sugarcane supply to the mill. Moreover, the area
under sugarcane has been squeezed over years and most of the farmers have allocated their
area to wheat and paddy cultivation. Sugarcane is only crop which is under the control of
government for processing, pricing and its disposal. Any change in the government policy
affects the operation of the sugar mills as well as supply of cane to the mills to a large extent.
Therefore, the sugarcane growers who supply their produce to the sugar mills were
interviewed to ascertain the problems faced by them in cultivation of sugarcane. Their points
of view regarding different constraints were analyzed and discussed as under.
Technological constraints
The constraints perceived by the sugarcane growers regarding the technology of
sugarcane production are depicted in Table 4.39 and discussed under the following sub-heads.
Seed and seed treatment
At the overall, 48 per cent of the sugarcane growers were using the recommended rate
of seed and spacing. It was estimated that 26.67 per cent of the farmers in cooperative sugar
mill were following the recommended rate of seed and spacing while the figure for private
sugar mill was estimated to be 70 per cent. As per recommendation the seed should be treated
before sowing. The results presented in Table 4.39 revealed that 51.67 per cent of the farmers
treated seeds before sowing. It was found that 26.67 per cent farmers in cooperative sugar
mill treated seeds. The figure for private sugar mill was estimated to be 76.67 per cent. It was
noticed that the reasons for not treating the seeds were ignorance about treating the cane sets
and high cost of chemicals that were used in treatment.
Seed sowing time
Most of the farmers in the study area were not sowing sugarcane in the recommended
time. The late sowing of sugarcane reduces sucrose content of the cane which lower the
104
recovery per cent of the crop. The perusal of Table 4.39 depicts that 50 per cent of the farmers
have not sown sugarcane in time. The segregation of the results revealed that 60 and 40 per
cent of the farmers of private and cooperative sugar mill respectively have not sown the seeds
in time. The important reason for not sowing sugarcane in the recommended time as reported
by 26.67 per cent of the farmers was unavailability of land as the same land was used to grow
other crops such as wheat, paddy, maize, etc. during that time. The figures for cooperative and
private sugar mill were estimated to be 16.67 and 36.67 per cent respectively. The other
important reasons which have been reported by the farmers were lack of assured irrigation,
insufficient moisture in the soil and scarcity of labour. The lack of assured irrigation and
scarcity of labour was reported by 15 and 11.67 per cent of the farmers which caused delayed
in sowing of the crop.
Use of old variety of sugarcane
The sugarcane growers were interviewed to ascertain the reasons for using the old
variety of sugarcane. At the overall level, 58.33 per cent of them used old variety seeds such as
CoJ 64, CoJ 767, CoJ 1181, and Co 1148. The use of old variety of cane seeds was reported by
86.67 and 30 per cent farmers from the cooperative and private sugar mill respectively. On
interviewing the farmers, it was noticed that low income of the cane growers, ignorance about
the release of new variety and no released of new variety of sugarcane were the main reasons
for using old variety of sugarcane. It was reported by 26.67 per cent of the total respondents and
53.33 per cent of the farmers from the private sugar mill that no release of new variety of cane
having high sugar content and give higher yield was also other an important reason for that
compelled them to used the old variety of sugarcane. Further, 30 per cent cooperative sugar mill
farmers believed that low income was a reason for using an old variety of sugarcane seed. It can
be noted that usage of old variety of sugarcane hinder sugarcane production leads to degradation
of sugar content and decreases the recovery per cent.
Fertilizers
The results of the study indicate that only 51.67 per cent of the farmers applied
recommended doses of fertilizer. The recommended doses of nitrogen by the PAU are 60 kg
per acre (130 kg per acre of urea) for a new crop and 90 kg per acre (195 kg per acre of urea)
for ratoon crop. The application of phosphorus recommended as per the soil fertility status
(Anonymous, 2009). While 48.33 per cent of the farmers used lower than the recommended
dose of fertilizer. The figures estimated for cooperative and private sugar mill that used
recommended dose of fertilizer were 63.33 and 40 per cent respectively. The reasons for not
following the recommendations were high price of fertilizers, its unavailability and lack of
credit. An increased in price of fertilizer leads to raise the cost of cultivation of sugarcane.
And the other important reasons were found to be ignorance about the recommended dose and
unsuitability of recommended dose of fertilizers. The importance of fertilizers was identified
105
by Chidoko et al, (2011) as an input in sugar cane farming but farmers do not always get it
when they need it. Sometimes they apply the fertilizers long after it was due or in short
quantities because of its unavailability or its high price. Without adequate fertilization and
timely applications at cutting at four weeks and at eight weeks productivity cannot be
improved.
Irrigation
Irrigation was one of the important inputs which enhance the productivity of
sugarcane. It was found that 51.67 per cent of the farmers have not been confined to
recommended number of irrigation, of which 63.33 and 40 per cent of the farmers of private
and cooperative sugar mills respectively. It was mentioned in the report of PAU for the year
2009-10 that the efficient number of the irrigation to be followed was 15-18 times. It was
recommended that the crop should be irrigated at 7 to 12 days interval during April into June
and a month interval during November to January (Anonymous, 2009). The reasons for not
applying recommended number of irrigations were mainly due to non-availability of irrigation
water in time as reported by 38.33 per cent and high charges of electricity by 8 per cent of the
farmers. Girei and Giroh (2012) reported that inadequate water supply was most important
factor which militates against the high yield. Since, the sugarcane cultivation highly
dependent on water availability especially during growing period, if these constraints are not
addressed, definitely the farmers output could not give the desired output and hence will
result in low yield and eventually may occur losses in the long run. The water supply should
not only be readily available and timely but should be subsidized the fuel rate by the
component so as to sensitize the farmers to participate more actively and effectively. In
addition, the duration of electricity supply per day need to be lengthen.
Interculture operation
Intercultural operation in sugarcane cultivation increases the productivity and
production of the cane. The results revealed that intercultural operation in sugarcane
cultivation was not followed in the study area indicated by the response of 63.33 per cent of
the farmers. The analysis farm per hectare indicated that 83.33 and 43.33 per cent of the
farmers of private and cooperative sugar mill respectively were not following the intercultural
operation. However, high cost of labour was perceived by 58.33 per cent of the farmers as the
main reason for not indulging in intercultural operation. The other reasons such as low
income of the cane growers and non-availability of labour were also reported as constraints by
the farmers. The high price of labour and its unavailability made the intercultural operation
expensive and thus, perceived as unprofitable by the farmers.
Plant protection measures
The proper plant protection measures such as application of herbicides, weedicides,
insecticides, pesticides, etc. in time with accurate dose enhance the growth and productivity of
106
sugarcane. It was found that 53 per cent of the farmers did not adopt the proper plant protection
measures. The important reasons were found to be paucity of labour, high cost of chemicals and
its non-availability, lack of knowledge about the measures and lack of timely identification of
diseases or pests. However, paucity of labour and high cost of chemicals were the main reasons
for improper plant protection as it was constituted by 25 and 23.33 per cent farmers respectively.
Table 4.39: Technological constraints faced by the respondents of the sugar industry in
Punjab
(Per cent)
Particulars
Do you use the recommended rate of seed and spacing?
Do you treat the seed before sowing? If No, what are the
important reasons?
Ignorance/do not know
High cost of inputs
Reasons for late sowing
Land not free on time
Lack of assured irrigation
Insufficient moisture in soil
Labour scarcity
Reasons for using old variety
Low income
Unaware of new variety released
No new variety released
Reasons for not applying recommended doses of fertilizerNot known
Recommendation not suitable
Costly fertilizer
Unavailability of fertilizer
Lack of money
Reasons for not applying recommended number of
irrigation
Sources not available on time
High charges
Not sufficient electricity
Reasons for not doing inter-cultural operations
Costly labour
Low income
Labour not available
Reasons for not adopting proper plant protection method
Lack of knowledge
Lack of timely identification of diseases/pests
Non-availability of chemicals
High cost
Paucity of labour
Reasons for improper harvesting of cane
High cost of labour
Non-availability of labour
Unskilled labour to undertake the job
Reasons for poor management of ratoon crop
Non-availability of labour for operation
Time taking in filling the gappy area
Large number of labour required for trash mulching
Plants are more prone to disease
107
Cooperative
sectors
(n1=30)
26.67
26.67
Private
sectors
(n2=30)
70.00
76.67
Overall
(n=60)
16.67
16.67
40.00
16.67
30.00
6.67
3.33
86.67
30.00
63.33
10.00
20.00
23.33
26.67
40.00
-
8.33
8.33
50.00
26.67
15.00
3.33
11.67
58.33
16.67
18.33
26.67
51.67
5.00
5.00
31.67
18.33
13.33
51.67
33.33
10.00
6.67
43.33
40.00
26.67
3.33
40.00
13.33
6.67
6.67
20.00
23.33
63.33
33.33
43.33
6.67
83.33
70.00
6.67
3.33
60.00
36.67
20.00
30.00
3.33
36.67
53.33
40.00
10.00
43.33
13.33
63.33
43.33
6.67
83.33
76.67
20.00
66.67
3.33
16.67
26.67
26.67
83.33
23.33
40.00
43.33
86.67
63.33
63.33
46.67
33.33
48.33
51.67
38.33
8.33
3.33
63.33
58.33
13.33
11.67
53.00
8.33
3.33
11.67
23.33
25.00
73.33
28.33
41.67
25.00
85.00
66.67
31.67
26.67
18.33
Not profitable
Reasons low productivity of sugarcane
Inability of to apply the necessary farm inputs
Solely dependent from rain water for irrigation
High cost starting capital and production inputs
Lack of technology/knowledge and facilities on proper land
preparation technique and methods
Labour not available
10.00
46.67
10.00
16.67
20.00
3.33
63.33
6.67
46.67
13.33
6.67
55.00
3.33
5.00
31.67
16.67
-
6.67
3.33
Improper harvesting of cane
It was observed that mechanization in sugarcane cultivation particularly harvesting
was far behind. In the study area sugarcane was harvested manually. The farmers experienced
that improper harvesting of cane gave rise to lower production which made them to attain low
returns.
The results presented in Table 4.39 highlighted that the reasons for improper
harvesting were high cost of labour, not easily availability of labour when needed and if
available the labour were unskilled to undertake the job. All the reasons were equally
important but non-availability of labour was found to be the main reason as it was perceived
by 41.67 per cent of the farmers. The same finding was reported by Murali and Balakrishina
(2012) and Kaur and Saran (2011). The figures estimated for both cooperative and private
sugar mills were 43.33 and 40 per cent respectively.
Poor management of ratoon crop
The cultivation of ratoon incurred lower cost; therefore, proper management of ratoon
ensured higher returns to the farmers than the planted crop. The results presented in Table
4.39 revealed that the ratoon has been poorly managed which was perceived by 85 per cent of
the farmers. It was estimated that 83.33 and 86.67 per cent farmers from cooperative and
private sugar mills respectively reported poor management of the ratoon crop. The main
reason was found to be non-availability of labour in time for its operation as it was reported
by 66.67 per cent of the farmers. The other important reasons were taking a longer time
period in filling gappy area (31.67 per cent of the farmers) and requirement of large number
of labour for trash mulching (26.67 per cent of the farmers).
Low productivity of sugarcane
The low productivity of sugarcane in the study area was also an important problem
face by 55 per cent of the farmers and, 46.67 and 63.33 per cent farmers from cooperative and
private sugar mill respectively. The various reasons were realized by the farmers; however,
high cost incurred in the starting of capital and production inputs (31.67 per cent of the
respondents) was the main important reason. Arulraj (1998) reported in his study that the
constraint affecting sugarcane planting productivity was high fertilizer cost. The other
important reasons were lack of technology or knowledge and facilities on proper land
preparation technique and methods. Abdel-Maksoud and El-Sharabassy (2007) observed that
108
sugarcane production problems perceived by the farmers and extension personnel were spread
of different kinds of weeds and insects, weak role of agricultural extension, shortage and high
costs of fertilizers and labor, high costs of production, insecticides and irrigation.
The different constraints faced by the farmers were studied and the important reasons
were analyzed. It was found that scarcity of labour and its high wage rate has been the
important reasons for the constraints. The same finding was reported by Rao (2012), who
stated that the labour shortage was the most important constraint in sugarcane cultivation
during crucial operation.
Socio-economic constraints
The socio-economic constraints perceived by the respondents are exhibited in Table
4.40. The results revealed that scarcity of labour and non-availability of labour when needed
was the most important socio-economic constraints which were reported by 83.33 per cent of
the cane growers. The high cost of inputs incurred in sugarcane production was another
important constraint perceived by 71.67 per cent of the respondents. The said constraint was
reported by 56.67 and 86.67 per cent farmers of cooperative and private sugar mills
respectively. On an average, 45 per cent of the farmers were not getting payment in time. It
was found that 90 per cent farmers of cooperative sugar mill were not getting payment timely.
But, cent per cent farmers of private sugar mill reported that they received payment in time.
Ramaiah (2011) also reported that the farmers after supplying the cane to the factory have to
wait for 15 days or more to receive the payment that leads the farmers to heavy financial
hardship. Some farmers under cooperative, who were in dire need of finances seek to divert
their cane to other mills or organization like gur and khandsari.
The results presented in Table 4.40 further indicated that 61.67 per cent farmers
revealed sugarcane production to be a profitable enterprise. Similarly, 56.67 and 66.67 per
cent farmers of cooperative and private sugar mill respectively were of the opinion that
sugarcane production is profitable. It was reported that 43.33 per cent of the respondents
revealed that the price of sugarcane fixed by the state government was not remunerative. The
farmers want the price of the sugarcane to be increased with respect to the competing crops
(rice and wheat). Wawire (2005) identified the complaints of the cane farmers as low price of
sugarcane. The low cane price translates to reduced profit margins for the farmers. Farmers
demanded that as price of sugar and farm inputs rise there should be an equal adjustment in
cane prices. In addition, the cultivation of sugarcane was not fetching enough margins to the
cane growers. This was evident from the result in Table 4.4.10 that only 16.67 per cent of the
total respondents were getting enough margins from the sugarcane cultivation. Similarly, the
figures estimated for cooperative and private sugar mill were 20 and 13.33 per cent farmers
109
respectively. Besides, poor linkage with extension agencies (perceived by 20 per cent) and
lifting the sugarcane by the mills not in time (perceived by 13.33 per cent) were the other
constraints faced by the farmers.
110
Table 4.40: Socio economic constraints perceived by the respondents of the sugar
industry in Punjab
(Per cent)
Cooperative
sectors
(n1=30)
Particulars
Private
sectors
(n2=30)
Overall
(n=60)
Is sugarcane production a profitable enterprise?
56.67
66.67
61.67
Do you think that price of sugarcane is not
remunerative?
36.67
50.00
43.33
Are you getting enough margin of profit for
continuing sugarcane cultivation?
20.00
13.33
16.67
Labours are not readily available when required
73.33
93.33
83.33
The mill lift the sugarcane in time
80.00
93.33
86.67
Mill pay dues in time
10.00
100.00
55.00
Inability of sugar factories to procure the produce
36.67
63.33
50.00
High cost of inputs for sugarcane production.
56.67
86.67
71.67
Poor linkage with extension agencies.
13.33
26.67
20.00
Poor linkages with field/extension staff of mills
23.33
-
11.67
Infrastructural constraints
The infrastructural constraints faced by the respondents are presented in Table 4.41.
Most of the roads in the villages were connected with metallic road so there was smooth
transportation of sugarcane to the mills. The study brings out complaints made by 40 per
cent of the farmers that they were not getting inputs such as high yielding variety varieties,
fertilizers, plant protection chemicals, etc. for sugarcane production in time and at local
level. The high transportation cost impedes the regular and timely supply of sugarcane to
the mills. Transportation has become a significant factor affecting the production costs of
the commodities. The cost of transporting sugar cane from the farm gate to the mills was
quite high, owing to the multiple transport facilities and time-consuming activities involved
in the delivery process (Chetthamrongchai et al, 2001). This was mainly attributed to the
prevailing mode of transportation which incurred higher cost. It was found that almost all
the farmers (88.33 per cent) transported their products only by tractor. There was no other
means of transportation through which it could reduce the transportation charges. It was
reported, that the transportation charges were high which absorbed larger share of their
income, by 61.67 per cent of the respondents. The other important infrastructural
constraints were insufficient and untimely availability of electricity. Insufficient availability
of electricity caused inconvenience which 58.33 per cent of the farmers were facing in the
111
sugarcane cultivation while the figures estimated for cooperative and private sugar mills
respectively were 80 and 36.67 per cent farmers. The untimely availability of electricity
hindered the cane production, as the cane crop is water loving crop, and requires timely
irrigation. This hindrance was faced by 41.67 per cent of the cane growers in the study area.
Moreover, the available source of irrigation was reported unsatisfactory by 65 per cent of
the cane growers and they wanted the source to improve and expected there should be
regular supply of electricity.
Table 4.41: Infrastructural constraints faced by the respondents of the sugar industry in
Punjab
(Per cent)
Cooperative
sectors
(n1=30)
Particulars
Private
sectors
(n2=30)
Overall
(n=60)
Village connected with
i.
Metallic/Pucca road
33.33
93.33
63.33
ii. Kacha road
40.00
6.67
23.33
Are the inputs available locally in appropriate
time?
66.67
53.33
60.00
Tractor is the only means of transportation of
sugarcane to the mill
76.67
100.00
88.33
High
43.33
80.00
61.67
ii. Low
43.33
16.67
30.00
10.00
5.00
Do you think transportation charges are
i.
Electricity availability is
i. Sufficient
ii. Insufficient
36.67
80.00
58.33
iii. Timely
6.67
10.00
8.33
iv. Untimely
46.67
36.67
41.67
Unsatisfied source of irrigation
66.67
63.33
65.00
If no, regular supply of electricity is expected
26.67
70.00
48.33
Is there any provision for extension programmes
like information support, TV, computer, SMS,
Training, etc.?
83.33
10.00
46.67
Harvesting of cane not done by mill
80.00
83.33
81.67
112
The provision of extension programmes such as information support, television,
computer, SMS, trainings, etc. were received by 46.67 per cent of the farmers. The cane
growers should have a regular contact with the extension personnel for the update of the
knowledge. The extension contact of sugarcane grower had a significant contribution with the
variation of technologic gap in adoption of sustainable cultivation of sugarcane. Frequent
contact with extension experts of sugarcane factory was attributed to the fact that these were
the main liaison persons between farmers and the sugar factories. They are the main source of
information regarding availability of inputs like planting material, fertilizers, harvesting time,
etc. (Maraddi, 2006). Lastly, 81.67 per cent of the farmers viewed that the harvesting of cane
should be done by the sugar mill so that losses accrued during harvesting could be minimized
through mechanic harvesting. The same finding was reported by Marathe (2009).
Financial constraints
The financial constraints faced by the respondents of the sugar industry in Punjab are
exhibited in Table 4.42. The results depict that the credit facilities provided by the sugar mills
were enjoyed by 78.33 per cent of the sample cane growers. The proportion of farmers who
were getting such facilities has been 100 per cent in private sugar mill and 56.67 per cent in
cooperative sugar mill. The major sources of credit were cooperative societies and commercial
banks which have been reported by 38.33 and 21.67 per cent respectively. It was also found
that 50 and 26.67 per cent farmers from cooperative and private sugar mill depend on
cooperative societies for their credits requirement. While 16.67 and 33.3 per cent of the farmers
for cooperative and private sugar mills finds that the availability of credit was adequate .it was
found that 15 per cent of the farmers reported timely availability of credit. The figures for
cooperative and private sugar mills were found to 6.67 and 23.33 per cent. The 40 per cent of
the farmers revealed that rate of interest was very high which make them to snag in proceeding
for credit to the banks.
Further, the results presented in Table 4.42 indicate that 63.33 per cent of the farmers
know about Kisan Credit Card and 43.33 per cent of the farmers possess them. But 3 per cent
of the total respondents and 26.67 per cent of the farmers from cooperative sugar mill were
taking loan through this card. While none of the famers of private sugar mills availed the
advantage of Kisan Credit Card. The reason cited for not availing the facility of Kisan Credit
Card was the lengthy procedure in getting loan. However, 10 per cent of the farmers feel that
they do not require credit through the Kisan Credit Card. Besides, the farmers revealed that
they do not have much knowledge about the Kisan Credit Card facility and its importance and
were reluctant to take any loan through this card.
The interview of the farmers revealed that the financial problems either for
subsistence or for the farm operations was compounded by delayed payment of cane by the
mills. The same finding was reported by Wawire (2005).
113
Table 4.42: Financial constraints faced by the respondents of the sugar industry in
Punjab
(Per cent)
Cooperative
sectors
Private
sectors
Overall
Particulars
(n1=30)
(n2=30)
(n=60)
56.67
100.00
78.33
i. Co-operatives
50.00
26.67
38.33
ii. Commercial Bank
40.00
3.33
21.67
16.67
33.33
25.00
ii. Timely
6.67
23.33
15.00
Rate of interest is high
53.33
26.67
40.00
Know about Kisan Credit Card
66.67
60.00
63.33
Possess Kisan Credit Card
50.00
36.67
43.33
Loan taken from Kisan Credit Card
26.67
-
13.33
Lengthy procedure
6.67
3.33
5.00
ii. Credit not required
6.67
13.33
10.00
Credit facilities given by sugar mill
If no, what is your major source of credit?
Do you think credit is available
i.
Adequately
If no, what is the reason?
i.
Marketing constraints
During the disposal of sugarcane farmers faced various problems. The marketing
constraints faced by the respondents of the sugar industry are presented in Table 4.43. The
cane growers supplied their products to the mills. Though no middlemen were involved in the
marketing of sugarcane, yet the farmers (63.33 per cent) were not satisfied with the prevailing
marketing system. They have to wait for longer period for their turn with loads of sugarcane
at the mill’s gate. Sometimes, they have to stay overnight to unload their produce. Moreover,
there were no regulated markets for sugarcane similar to that of wheat and rice. However,
only 11.67 per cent of the farmers revealed that there should be regulated market for
sugarcane in Punjab.
The sorting of crop based on their shape and size before sale has enables the farmers
to get higher price for their produce. Only 33.33 per cent of the farmers sorted the cane before
selling. The reason for not sorting the cane was indifference in the price of sorted and
unsorted sugarcane as reported by 26.67 per cent of the respondents. The figures estimated for
cooperative and private sectors sugar mill were 50 and 3.33 per cent respectively. Nonavailability of labour for sorting was another reason which was reported by 15 per cent of the
farmers. The other important reasons for not grading cane were purchase of cane by the mills
114
based on maturing stage and no grading of sugarcane was operated in Punjab which was
reported by five per cent.
Table 4.43: Marketing constraints faced by the respondents of the sugar industry in
Punjab
(Per cent)
Cooperative
Private
Overall
Particulars
sectors
(n1=30)
sectors
(n2=30)
(n=60)
Satisfied with marketing facilities
56.67
70.00
63.33
If no, regulated market is expected
6.67
16.67
11.67
Sort the produce before selling
6.67
60.00
33.33
Price difference not much
50.00
3.33
26.67
Labour not available
26.67
3.33
15.00
Mill purchase sugarcane based on maturing
stage
3.33
6.67
5.00
-
10.00
5.00
10.00
90.00
50.00
10.00
5.00
If no, why?
No sorting of sugarcane in Punjab
No availability of storage facility (cane and
jaggery)
Selling during lean season
Unloading of sugarcane in the mill took longer
time period
23.33
-
11.67
Discourteous behavior of mill workers.
3.33
6.67
5.00
Delay in Purchase of crops by mills
20.00
3.33
11.67
Availability of large quantity of non-mill able
cane
20.00
13.33
16.67
The results revealed that 11.67 per cent of farmers reported that mills take longer period of
time for unloading the cane. Discourteous behaviour of the mill workers, gate keepers and
other administrative staffs of the mills were reported as one of the constraint faced by the
farmers during unloading of sugarcane. It was found that five per cent of the farmers reported
that the workers of the mill do not behave properly with them. The study was in line with the
findings of Kaur and Saran (2011). The farmers claimed that the large quantity of sugarcane
supply to the mills was unfit for processing due to immature cane reported by 16.67 per cent
and 11.67 per cent of the farmers informed that the sugar mill delayed the purchase of
sugarcane as disburse of quota slip to the farmers was late.
115
Constraints Faced in the Operation of Sugar Industry in Punjab
The sugar industry in India is totally under the controlled of Central and State
Government. Moreover, sugar is the only commodity where burden for purchase of cane and
processing of sugar was borne by the producing industry and not by the government (Saraogi,
2010). The various constraints were discussed briefly under the following heads:
Low sugar recovery
The per cent recovery of the sugarcane determines the amount of sugar to be
produced by the sugar mills. The study found that the per cent recovery of the sample sugar
mills was lower as compared to the state average. It was estimated to be 8.76 and 9.69 per
cent for cooperative and private sugar mill respectively. Upon analysis of the reasons for low
recovery, it was found that poor quality of sugarcane which was used by the mills for
processing leads to low recovery. The use of obsolete machines for processing and underutilization of machines was important reasons. In addition, climatic constraints such as chill
temperature during harvesting and transportation of cane to the sugar mills results in low
recovery of sugarcane. The Government fixed zonal prices on weighted average sugar
recovery and simple average duration of the season (Somaiya, 1971). As such, the price of the
cane will lower which in turns affect the acreage under sugarcane.
Shortage of sugarcane supply
Sugarcane was the only raw material used for sugar production in the country unlike
other countries which uses sugar beet in the sugar industry. Irregular or decline in supply of
sugarcane adversely affect not only sugar production but also cost of production. The mills
official revealed that lower availability of cane has led to steep decline in the capacity
utilization of the mills. This problem was localized to individual mill and industry as a whole.
The declined in area under sugarcane leads to lower production of sugarcane which in turn
brings shortage in supply of cane to the sugar mills. The cane growers in the study area have
incurred a high cost in sugarcane production and at the same time margins were not realized
by the farmers. The incentive to grow sugarcane is affected in the next season and hence, the
farmers shift their area to paddy and wheat cultivation. Moreover, gap in communication of
the cane growers with the sugar mill often leads to shortage of cane to the mills. Since,
harvesting of cane by the farmers depends on the quota slip issued by the mills.
Inability to pay arrears to the cane growers
This was problem where shareholders, farmers of the mills and government policy
makers were concerning about. The millers were not able to pay in time to the farmers for their
cane. As such the farmers squeezed the area under sugarcane and shifted to paddy and wheat
cultivation for which the price was assured and received in time. On the other side, the millers
claimed that the price fixed by the state government was high and no parity is maintained
116
between the prices of the sugar and sugarcane. The SAP for sugarcane in Punjab was `230 per
quintal and price for levy sugar was `1795 per quintal. However, the price for free sugar was
`3500 per quintal which depends on the market force for demand and supply. In cooperative
sugar mills, the cost of sugarcane incurred for the production of one quintal sugar was estimated
to be `2625.57 (per cent recovery of 8.76). While in private sugar mill, the figure was work out
to be `2373.58 (per cent recovery of 9.69). The reduction in sugar production also incorporated
to the problems of mill’s inability to pay. Moreover, the excise duty imposed on the sugar mills
was `97.85 per quintal for both levy and free sugar, which was reported to be high by the
respective mills. Therefore, imposition of high tax on sugar makes the sugar mills unable to pay
in time. In addition, irregular and slow inflow of funds to the sugar mills was another reason for
untimely payment to the farmers for their products. Nevertheless, Nawanshahr Cooperative
Sugar Mill was the only mill that paid the sale proceeds to the farmers in time who supply
sugarcane.
Low sugar production
The sugar mills experienced the low sugar production in the period under study. It
was estimated to be 2.63 lakh quintals in 2006 and declined to 2.05 lakh quintals in 2011 in
case of the selected cooperative sugar mills. The figures estimated for private sugar mills for
the above paid years were 4.22 lakh quintals and 5.63 lakh quintals respectively. The reasons
for low sugar production were found to be the lack of supply of sugarcane and lower recovery
of sugar. Further, it was revealed that obsolete technology used in sugar processing and
increasing losses during the processing of sugar gave rise to low sugar production.
Low level of profitability of the sugar mills
Some of the sugar mills under cooperative sector in the state have been under
liquidation. These could not afford the expenses for running the mills. The decline in profit of
the sugar mills was the main reason. The low level of profitability was brought out by many
factors such as under utilization of the capacity, low production of sugar, forced sale of the
levy sugar at low price, poor quality of sugarcane used in crushing and shortage of labour.
Non-viability of the sugar mills
The excessive government interference on sugar mills operation often lead to nonviability of sugar mills. The policy of partial decontrol on sugar in which 10 per cent of the
total sugar produced has to sold to the government as levy sugar. The remaining 90 per cent
as free sugar has to be sold in the market. Further, the quota was imposed on the release of
free sugar for the disposal in open market on monthly basis. The price for the free sugar has
been highly fluctuated and price for levy sugar has been discounted by the government.
117
Therefore, the realization from both levy and free sugar has been low which in turn makes the
mill financially non-viable. In sugar mills, either cooperative or private sectors, there has been
no provision for investment on Research and Development for sugarcane production
technology.
Other problems
Besides the above discussed constraints, the other operational constraints of the sugar
mills were examined. The sample sugar mills produced only white sugar and its by-products
such as bagass and molasses. There was no provision for subsidiary units like production of
alcohol and co-generation plant which added more income of the mills. The huge funds were
needed for the installation of the subsidiary plants which the mills could not be afforded.
Moreover, there has been dearth for skilled and technical staffs. Limitation was that area
under sugarcane covered by the particular sugar mills could not be increased as the zonal
requirement has been fixed by the Central Government. This was one of the important reasons
for shortage of cane supply. At the end the problems have intertwine relationship with each
other which falls under string of Government control.
118
CHAPTER V
A CASE STUDY FOR LIQUIDATED ZIRA COOPERATIVE SUGAR MILL
LIMITED, ZIRA
Introduction
Indian sugar industry has been facing problems on supply of raw material, resource as
well as infrastructures. Globalization has brought a number of opportunities but at the same
time posed certain challenges before sugar industry. Most of sugar units in India utilize
production capacity below 50 per cent. Low capacity utilization and inadequacy of raw
material led to closer of 100 sugar factories in India. Mounting losses and decreasing networth of sugar factories have been responsible for sickness of sugar industry. Sickness in
sugar industry has reached to an alarming proportion. Indian sugar industry has been cash
striven for decades. Low cash inflow due to piling stocks lead to serious financial crisis and
finally to closing down of the sugar factories. Sugar prices have been a political issue rather
than economical issue. Many times it worsens economy of sugar factories (Pandey, 2007).
The Punjab State Federation of Cooperative Sugar Mills Limited, Chandigarh, has
under its purview, 15 Cooperative Sugar Mills and 3 distilleries in the State of Punjab. Out of
these 15 Cooperative Sugar Mills, nine sugar mills at Ajnala, Fazilka, Bhogpur, Morinda,
Budhewal, Batala, Gurdaspur, Nawanshahr and Nakodar are in running condition. The
remaining six sugar mills at Patiala, Budhlada, Jagraon, Zira, Tarn Taran and Faridkot are
under liquidation and three distilleries at Gurdaspur, Nakodar and Nawanshahr are laying
closed (Anonymous, 2012). The sugar mills under liquidation has been mainly due to scarcity
of raw materials and delayed payment of cane to the farmers. Among six liquidated sugar
mills, Zira Cooperative Sugar Mill have been selected purposively for the case study.
The Zira Co-operative Sugar Mill Limited is situated on NH 15 on Tarn Taran,
Faridkot Road. The factory was located at a distance of five kilometer of town Zira. The mill
was established in 1978 as one of the two units of Punjab Khand Udyog Limited registered on
3rd November 1977 under the Companies Act, 1956. The Zira Cooperative Sugar Mill was a
cooperative society registered on 30th November 1987 under the Punjab Cooperative Society
Act, 1961. The mill started crushing operation on 1st January 1981 for the first time during the
crushing season of 1980-81. The approximate cost of the plant and machinery was `674.36
lakh.
119
The mill was set with a licensed capacity of 1250 TCD and started commercial
production in 1980-81. The factory capacity was subsequently enhanced in 1989-90 by 2500
TCD with estimated cost of `8.00 crores. But due to financial and administrative problems,
the expansion of crushing capacity extended till 1990-91 with increase cost of `1036.00 lakh.
The capital of the mill has been shared different stakeholders such as Punjab Government,
Sugarfed Punjab, Cooperative Societies and individual share holders including sugarcane
growers.
The Zira Cooperative Sugar Mill is the major industrial unit in the Zira subdivision of
Ferozpur district, giving employment to about 600 persons directly and 1000 persons
indirectly. It also provides subsidiary employment to transporters, contractors, and
agricultural labour. There were 320 villages in the operational area of the mill. Even after the
closing down of the mill, the staffs who worked under the factory, constituting 191 permanent
and 269 seasonal members comprising of supervisors, clerical, skilled labour, unskilled
labour, etc. were still on the factory rolls.
The mill requires about 38 lakh tonnes of sugarcane annually to run on its full
capacity. As per the data available from the factory, it was suggested that the capacity
utilization was well above 100 per cent (maximum being 122 per cent) from 1984 to 1989
when the installed capacity was 1250 TCD. However, after the expansion of installed
capacity, the capacity utilization remained below 100 per cent (minimum being 63.82 per cent
in 1999-00). The maximum cane crushed by the factory was 31.82 lakh quintals in 1995-96.
The sugar recovery was in the range of 8.5-9.0 with best recovery of 9.71 per cent in 1991-92.
The mill was not getting sufficient quantity of sugarcane to run at its full capacity. Nonavailability of sufficient quantity of cane along with other economic factors such as delayed
payment of cane to the farmers, inability to cover the cost of production, etc. give rise to the
closing down of the sugar mill. The Zira Sugar Mill was closed by the government in 2004
and the mill has liabilities of more than `50 crore. The plant and machinery was lying idle and
has not been overhauled ever since the factory has stopped operation. The growing incidence
of sickness has been one of the persisting problems faced by the industrial sector of the
country (Anonymous, 1989). The sickness of the sugar industry causes not only wastage of
resources but also affect the growth of the Punjab industry.
Analysis of Financial Health of the Mill
The financial health of the mill was assessed from the various financial documents
such as balance sheets, working results of the firm, etc. The Zira Sugar Mill has not become
sick overnight. It took a year for a mill to become sick and roots of sickness could be
visualized at an early stage in the life cycle of the mill. Therefore, the incidence of sickness
120
has passes through several stages from healthy stage to sickness stage. If sickness of the mill
continues for several years without any treatment it may become chronic. The appropriate
treatment should be given to mill at the initial stage so that the sickness must not go beyond
the control. Hence, the various stages of sickness, symptoms and causes have been identified
by analysis of financial ratios and economic parameters.
Stages of sugar mill sickness
The perusal of Table 4.44 brings forth the different stages of sickness occur in the
Zira Cooperative Sugar Mill. Due to limitation of the data and related information, only few
parameters have been considered for the study of different stages of the sickness.
Stage-I (Normal/Healthy)
The Zira Cooperative sugar mill was normal and healthy during a period ranging
from 1980-81 to 1987-88. The average annual loss during this period was `30.70 with average
production of 1.62 lakh quintal of sugar and 0.89 lakh quintals of molasses. The average
annual capacity utilization of the mill was 96.54 per cent during the period. According to
Bidani and Mitra, “A unit is called normal when all its functional areas like production,
marketing, finance and personnel are functioning efficiently.
Stage-II (Tending towards sickness)
The Zira Sugar Mill starts tending towards the stage of sickness. The stage ranges
from 1988-89 to 1995-96 with average annual loss of `234.15 lakh (Table 4.44). The average
sugar and molasses production declined to 1.55 and 0.87 lakh quintal as compared to the
production in Stage-I. The average capacity utilization of the mill was 82.86 per cent lower
than that in Stage-I. The negative annual profit of the mill has been increased gradually. The
stage conveys the warning signal for the mill which should be cautiously taken care of and
close monitoring of the mill financial status should be taken up immediately. It was noticed
during the stage-II of the industrial sickness, preventive measures with close monitoring and
follow up actions should be launched promptly by the management and other associated
agencies (Singh, 2011).
Stage-III (Incipient sickness)
Once the mill passes through the Stage-II, in no time the Stage-III would arrive if
necessary measures were not taken up in time. The stage start commenced from 1996-97 till
2004-05, maximum cash losses of `1267.2 lakh was recorded in 2002. The annual average
loss during this period was `729.86 lakh with annual production of 1.15 and 0.66 lakh quintal
of sugar and molasses respectively. Comparatively the production of sugar and molasses were
121
lower than that in Stage-II. Similarly, the average capacity utilization of the mill was 66.83
per cent, also lower than that in Stage-II. This manifested that overall review of financial
performance of the mill should be done.
Stage-IV (Final stage/ closure of firm)
The mill becomes sick when the capacity utilization is less than 20 per cent of
installed capacity. The same finding was reported by Singh (2011). When the appropriate and
suitable remedial measures were not taken in the Stage-III, various adverse factors affect the
financial status, production performance and mill operation. Hence, the mill as a whole breaks
down in every sphere of mill operations which finally leads to sickness and closing of the
mill. The initiation of Stage-IV begins in 2001 when the mill incurred heavy losses of `1267.2
lakh. Hence, the mill closed down and run into liquidation after the crushing season of 2004
(Table 4.44).
Table 4.44: Different stages of Zira Cooperative Sugar Mill sickness
Year
Profit (` lakh)
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
-103.55
-58
-89.23
-40.48
-90.32
61.51
35.83
30.67
-25.5
-161.25
-632.01
-325.89
-178.21
-99.22
-401.1
-49.99
-677.48
-347.01
-761.45
-812.17
-925.35
-698.11
-1267.2
-845.36
-234.65
-24.22
Stages
Stage I (Normal/Healthy)
Average profit of `-31.70 lakh
Average production of
Sugar = 1.62 lakh quintal
Molasses= 0.89 lakh quintal
Average capacity utilization of 96.54 per cent
Stage II (Tending towards sickness)
Average profit of `-234.15 lakh
Average production of
Sugar =1.55 lakh quintal
Molasses = 0.87 lakh quintal
Average capacity utilization of 82.86 per cent
Stage III (Incipient sickness)
Average profit of `-729.86 lakh
Average production of
Sugar = 1.15 lakh quintal
Molasses= 0.66 lakh quintal
Average capacity utilization of 66.83 per cent
Stage IV (Final stage/ closure of firm)
Average
122 profit of `-443.47 lakh
Average production of
Sugar = NIL
Molasses= Nil
Average capacity utilization of 0.00 per cent
2006
2007
2008
2009
2010
2011
-109.13
-313.89
-323.46
-313.24
-369.16
-151.16
Therefore, sorting out the different stages of the Zira Cooperative sugar mill’s
sickness undoubtedly would help the policy maker to frame the appropriate measures and
plan to uplift the mill into profitable and efficient venture. This brings into limelight the
proper time and stage in which suitable preventive measures could be taken so that the mill
must not deteriorate their health.
Symptoms and Causes of Mill Sickness
The symptoms and causes of the mill sickness are discussed under the following subheads:
Symptoms of the sugar mill sickness
Financial Ratios
A financial statement was like the financial temperature of the business. The
properly analyzed of the financial statements of the mill provide valuable insights into the
mill’s performance. The study of ratios helps in the comprehensive assessment of the
strengths and weakness of the mill. The different financial ratios were analyzed briefly to
shows clear pictures of financial performance of the Zira Cooperative sugar mill.
Profitability ratios
The ratios reflect the final result of the mill’s operations. It shows how profitably
and efficiently the mill was operated. Higher the ratios better is performance of the mill. In
the case of Zira Cooperative Sugar Mill, the returns of investment over a period of four
years prior to liquidation were negative except in the year 2002, it was positive (Table
4.45).
Table4.45: Profitability ratios of Zira Cooperative Sugar Mill, 2001-02 to2004-05
(Per cent)
Profitability ratios
2001
2002
2003
2004
Returns of investment (ROI)
-0.12
0.04
-0.11
-0.34
Returns on sales (ROS)
-61.04
-69.48
-40.73
-12.62
0.1
0.23
0.28
0.31
-0.00082
-0.38489
-0.13718
-0.00031
-1.06
-0.88
-0.57
-0.22
Capital turnover (CT)
Gross profit margin
Net profit margin
123
The negative returns of investment indicate the negative profitability performance
of the mill. Ronan (1998) stated that primary profitability ratio is the return of investment
(ROI). Higher the ROI better the profitability performance of the mill. The returns on sales
(ROS) were estimated to be negative all throughout the study period which indicated
negative profitability. The ROS indicates how well the mill has been able to generate profit
from profitable sales. The negative ROS reveals that the mill has not been able to generate
profit from the sales of sugar and molasses (Table 4.45). The capital turnover ratio of the
mill indicates the conversion of assets into profitable sales and it increases from 0.1 in 2001
to 0.31 in 2004 (Table 5.2). Further, the gross profit margin of the mill shows negative in
all the four years same as the net profit margin having negative value 1.06 to 0.22 in the
year 2001 and 2004 respectively. The negative net profit margin indicates that the mill have
no control over its cost of production.
Liquidity ratio
The perusal of Table 4.46 shows the liquidity ratios of the mills. The ratios have been
declining over the years prior to liquidation of the mill. The current ratio was estimated to be
1.10 in 2002 as the highest which eventually declined to 0.32 in 2004. The low current ratio
indicated smaller investment on current ratio and interrupted production and sales, as result of
frequent stock out and inability to pay the creditors and the farmers in time (Vijayakumar and
Tamizhselvan, 2010). Acid Test Ratio was estimated to be 0.03 in 2001, slightly increase to
0.05 in 2004 but still less than one which indicates the Zira sugar mill had liquidity problems
(Table 4.46). The Acid Test Ratios revealed that the Zira sugar mill was not able to pay the
short term obligation. The Quick Ratio was less than 1.0 which leads the mill to sell inventory
to meet short-term debt, which is not a good position for the mill to be. But the Current Ratio
was higher than Acid/Quick Test Ratio which was the clear indication of sole dependent of
the mill current assets on inventory. The Cash Ratio was considerably smaller as it was 0.006
in 2001 and declined further to 0.005 in 2004. The cash and cash equivalent of the sugar mill
was insufficient to pay its current financial obligation. Therefore, the small liquidity ratios
indicate poor liquidity position of the mill which could create hindrance in smooth
functioning and operation of the mill. The decline in liquidity level of the mill leads to decline
in profitability.
Table 4.46: Liquidity ratios of Zira Cooperative Sugar Mill, 2001-02 to 2004-05
Liquidity ratios
2001
2002
2003
2004
Current ratio
0.73
1.10
0.75
0.32
Quick/Acid test ratio
0.03
0.05
0.03
0.05
Cash ratio
0.006
0.023
0.006
0.005
124
Non-Financial Symptoms
Besides the financial symptoms, non-financial symptoms also have confirmatory
evidence that suggest the failing of the sugar mill. Argenti (1976) in the empirical test
suggests that non-financial symptoms have some confirmatory value in predicting failures.
The important characteristic symptoms of the Zira Cooperative sugar mill were described
briefly which bring into notice the symptoms for failures.
1. Inability of the mill to pay arrear to the sugarcane farmers in time. The high price of
sugarcane as raw materials was reported to be a main reason.
2. Non-viability of the mill as a result of low and highly fluctuation price of sugar in open
market.
3. Under utilization of capacity for a quite long period brings drastic malady in the function
of the mill. This was one of the reasons for low profitability of the firm.
4. Use of old machines for processing and crushing of pre matured cane was reported. For
the very reasons the recovery of sugar and efficiency of the mill has been declined.
Table 4.47: Inventories of the Zira Cooperative Sugar mill, 2001-02 to 2004-05
Year
Inventories (`lakh)
Inventory turnover ratio
2001
328.66
0.32
2002
3409.81
0.71
2003
2263.83
1.00
2004
821.45
2.30
5. Inefficient management of inventories was observed from Table 5.4. It was increased
from `328.66 lakh in 2001 to `821.45 lakh in 2004 in absolute term. However, the
Inventory Turnover Ratio was decreased from 0.32 in 2001 to 2.30 in 2004 which
indicates the mill has been selling off old stock of inventories to finance the mill
operation which was not a good sign. Therefore, the mill was not managing its buying of
raw materials and having difficulty in administrating its inventory.
6. The decline in number of days of mill operation was observed in Table 4.48. The crushing
season of the mill was an important indicator which has direct impact on the efficient
operation of the mill. The norm of the duration of cane crushed by the sugar mills in
Punjab was 150 days per year (Anonymous, 2010). The crushing days of the mill was
fluctuating over the years (1990-91 to 2003-04). The maximum days were found in 1996
(170.19 per cent) while the minimum crushing day in 2004 with 18.27 per cent.
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7. Decline in capacity utilization and cane crushed of the mill: The capacity utilization
and cane crushed of the mill has been declined from 122.83 per cent in 1985 and 31.83
lakh quintals in 1995 to 30.59 per cent and 1.40 lakh quintals in 2004 respectively. This
shows that the average crushing of the mill has been declined to 10.19 per cent in 2004. In
the case of capacity utilization of the mill, high fluctuation was observed with significant
decline to 36.88 per cent in 2004 (Table 4.48).
Table 4.48: Trend analysis of the Zira Cooperative sugar mill working results, 1990-91
to 2004-05
(Per cent)
Seasons
Capacity
Cane
Sugar
Molasses
Year
days
utilization
crushed
production
production
1990
100.00
100.00
100.00
100.00
100.00
1991
91.35
91.57
131.21
153.50
118.19
1992
120.19
98.28
111.52
207.44
165.20
1993
70.19
102.80
76.62
117.78
103.76
1994
59.62
83.29
76.99
78.57
72.19
1995
146.15
101.48
231.38
221.78
225.77
1996
170.19
84.92
226.45
225.51
211.24
1997
70.19
84.64
93.15
93.83
82.67
1998
44.23
82.10
5.72
47.00
51.69
1999
49.04
76.94
57.53
50.39
53.36
2000
56.73
82.29
72.57
79.50
66.45
2001
115.38
95.02
170.76
187.48
165.43
2002
95.19
100.33
149.02
154.72
141.37
2003
46.15
82.03
58.38
60.46
57.86
2004
18.27
36.88
10.19
10.43
11.06
8. Decline in production of sugar and molasses: The production of sugar and molasses
have declined from 2.57 lakh quintal in 1996 and 1.58 lakh quintals in 1995 to 0.12 and
0.08 lakh quintals in 2004 respectively. The perusal of Table 5.5 revealed that fluctuation
in production of sugar and molasses was quite often but eventual decline was observed
from 2001 with187.48 per cent and 165.43 percent to 10.43 and 11.06 per cent of sugar
and molasses in 2004 respectively.
Causes of the Zira Cooperative sugar mill sickness
The causes of sugar mill sickness may arise due to different factors which may be under
the purview of the management or beyond the purview. Sickness may be in born or acquired
during the growth of the unit. In the case of Zira Cooperative Sugar Mill, sickness starts right from
the beginning of implementation of the sugar mill operation. Basically, the root causes of the
sickness were the poor management and resultant poor financial ratios. The prolong persistence of
126
the mill sickness resultant into wear and tear of the existing assets and liabilities of the mill, which
will enhance the deterioration of the mill liquidity and profitability performance. In many studies,
the causes of sickness was broadly classified into two categories such as external which was
beyond the control of the management and internal causes originating within the mill and can be
controlled by the management. But based on the Argenti model (1976) and Ronan (1994) causes
of the sugar mill sickness were discussed as under:
External cause of sickness
Non-availability of inputs
It was reported that non-availability of sugarcane was the key factors for the closure
of the mill. When the supply of raw material was short, the breakdown of the sugar mill is
evitable. The sugarcane farmer residing within a radius of 15 km of the mill supplies cane to
the Zira Co-operative Sugar Mill.
The perusal of Table 4.49 indicates insufficient supply of cane for crushing during the
crushing season. The total cane crushed was highest in 1995 with 31.83 lakh quintal and least
in1998 with total cane crushed of 0.79 lakh quintal. Quite a large fluctuation in cane crushed
was observed over the last 24 years. Similar observation was found in the recovery of
sugarcane. The highest recovery (10.47 per cent) was observed in 1982 and lowest (7.32 per
cent) in 1999.
Table 4.49: Cane crushed and recovery of sugarcane of the Zira Cooperative sugar mill
(Lakh quintal)
Year
Cane crushed
Recovery (%)
1980
1.42
8.5
1981
19.74
9.16
1982
16.98
10.47
1983
16.62
9.83
1984
15.48
10.12
1985
17.66
9.43
1986
27.37
9
1987
19.48
9.92
1988
18.90
9.01
1989
8.45
7.57
1990
13.76
8.3
1991
18.05
9.71
1992
15.34
9.41
1993
10.54
8.77
1994
10.60
8.47
1995
7.96
31.83
127
1996
1997
1998
1999
2000
2001
2002
2003
2004
31.15
12.81
0.79
7.91
9.98
23.49
20.50
8.03
1.40
8.26
8.36
6.87
7.32
9.09
9.13
8.62
8.6
8.5
Therefore, fluctuation in cane crushed by mill revealed that the supply of cane has
been highly at random in each of crushing season of the mill. The main reasons for shortage
of cane supply were attributed to following reasons:
i.
Delayed in payment of cane price: The undue delay in payment of cane often leads to
switching over from sugarcane to other competing crops which have relatively higher and
assured price. The switching over of cane cultivation cause the reduction in quantity
supply sugarcane crop to the mill.
ii. Mismanagement in cane purchasing: It was reported that there was no control over
issuing cane purchasing tickets to the cane growers. This cause haphazard in the
management of unloading cane for crushing and make the farmers to wait for many hours
at the mill gate. Before making any bill for cane purchase, the recovery per cent was
checked and then payment was made based on recovery percentage. This often
discourages the farmers to grow sugarcane in the subsequent season.
iii. Low returns from sugarcane: The profitability of sugarcane crop was comparatively
lower than wheat and paddy. This strengthened farmers to shift their area under cane to
wheat and paddy. Contraction in area under sugarcane reduces the production of cane
which in turn brings shortage in supply of cane to the mill. The estimation of returns from
sugarcane, wheat and paddy made by the mill, it was observed that paddy-wheat-legumes/
Fodder crop cycle yields a return of Rs 46000 per acre in one year as compared to Rs
49800 per acre obtained in two years for plant cane-ratoon-wheat crop cycle
(Anonymous, 2009).
Competition
The mill has poor competition strength with private sugar mill. In private sugar mill,
on spot cane payment in cash was made to the cane farmers while such facility was not
available in Zira Corporation Sugar mill. Hence, the cane farmers diverted their cane to
nearby private mills which leads to cane scarcity to the mill. Nevertheless, the establishment
of sugar mill in every district of the state exhausted the resources which increase the
competition between the mills for raw materials. The existence of mills in an area where
128
cultivation of cane was not conducive give rises to shortage of cane which brings problem in
firm operation.
Government policies
The sugar industry was the only sector which is highly regulated by the Government
in every facet of mill operations. A single change in government policies greatly affects the
mill performance. The dual pricing policy by Central and State government put an extra hand
to the sugar mills. The huge gap between the SMP (Statutory Minimum Prices) and SAP
(State Advised Price) hinder the mill to make payment in time to the farmers. The sugar mill
has been under the clutch of the Government policies which can’t move in either way to make
free decision to improve the health of the mill. The Government policies were of provincial
Government and federal government controls. The provincial government control comprises
of minimum distance criteria between the mills, cane area reservation and dual cane pricing.
And the Federal government controls consists of Levy Sugar obligation on mills, regulated
release mechanism (release of white sugar quota for every month has been regulated by
Government), compulsory sugar packing in jute bag only. Regulation and minute supervisions
were essential for the better performance but too much stringent in the mill operations gives
rise to deterioration of the mill leading to sickness.
Lack of infrastructure facilities
The infrastructure facilities of the sugar mill comprise of banking, finance, research
and development and firm machineries and different stations of the mill such as clarification
and filtration station, milk of lime and sulphur station, juice treatment section, juice treators
and evaporators, graining and crystallization, plant, centrifugal station, sugar handling station,
condensing station, etc. As per report of the mill, no investment was made on the R&D and
finance position of the mill has been very weak. The information retrieved from the mill
revealed that the Government of Punjab has waved off the loan of `4019.61 lakh given from
Rural Development Fund Amount. Moreover, the Government of Punjab has also given
`544.31 lakh for one time settlement with IDBI and IFCI which has helped the mill in saving
interest payable on the loans from these institutions during 2002-2003. Further, the report of
the mill indicates that the efficiency of the machines and different stations has been
deteriorated and their performance was not satisfactory. The conditions of the machines in the
mill were not good and need repairing.
Labour problems
The problems related to labour were scarcity and demand of higher wages. The
labourers claimed higher wages which increased the cost of production which consequently
reduced the profitability of the mill. Non-availability of skilled labor was also one of the
problems which hindered the production of sugar.
129
Poor working capital management
The importance of working capital management was reflected in the fact that
financial managers spent a great deal of time in managing current assets and current
liabilities. The working capital of the mill was influenced by a number of factors. The sugar
mill being seasonal nature in operations was usually marked by highly fluctuating working
capital requirement. The sugar mill required 60 to 70 percent investment in current assets and
30 to 40 percent in fixed assets (Chandra, 2010). The working capital of Zira Co-operation
Sugar Mill was analyzed for four years (2001 to 2004), it was estimated to be `1303.04 lakh in
2001 and `2126.48 in 2004. The investment of the mill increased from `6.21 lakh in 2001 to
`13.13 lakh in 2004, but no improvement in total asset was observed. Therefore, the negative
working capital revealed that the mill had poor management of the working capital.
Internal causes of sickness
Bad management structure
The correct management structure ensures an organization continued growth, content
employees and profit returns for the shareholders. The management structure includes
understanding the working relationships with their manager, subordinates and peer groups.
Any deviation from correction management structure of the mill gave rise to sickness. The
administrative control of the mill is under the elected Board of Director under Punjab Cooperation Societies Act. The organizational structure of the Zira Co-operative Sugar Mill was
given in following Figure VII.
130
Fig.VII: Organizational Structure
The board meetings were held irregular; it took place whenever it was needed. The
frequency of the Board meeting has been uncertain as there is no limit for calling a Board
meeting. On the other side, general body meeting was held once in a year. It was reported that
one-third of the members should be present in meeting. The decisions taken either in Board
meeting or in general body meeting seem to remain as management information. The
information regarding the decisions was not reached to peers groups of the mills, who were
the main manpower for the operation of mill. This was evidence from the report of the mill in
which it was mentioned that discussion with the available factory staff revealed that there was
no major breakdown during the factory operations. Similarly, no major bottleneck at any
stations in the factory was informed.
There was no Human Resources Department in the mill to harness the full potential of
their employees for attaining the excellence of the mill (Figure VII). There were 191
permanent and 269 seasonal members which have been categorized into supervisor, clerical,
skilled labour, and unskilled labor. The analysis and assurance of cordial and harmonious
relationship between the employees and the mill could bring sustainability and
competitiveness of the mill. For the improvement of knowledge and technical know-how of
the ongoing modern technologies, training needs must be identified to develop the knowledge
131
and skill of the factory employees. This could be enabling to happen through systematic
manner by human resource development.
Low quality of sugar
The mill produces white sugar over last two decades. It was informed that the quality
of sugar was not able to maintain the standard quality followed in other sugar producing states
like U.P and Maharashtra. The negligence of product quality and increased volume product
might cause piling up of inventories. The inventory turnover ratio of the mill rose from 0.35
times to 2.41 times in 2004, which unnecessary blocked the capital. The findings were in line
with the study of Laddha and Shah (2012). Therefore, lack of quality control for sugar
significantly induces the mill sickness.
Poor marketing efforts
An efficient marketing technique was considered to be an important ingredient to
increase profitability of the mill. An interview with the concerned authority revealed that the
market research was not adequate and information regarding the market situation was not
getting in time. The demand for free sugar in the market could not able to forecast accurately
based on which the production can adjust and increased.
Under utilization of capacity
The Zira Co-operative Sugar Mill initially started with crushing capacity of 1250 TCD
later, the mill expand its capacity by 2500 TCD by selective equipment addition. The technical
potential of the mill after up-gradation and modernization, could reach its capacity up to 5000
TCD.
The perusal of Table 4.50 indicates that the capacity utilization of the mill has been
more than 100 per cent during the period (1980-81 to 1988-89) when crushing capacity was
1250 TCD. After the expansion of capacity up to 2500 TCD in crushing season of 1989-99,
the capacity utilization never reaches 100 per cent rather declined to 30.59 per cent in 2004.
This brings into notice that the mill required more quantity of sugarcane to operate efficiently
under full capacity utilization.
Table 4.50: Working results of the Zira Cooperative Sugar Mill, 1980-81 to 2004-05
(Per cent)
Year
Capacity utilization
Year
Capacity utilization
1979
-
1992
81.52
1980
36.98
1993
85.27
1981
78.17
1994
69.09
1982
97.03
1995
84.18
1983
101.47
1996
70.44
132
1984
110.57
1997
70.21
1985
122.83
1998
68.1
1986
115.23
1999
63.82
1987
110.04
2000
68.26
1988
112.4
2001
78.82
1989
71.54
2002
83.22
1990
82.95
2003
68.04
1991
75.96
2004
30.59
Analysis of Financial Performance of Zira Cooperative Sugar Mill
The financial performance of Zira Cooperative Sugar Mill was analyze using various
financial ratios and is discussed briefly under the following:
Ratios analysis
The ratio analysis has been used extensively to examine the financial performance of
the mill. The results presented in Table 4.51 indicate the negative gross profit margin of the
mill increased over the years. Similar result was observed in the case of net profit margin,
returns on assets and equity and working capital turnover ratios.
The positive ratios were observed for operating profit margin, fixed assets turnover
ratio, total assets turnover ratio, current ratio, quick current ratio, cash ratio and debt-equity
ratio. However, these ratios were showing a declined over the years (Table 4.51). The
current ratio was not in the ratio of 2:1 which considered being unsatisfactory for running a
mill since it clearly indicates the mill was not able to meet the short term obligations. The
debt-equity ratio of the mill increased from 0.07 in 2001 to 0.17 in 2004. This revealed that
the mill was not using their retain revenue appropriately. And the mill was not to able to
pay off their debts with the income retained by it. The return of investment was showing
continuous decline over the years. It was -0.12 per cent in 2001 which was further declined
to -0.34 per cent in 2004. The financial ratios indicate that the mill has been under stress
long before the liquidation. The continuous negativity of return of investment landed the
mill into liquidation state.
Table 4.51: Ratio analysis of the Zira Cooperative Sugar Mill, 2001-02 to 2004-05
Particulars
2001
2002
2003
2004
-0.00082
-0.38489
-0.13718
-0.00031
Operating profit margin (%)
0.22
0.15
0.13
0.12
Net Profit margin (%)
-1.06
-0.88
-0.57
-0.22
Gross profit margin (%)
133
Returns on assets (%)
-0.11
-0.21
-0.16
-0.07
Returns on equity (%)
-2.74
-3.53
-2.57
-0.94
Fixed assets turnover ratio
0.45
0.71
0.81
0.77
Total assets turnover ratio
0.10
0.23
0.28
0.31
Working capital turnover ratio
-0.88
5.87
-2.57
-0.93
Current ratio
0.73
1.10
0.75
0.32
Quick /Acid test ratio
0.03
0.05
0.03
0.05
Cash ratio
13.65
8.96
8.29
5.77
Debt-Equity ratio
0.07
0.11
0.12
0.17
Capital gearing ratio (%)
-6.21
-16.29
-11.39
-3.97
Return of investment (ROI) (%)
-0.12
0.04
-0.11
-0.34
Working capital / total assets (%)
0.00013
0.00018
0.00019
0.00023
Retained earnings/total assets (%)
-0.00082
-0.38489
-0.13718
-0.00031
Trend Analysis of financial statements of the mill
The trend analyses of the financial statements of the mill were presented in Table
4.52. It was observed that the sale of the sugar and molasses shows a fluctuating trend over
the years. Taking the year 2001 as a base year, sales have increased by 59.46 and 21.98
per cent in 2002 and 2003 respectively, and declined by two per cent in 2004. The cost of
goods sold and cost of production shows a fluctuating pattern over the years. The cost of
goods sold was 120.65 per cent in 2002, much higher than the base year. In the case of
cost of production, it was estimated to be 33.34 per cent in 2001 which declined to 40 .70
per cent in 2004. The gross profit of the mill was showing a negative trend during the
period under study (Table 4.52).
Table 4.52: Trend analysis of sales and cost of production for period prior to liquidation
(Per cent)
Year
Values (`lakhs)
Trend
Per cent change
2001
1143.76
100
-
2002
1823.83
159.46
59.46
Sales
134
2003
2075.29
181.44
21.98
2004
1977.63
172.90
-8.54
2001
1144.70
100
-
2002
2525.80
220.65
120.65
2003
2359.97
206.16
-14.49
2004
1978.24
172.82
-33.34
2001
4525.47
100.00
-
2002
6047.11
133.62
33.34
2003
4738.30
104.70
-28.92
2004
2896.33
64.00
-40.70
Cost of goods sold
Cost of production
The perusal of Table 4.53 revealed that the gross profit margin has been stagnant for
the years while it declined in 2004. The net growth profit shows negative trends and it was
reduced by about 61.88 per cent. The trend for return of investment shows considerable
decline over the years which were more prominent in 2004 (-57.29 per cent). An inventory
turnover ratio shows increasing trend over the years. It was estimated to be 111 per cent in
2002 more than the base year and further increased by 86 per cent in 2003 than 2002. The
ratio was increased in 2004 by more than the double in 2003.
Table 4.53: Trend analysis for financial ratios for period prior to liquidation
(Per cent)
Year
Ratios
Trend
Per cent change
2001
-0.00082
100
-
2002
-0.38489
99.79
-0.21
2003
-0.13718
99.40
-0.39
2004
-0.00031
62.20
-37.20
Gross profit margin
Net profit margin
135
2001
-1.06
100
-
2002
-0.88
83.02
-16.98
2003
-0.57
64.77
-18.25
2004
-0.22
38.60
-26.17
2001
-6.21
100
-
2002
-16.29
61.88
-38.12
2003
-11.39
45.48
-16.40
2004
-3.97
-57.29
-102.77
2001
0.35
100
-
2002
0.74
211.43
111.43
2003
1.04
297.14
85.71
2004
2.41
688.57
391.43
2001
0.73
100
-
2002
1.10
150.68
50.68
2003
0.75
102.74
-47.94
2004
0.32
43.84
-58.84
Returns of investment
Inventory turnover
Current ratio
The increase in ratio was mainly because of decline in sales over the years. Further,
the results present in Table 5.11 revealed that the current ratio was declining over the years
prior to liquidation of the mill. The ratio was worked out to be 51 per cent in 2002, more than
the base year. In the consecutive years 2003 and 2004, it was decreased by 48 and 59 per cent
respectively.
Why there was a failure?
The failure of the Zira Cooperative Sugar Mill was mainly attributed to inefficient
management of the expenditure incurred in production and processing of sugar and its allied
products. In order to bring a clear picture of the failure of the Zira Sugar mill, a comparison
was made with the successful Nawanshahr Cooperative Sugar Mill. The results presented in
Table 4.54 exhibit the comparison of cost of production between the sick and successful
Cooperative Sugar Mills. There has been a non-significant difference between the costs of
production of the two sugar mills. Because of large variation in the cost of production
incurred by Zira mill during the period under reference. The cost of production per quintal
136
was highest at `5759.50 in 2004 while lowest at `1506.99 in 2001in Zira mill. In Nawanshahr
sugar mill variation of cost of production was lower, where the highest cost of production per
quintal was estimated at `2732.34 in 2004 and lowest at `1341.87 in 2002 (Table 4.54). The
cost of production consists of different cost elements, of which cost on raw materials was an
important cost element. At the overall, the cost of raw materials contributed 79.98 per cent of
the total cost in Nawanshahr Cooperative Sugar mill while in Zira; it was estimated to be
45.68 per cent. Similarly, the manufacturing expenses and employee salaries and wages were
showing non-significant difference between the two sugar mills. The proportion of
manufacturing expenses to the cost of production was estimated to be 15.61 and 7.85 per cent
in Zira and Nawanshahr sugar mills respectively. The contribution of employees’ expenses to
the cost of production was worked out to be 34.98 and 10.97 per cent in the above said sugar
mills respectively. Hence, the manufacturing expenses and employees’ salaries of Zira sugar
mill contributed maximum to the cost of production of the mill. This indicates that Zira sugar
was hiring labour and staff more than requirement leading to unproductive labour and rise in
cost of production.
However, the proportion of expenditure on administrative, selling and distribution
and other expenditure were also estimated to be higher in Zira mill than Nawanshahr mill. As
far as above mentioned parameters there has been non-significant difference between the two
sugar mills. Further, the results presented in Table 4.54 show increase in total cost of
production of Zira mill but decline in cost on raw materials over the years. The cost of raw
material was lowest in 2004 which constituted 25 per cent of total cost though total cost was
drastically increased (`5759.50 per quintal) in the same period. The remaining major portion
was contributed by others an expense of which 49.41 per cent was covered by employees’
cost. Due to this very reason Zira mill become inefficient in management of mills’ operation.
Therefore, the results revealed that Nawanshahr sugar mill had followed ratio of 80
per cent raw material expenses to 20 per cent other manufacturing expenses (80:20). But in
Zira sugar mill, it was in the ratio of 45:55 indicating relatively less investment on purchase
of sugarcane and more on employment and manufacturing expenses.
137
Table 4.54: Comparison of cost of production between the sick and non-sick mill in Punjab
(`q-1)
Particulars
2001
2002
2003
2004
Overall
t-values
Z
N
Z
N
Z
N
Z
N
Z
N
Cost of production
1506.99
(100)
1454.87
(100)
1599.62
(100)
1341.87
(100)
2027.25
(100)
1781.08
(100)
5759.50
(100)
2011.78
(100)
2732.34
(100)
1647.40
(100)
0.89NS
Raw materials
1122.59
(74.49)
1173.99
(80.69)
1191.05
(74.46)
1065.14
(79.38)
1225.14
(60.43)
1426.37
(80.08)
1453.92
(25.09)
1604.77
(79.77)
1248.17
(45.68)
1317.57
(79.98)
0.18NS
Manufacturing expenses
166.93
113.69
145.30
113.03
188.32
142.33
1205.17
148.22
426.43
129.32
1.14NS
(11.08)
(7.81)
(9.08)
(8.42)
(9.29)
(7.99)
(20.79)
(7.37)
(15.61)
(7.85)
14.57
(0.97)
10.25
(0.70)
18.38
(1.15)
9.81
(0.73)
50.45
(2.49)
14.68
(0.82)
189.67
(3.27)
16.17
(0.80)
68.26
(2.50)
12.73
(0.77)
1.35NS
5.36
1.30
8.03
3.53
2.42
9.79
75.50
8.07
22.83
5.67
0.97NS
(0.36)
(0.09)
(0.50)
(0.26)
(0.12)
(0.55)
(1.30)
(0.40)
(0.84)
(0.34)
196.00
154.87
135.02
149.36
528.16
186.76
2863.83
232.67
955.75
180.77
(13.01)
(10.60)
(14.69)
(11.13)
(26.05)
(10.49)
(49.41)
(11.57)
(34.98)
(10.97)
1.55
1.35
1.84
0.98
7.04
1.15
7.42
1.88
4.46
1.34
(0.10)
(0.09)
(0.11)
(0.07)
(0.35)
(0.06)
(0.13)
(0.09)
(0.16)
(0.08)
Administrative Expenses
Selling and distribution expenses
Employee expenses
Other expenses
Figures in parenthesis indicate percentage to total
** and * significant at one and five percent level respectively
NS: Non-significant
Note: Z and N stands for Zira and Nawanshahr
138
1.21NS
1.94NS
CHAPTER VI
SUMMARY
India is the largest consumer of sugar in the world. The sugar industry in India is key
driver of rural development, supporting economic growth of the country. It occupies an
important place among the agro-based industries in India after textile industry. The industry
has been a focal point for socio-economic development in the rural areas as about 50 million
sugarcane growers and a large number of rural labourers depend on sugarcane and sugar
industry for their livelihood. The industry provides employment to about two million skilled
and non-skilled workers and other employed in ancillary activities mostly in the rural areas.
Besides, employment generation they also holds the potentialities of developing other
industries related to its by-products.
The sugar industry in Punjab has co-existence of different ownership and
management structure. Like the other industries, the sugar industry in Punjab passes through a
large number of hurdles. It was believed that the financial, infrastructural problems such as
shortage in sugarcane supply, obsolete technologies, low capacity utilization and
discriminating government policies were the main reasons for the failure of some of the sugar
mills in Punjab. The factory owners were facing the problems of high cost for manufacturing
of sugar as a result some of the mills engaged has been under liquidation. The farmers on the
other side were not getting the payment in time for their product. Thereby, the farmers made
the choice to shift from sugarcane cultivation to rice and wheat cultivation whose price and
disposal is assured under Minimum Support Price (MSP).
The area, yield and production of sugarcane at the national and state level have been
declining considerably over the last decades, largely due to shifting of cropping pattern in
favour of rice and wheat. The sugarcane acreage and production cycles are driven largely by
policy interventions, including sugarcane support price policies set by the central and state
governments as well as disposal of sugar and trade policies set by the central government. The
acreage response to price is highly sensitive as the price of the crop depict the income of the
farmers on which investment on crop cultivation depend. Besides, non-price factors also
affect the allocation of area under sugarcane.
An attempt has been made in the present study to answer uncertainties faced by the
sugarcane farmers and sugar industry in the state. An increase in failure of sugar industry
greatly affects the economy of the state. In order to ascertain the roots and causes of such
failures, case study was also taken up. In the backdrop of these facts the present study was
taken up with following objectives:
i.
to study the trends in production of sugarcane in Punjab and India,
ii.
to determine the factors affecting sugarcane acreage in Punjab,
139
iii.
to examine the physical and financial performance of sugar industry in cooperative
vis-à-vis private sector in the state,
iv.
to examine the various socio-economic problems faced by the cane growers and sugar
mills and
v.
to carry out a case study of a cooperative sugar mill under liquidation and suggest
policy measures to build up an efficient base industry in the state.
To accomplish the stipulated objectives, simple random sampling technique was
used to select sugar mills and cane growers. On the basis of highest crushing capacity of the
sugar mill, two mills each from cooperative and private sectors were selected randomly. In
addition, Zira Cooperative Sugar Mill was randomly selected for the case study which was
under liquidation. Thus, five mills comprised the final sample. From each selected sugar
mills 15 sugarcane farmers were selected randomly, thus, sample of 75 farmers was
selected. Both secondary and primary data were collected. The secondary data pertaining to
area, productivity, production, assured prices (SAP and MSP) of sugarcane, price of gur and
its competing crops such as paddy and wheat, total cane crushed, sugar recovery and
production of sugar of the country and Punjab for 61 years were collected from various
issues of Statistical Abstract of Punjab, Economic Survey of India, Agricultural Statistics at
a Glance, Indian Sugar and other sources. For financial and physical performance,
information regarding crushing capacity, sugar recovery, sugar and molasses production,
capacity utilization, duration of seasons, etc. were retrieved from Punjab State Federation of
Cooperative Sugar Mills Limited and from selected sugar mills. The primary data and
relevant information of the present study collected through pre-tested well structure
interview schedule. The data were analyzed by using various statistical tools such as
compound growth rate, decomposition growth analysis, multiple regression analysis (OLS),
coefficient of variation, analysis of capacity utilization, ratio analysis, trend analysis and
tabular analysis to meet the objectives of the present study.
The findings of the study revealed that the trend in area under sugarcane has been
increasing over last six decades at the national level and declining at the state level. The
sugarcane production and productivity showed increasing trend over the years both at national
and state level. The growth analysis showed that growth rate of area under sugarcane and its
production in the state was comparatively lowers than that at the national level. While the
yield growth for the state was higher as compared to national productivity. The growth of
sugar production and total cane crushed at state level was comparatively higher than at
national level. The growth of per cent recovery of sugar was non-significant at state level but
higher than the country’s growth rate.
The estimation of coefficient of variation for area, production and productivity of
sugarcane in Punjab showed year to year fluctuation. However, larger variation was observed
140
for sugarcane acreage than yield and production of sugarcane at the state level. The variation
was higher in sugarcane production than area and yield at the national level. The
decomposition of growth analysis indicated that the change in sugarcane production over the
years was due to area and its interaction effect at the national level as well as in Punjab.
While, the decomposition of sugar production showed that total cane crushed was the
important factor which brings changes in sugar production over the years both at national and
state level.
An analysis of acreage response of sugarcane revealed that both price and non-price
factors explained 84.4 per cent of the total variation in sugarcane acreage in the study area.
The farmers responded positively to the lagged sugarcane area, price of cane and its relative
income in the allocation of area under sugarcane for current season. While an increase in yield
of sugarcane in the previous year brings contraction of area under sugarcane for current
season. An adjustment coefficient shows rapid adjustment of area under sugarcane by the
farmers. It was further revealed that adjustment of sugarcane acreage was higher in the longrun than in short-run.
An analysis of physical performance of the sugar mills under private sector showed
that the mills were operating under capacity. The trends of total cane crushed by the mills
were fluctuating over the years and the lowest cane was crushed in 2009 in both the private
sugar mills due to shortage of cane supply. This was due to lowest production of sugarcane
(3.7 lakh tonnes) in the state during 2009. The per cent recovery of sugar which signified the
technical efficiency with regards to conversion of sugarcane to sugar was found to be higher
than the state average in most of the years. This showed that private sugar mills were
technically sound. The capacity utilization was below 100 per cent over the years in both the
mills but not much pronounced in Wahid Sandhar Sugar Limited, Phagwara. Moreover, the
duration of cane crushing was below the state average of 150 days.
The physical performance of the sugar mills under cooperative sector revealed that
the mills were not performed efficiently over the years. The total cane crushed of the mills
was fluctuating over the years and the lowest cane was crushed in 2009 in the both
cooperative sugar mills. The average actual cane crushed per day has been constant in the
periods under study. The per cent recovery of sugar has been declining in both the sugar mills
which signified declining technical efficiency of the mill. This indicated that the cooperative
sugar mills were using obsolete crushing machines and not properly managed which results
into lower recovery of sugar. The capacity utilization was below 100 per cent over the years
in both the mills but more lower in Morinda sugar mill. However, the capacity utilization was
found to be satisfactory as, in most of the years it was more than 90 per cent. Moreover, the
duration of cane crushing was below the state average of 150 days in almost all the periods.
The comparative analysis of cooperative and private sectors revealed that private sector was
141
performing better than cooperative sector. Underutilized capacity of the sugar mills in both
sectors was due to acute shortage of sugarcane-the basic raw materials which was accounted
due to shrinkage in sugarcane acreage in the state. Above all, excessive government
intervention in fixing the price of sugarcane brings inability of plants and machinery of the
mills to operate efficiently. Further, the low recovery of sugar of the mill induces technical
inefficiency of the sugar mills. Besides, the government policy of partial decontrol on mills
operation and limited sugarcane zonal area restrict the mills to expand its capacity that unable
the mill to avail the economics of scale. The cooperative sugar mills showed higher capacity
utilization than the private sector, but the total number of days of crushing was least in
cooperative sector. Thus, the private sector was enjoying the advantage of mismatch between
the demand and supply of sugarcane in cooperative sector. Moreover, the private sector has
been paying the cane suppliers in time which initiates the cane growers to supply sugarcane in
time to the private sugar mills.
The financial performance of the sugar mills revealed that the overall profitability
was not satisfactory in both sectors. But, comparatively the private sector has incurred higher
profit than the cooperative sector. The sugar mills in private sector found to manage their
resources efficiently in generating income than that of cooperative sugar mills.
Comparatively, the private sector was more efficient in controlling manufacturing cost. The
overall operating performance was not satisfactory in cooperative sector as that of private
sector. In regards to inventory of the mill, there was huge stocking of inventory in both the
sectors which lead to poor management of inventory but it was more pronounced in
cooperative sector. The total assets turnover ratio was comparatively higher in cooperative
sugar mills and working capital turnover ratio was found to be higher in private sector. These
indicate that cooperative sector was operating in full capacity and private sector had greater
potential in selling of sugar than converting of inventory into revenue. The overall solvency
ratios were unsatisfactory in both the sectors. The cooperative sector was enjoying higher
degree of protection as less debt was used to finance the mills operation. The overall liquidity
position was poor and declining in both the sectors over time. It was noticed that private
sector has better liquidity position to meet short-term obligations as compared to cooperative
sector.
The results revealed that the farmers were unaware of the package of practices for
sugarcane cultivation accompanied by the problems of labour scarcity and high wage rate.
These were the technological constraints faced by the cane growers. The farmers were not
satisfied with infrastructural facilities available to them. Unsatisfactory source of irrigation
and insufficient electricity, high transportation cost and non-availability of factors of
sugarcane production in time and at local level were the important infrastructural constraints.
The financial constraints faced by the cane growers were high interest rate, inadequate and
142
untimed credit available. It was found that lack of marketing and storage facilities for cane
were main marketing constraints faced by the cane growers. Further, the study indicated that
non-availability of labour when needed and lower profit margins were an important socioeconomic constraint. The study brought out that the sugar mills were facing problems due to
low sugar recovery, shortage of sugarcane supply, inability to pay arrear to the cane growers
in time, low level of profitability and non-viability of sugar mills. The other important
problems were provision of no subsidiary units like production of alcohol and co-generation
plant, dearth of skill and technical staffs, etc.
In the case study, different stages of sickness were studied. It was found that health of
the mill was not good right from the start. The prolong persistence of sickness resulted into
wear and tear of existing assets and liabilities of the mill. The root causes of the sickness of
the mill were poor management and resultant poor financial ratios. The comparative study
with efficient cooperative sugar mill indicated that the sick mill was facing a higher cost in
per quintal manufacturing of sugar (45:55 of cost of raw material: other manufacturing
expenses against 80:20 ratio of efficient Nawanshahr Cooperative Sugar Mill).
The problem of shrinkage in sugarcane acreage, irregular supply of sugarcane to the
mills and liquidation of cooperative sugar mill in the state could be solved if appropriate
measures are taken up timely and accurately. On the basis of findings from the present study
the following suggestions were made.
1.
Deceleration in area, production and productivity of sugarcane in the state was the
main concern. Therefore, the Research and Development efforts have to aim at
development of high yielding variety and high sucrose content of cane and improved
production technology.
2.
In order to stabilize the sugarcane acreage, there should be fair and remunerative
price for sugarcane relative to competing crops and timely payment is an utmost
important.
3.
Efforts should be made to ensure regular and sufficient supply of sugarcane to the
mill. This could happen when sugar mills ensure timely payment to the farmers.
4.
Mechanization in the harvesting of sugarcane could minimize production losses to
some extent. It required a huge investment which is beyond the capacity of the
farmer. So, the state government should provide such facilities through sugar mills.
5.
Dual pricing of sugarcane should be modified because the SMP was relative lower
than the SAP which put extra burden to the state government. This wide gap between
the two prices slow down the payment to cane growers and thus paralyzed the
functioning of sugar mill.
6.
Zonal area should be extending in order to increase the volume of sugarcane supply to
the respective mills.
143
7.
Expansion of average crushing capacity of the sugar mills at both cooperative and
private sectors. Thus, there will be possibility of increasing area under sugarcane as
demand for sugarcane will increase.
8.
Adopt low cost sugar production technology and used of modern machinery to
improve percent recovery of sugar.
9.
Need to improve infrastructural facilities such as timely and regular supply of
electricity, irrigation in sugarcane growing areas.
10.
There should be easy availability of credit to the sugarcane farmers and sugar mill at
cheapest rate of interest.
11.
Decontrolling of sugar industry might improve the financial status of the sugar mills.
12.
The parity between open market price and levy price of sugar should be maintained to
reduce the financial stress of the sugar mill.
13.
Mills should concentrate more on efficient management and utilization of plant
through timely supervision and monitoring of the operation of the mills.
14.
The sugar industry should use technique of efficient utilization of working capital
by managing cash, account receivables and inventory. And efforts should be made
to reduce current liabilities to improve current ratios. The current and Quick Test
ratios should maintain standard ideal ratio to improve liquidity position of the
mills.
15.
Provision of subsidiary units such as production of alcohol and co-generation in the
mill to generate more income from same raw material.
16.
There is an urgent need to adoption of a tie-up arrangement among the sugarcane
grower, the sugar factory and the bank for ensuring better loan recovery.
Specifically the case study undertaken in the present study, the following suggestions
were made;
1.
There is a need for revitalization of the sugar mill by improving sugarcane production
and by improving its proper management.
2.
Close monitoring of the financial status should take up immediately.
3.
There should be provision of easy credit availability at lowest rate of interest.
4.
There is a need to increase capacity utilization of the mill and use of modern
machinery to crushed cane in order to improve technical efficiency of the mill.
5.
Human Resources Department should be appointed in the mill to harness the full
potential of their employees for attaining the excellence of the mill.
6.
The sick mill should be leased-out to efficient private sector till the mill become
economically and financially viable which will help to rejuvenate the sick mill.
7.
Contract farming for sugarcane should be adopt to ensure regular supply of sugarcane.
144
8.
The cost of production is higher since the sugar mill is a labour extensive. Therefore,
mechanization and automation in mill operation should be adopted.
9.
The Zira sugar mill should follow low cost model of efficient sugar mill.
Therefore, the mill should maintain to utilize their capacity efficiently and effectively
to consistence with the financial health. Lesser the government intervention in the operation
of sugar mill better the ability of the mill owners to tackle investment and pricing decisions
based on economic viability of the mill. An adoption of technology that reduces cost of
manufacturing of the mill would enable competition with the private sugar mills. In addition,
mechanization in sugarcane cultivation will reduce the cost of production which made the
farmers to realize better returns and will solve the problems of labour scarcity. Besides, there
should be sufficient and timely availability of electricity and irrigation in the state.
145
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156
Appendix-I
Area, production and productivity of sugarcane in India and Punjab and per cent share
of area and production of the state over the period of 1950-51 to 2011-12.
Year
India
Area
Yield
(000 ha) (tonnes/ha)
Punjab
Production
Area % share Yield Production % share
(000 tonnes)
1950-51
1707
32.1
54823
151
8.85
30
4471
8.16
1951-52
1941
38.5
74760
189
9.74
29
5456
7.30
1952-53
1728
35.8
61860
176
10.19
28
4958
8.01
1953-54
1410
38.2
53848
157
11.13
29
4480
8.32
1954-55
1620
43.5
70549
168
10.37
31
5253
7.45
1955-56
1847
31.6
58384
183
9.91
31
5653
9.68
1956-57
2051
40.5
82908
108
5.27
27
2923
3.53
1957-58
2072
40.3
83651
106
5.12
32
3434
4.11
1958-59
1948
44.2
86149
110
5.65
35
3817
4.43
1959-60
2137
42.7
91394
124
5.80
35
4318
4.72
1960-61
2415
45.5
110544
136
5.63
36
4871
4.41
1961-62
2413
43.1
103967
132
5.47
31
4151
3.99
1962-63
2242
41
91913
113
5.04
31
3519
3.83
1963-64
2249
46.4
104225
116
5.16
32
3686
3.54
1964-65
2603
46.9
122077
122
4.69
36
4440
3.64
1965-66
2836
43.7
123990
167
5.89
35
5770
4.65
1966-67
2301
40.3
92826
156
6.78
28
4360
4.70
1967-68
2046
46.7
95500
127
6.21
36
4550
4.76
1968-69
2532
49.2
124682
156
6.16
33
5150
4.13
1969-70
2749
49.1
135024
149
5.42
42
6180
4.58
1970-71
2615
48.3
126368
128
4.89
41
5270
4.17
1971-72
2390
47.5
113579
103
4.31
39
4030
3.55
1972-73
2452
50.9
124866
102
4.16
46
4690
3.76
1973-74
2752
51.2
140805
110
4.00
53
5820
4.13
1974-75
2894
49.9
144289
123
4.25
50
6150
4.26
1975-76
2762
50.9
140604
114
4.13
54
6130
4.36
1976-77
2866
53.4
153007
113
3.94
54
6070
3.97
1977-78
3151
56.2
176966
116
3.68
56
6520
3.68
1978-79
3088
49.1
151655
110
3.56
57
6240
4.11
1979-80
2610
49.4
128833
77
2.95
51
3930
3.05
1980-81
2667
57.8
154248
71
2.66
55
3920
2.54
1981-82
3193
58.4
186358
106
3.32
58
6120
3.28
1982-83
3358
56.4
189505
104
3.10
61
6340
3.35
1983-84
3110
56
174076
84
2.70
66
5530
3.18
1984-85
2953
57.7
170319
79
2.68
63
4920
2.89
1985-86
2850
59.9
170648
78
2.74
65
5050
2.96
1986-87
3079
60.4
186090
97
3.15
63
6110
3.28
1987-88
3279
60
196737
104
3.17
55
5820
2.96
1988-89
3329
61
203037
97
2.91
62
6000
2.96
1989-90
3439
65.6
225569
103
3.00
63
6500
2.88
1990-91
3686
65.4
241045
101
2.74
55.4
6000
2.49
1991-92
3844
66.1
253995
109
2.84
63.5
6920
2.72
1992-93
3572
63.8
228003
112
3.14
56.9
6369
2.79
1993-94
3422
67.1
229660
77
2.25
61.2
4710
2.05
1994-95
3867
71.3
275540
83
2.15
62.2
5160
1.87
1995-96
4147
67.8
281100
132
3.18
65.3
8620
3.07
1996-97
4174
66.5
277560
173
4.14
63.8
11040
3.98
1997-98
3930
71.1
279541
126
3.21
56.7
7150
2.56
1998-99
4055
71.2
288722
103
2.54
59.5
6130
2.12
1999-00
4220
70.9
299324
108
2.56
62.7
6770
2.26
2000-01
4316
68.6
295956
121
2.80
64.2
7770
2.63
2001-02
4412
67.4
297208
142
3.22
65.1
9250
3.11
2002-03
4520
63.6
287383
154
3.41
60.3
9290
3.23
2003-04
3938
59.4
233862
123
3.12
53.8
6620
2.83
2004-05
3661
64.8
237088
86
2.35
60.1
5170
2.18
2005-06
4202
66.9
281172
84
2.00
57.9
4860
1.73
2006-07
5151
69
355520
99
1.92
60.1
6020
1.69
2007-08
5055
68.9
348188
110
2.18
60.3
6690
1.92
2008-09
4415
64.5
285029
81
1.83
57.6
4670
1.64
2009-10
4175
70
292302
60
1.44
61.6
3700
1.27
2010-11
4944
68.6
339168
70
1.42
59.6
4170
1.23
2011-12
5081
68.463
347870
80
1.57
60
4800
1.38
ii
Appendix-II
Income or profit/loss statement and Balance Sheets
a. Morinda Cooperative Sugar Mills LTD. Morinda (Ropar)
(`)
Sr. No.
Particulars
2006
2007
2008
2009
2010
2011
A
Sales
295951486.00
273552741.64
249819869.46
510622308.95
412434297.15
195022051.38
1
Opening stock
276066660.00
204997324.98
252659668.83
427475612.40
244488136.48
138595258.80
2
Purchases
148600332.00
293874700.22
358871217.76
140488035.33
149440948.01
313539615.65
3
Direct expenses
75819540.00
97686015.17
121950357.16
95322642.65
106039719.98
123915427.69
4
Less: closing stock
204997326.00
252659668.83
427475612.40
244488136.48
138595258.80
352669970.39
B
Cost of goods sold (1+2+3-4)
295489206.00
343898371.54
306005631.35
418798153.90
361373545.67
223380331.75
C
Gross profit
462280.00
-70345629.90
-56185761.89
91824155.05
51060751.48
-28358280.37
D
Operating expenses
13091825.00
4656685.45
5071917.20
8377994.50
7684353.00
6420666.98
E
Operating profit (C-D)
-12629545.00
-75002315.35
-61257679.09
83446160.55
43376398.48
-34778947.35
F
Non-operating income
6890000.00
5356650
866079.29
813939.32
0.00
14247211.07
G
Non-operating expenses
16141197.00
12369831.23
20071471.83
28904031.95
13037668.14
15879939.72
H
EBIT (E+F-G)
-21880742.00
-82015496.58
-80463071.63
55356067.92
30338730.34
-36411676.00
I
Less: interest
16112445.00
12320815.69
20036766.63
28703262.15
12367899.89
15465814.88
J
EBT
-37993187.00
-94336312.27
-100499838.26
26652805.77
17970830.45
-51877490.88
K
Less: Tax
-
-
-
-
-
-
L
EAT
-37993187.00
-94336312.27
-100499838.26
26652805.77
17970830.45
-51877490.88
LIABILITIES
1
share capital
44606227
47741988.84
47742659.84
47742849.84
47745944.39
47765072.39
2
Reserve and surpluses
238261536
268959393.60
270598240.6
214155059.60
217214434.60
220208473.60
A
Net worth/ shareholder equity
(1+2)
282867763
316701382.44
318340900.44
261897909.44
264960378.99
267973545.99
iii
3
Secured loans
327486305
433342698.21
593165959.95
549396147.00
346279470.00
604591925.80
4
Unsecured Loans
B
Total debt/long term equity
(3+4)
327486305
433342698.21
593165959.95
549396147.00
346279470.00
604591925.80
C
Current liabilities
81196692
89753860.58
167642515.62
42388641.92
41137130.38
53152065.20
5
Previous year accumulated
loss/profit
6
Add: Current year loss
7
Less: current year's profit
D
Profit and loss (5+6-7)
E
Total liabilities (A+B+C+D)
691550760
839797941.23
1079149376.01
853682698.36
682715709.63
925717536.99
A
Fixed assets
206000332
205679397.29
206119888.60
210153860.82
218731450.69
221624936.69
B
Investment
12962400
12961400.00
12961400.00
12961400.00
12961400.00
12961400.00
1
Cash and balance
761019
2201378.29
2892097.40
2520993.39
6525474.20
6733895.31
2
inventories
213992674
279670954.78
438777697.29
326695154.31
186511569.81
418506616.64
3
loan and advances
25225619
24471619.33
23099821.21
20408886.25
25843411.34
27678339.02
C
Current assets
239979312
306343952.40
464769615.90
349625033.95
218880455.35
452918850.97
D
Net current asset
158782620
216590091.82
297127100.28
307236392.03
177743324.97
399766785.77
1
Previous year accumulated
loss/profit
232797695
232797694.96
314835399.84
336298471.51
232142403.59
201800673.33
2
Add: Current year loss
-
82015496.58
80463071.67
-
-
36411676.00
3
Less: current year's profit
-
-
-
55356067.92
-
-
E
Profit & Loss A/C (1+2-3)
232797695
314813191.5
395298471.5
280942403.6
232142403.6
238212349.3
F
TOTAL
691739739
839797941.23
1079149376.01
853682698.36
682715709.63
925717536.99
30338730.26
30338730.26
ASSETS
Capital employed
610354068.00
750044080.65
911506860.39
811294056.44
611239848.99
872565471.79
Quick assets
25986638.00
26672997.62
25991918.61
22929879.64
32368885.54
34412234.33
iv
b. Nawanshahr Cooperative Sugar Mill Limited, Nawanshahr (SBS Nagar)
(`)
Sr.
no.
Particulars
A
2006
2007
2008
2009
2010
2011
Sales
524182663.48
506520191.86
364537291.56
714315535.85
746671619.48
397679687.33
1
Opening stock
423937818.04
397983588.03
380249516.84
537553389.85
436723078.60
281438869.39
2
Purchases
336924080.00
423727941.00
447216879.00
393560651.00
330698898.00
473417289.00
3
Direct expenses
77507424.56
90418888.00
95565167.97
92533439.88
88676286.09
110328249.86
4
Less: closing
stock
397983588.03
380249516.84
537553389.85
436723078.60
281438869.39
477815940.78
B
Cost of goods sold
(1+2+3-4)
440385734.57
531880900.19
385478173.96
586924402.13
574659393.30
387368467.47
C
Gross profit
83796928.91
-25360708.33
-20940882.40
127391133.72
172012226.18
10311219.86
D
Operating
expenses
30844108.42
32457199.76
31399781.84
31745271.13
33978092.07
38132414.07
E
Operating
(C-D)
52952820.49
-57817908.09
-52340664.24
95645862.59
138034134.11
-27821194.21
F
Non-operating
income
10396327.44
2436100.55
5949280.98
5254157.39
9334026.97
8782023.03
G
Non-operating
expenses
18280503.96
5830872.34
18549071.09
31721038.97
7543838.19
4258948.90
H
EBIT (E+F-G)
45068643.97
-61212679.88
-64940454.35
69178981.01
139824322.89
-23298120.08
I
Less: interest
18202321.96
5698531.34
18411438.87
31592537.50
6544838.00
4110550.15
J
EBT
26866322.01
-66911211.22
-83351893.22
37586443.51
133279484.89
-27408670.23
profit
v
K
Less: Tax
L
EAT
26866322.01
-66911211.22
-83351893.22
37586443.51
133279484.89
-27408670.23
LIABILITIES
1
share capital
116497027.98
116493172.58
116494472.58
116496992.58
116494102.58
116494102.58
2
Reserve and
surpluses
30013263.74
30013263.74
29613263.74
29613263.74
30017240.74
30017240.74
A
Net worth
/ shareholder
equity (1+2)
146510291.72
146506436.32
146107736.32
146110256.32
146511343.32
146511343.32
3
Secured loans
217591200.31
206226351.79
361388628.75
383208304.12
46922000.00
257613924.81
4
Unsecured Loans
B
Total debt/long
term equity (3+4)
217591200.31
206226351.79
361388628.75
383208304.12
46922000.00
257613924.81
C
Current liabilities
262109662.23
306150619.29
384397723.48
274705774.73
275018001.28
284748326.82
5
Previous year
accumulated
loss/profit
424584598.04
424584598.04
424584598.04
493763578.55
634487001.44
207635577.34
6
Add: Current year
loss
7
Less: current year's
profit
D
Profit and loss
(5+6-7)
424584598.04
424584598.04
424584598.04
493763578.55
634487001.44
207635577.34
E
Total liabilities
(A+B+C+D)
1050795752.30
1083468005.44
1316478686.59
1297787913.72
1102938346.04
896509172.29
vi
ASSETS
A
Fixed assets
225831500.41
226328487.06
228870286.30
230009754.54
230922414.90
233071528.22
B
Investment
10353613.00
10333613.00
10331547.00
10343817.00
10350707.00
10351157.00
1
Cash and balance
5296548.11
2572947.30
1244531.48
1239352.84
18598493.97
6964488.01
2
inventories
415842690.56
399196203.96
564503779.76
499929199.06
326959581.54
530173860.93
3
loan and advances
93017110.35
83122784.37
84677117.95
129414366.18
89255724.93
92650018.05
C
Current assets
514156349.02
484891935.63
650425429.19
630582918.08
434813800.44
629788366.99
D
Net current asset
1
Previous year
accumulated
loss/profit
300454289.87
300454289.87
361910969.75
426851424.10
426851424.10
23298120.08
2
Add: Current year
loss
61456679.88
64940454.35
3
Less: current
year's profit
E
Profit & Loss A/C
(1+2-3)
361910969.8
426851424.10
426851424.10
426851424.10
23298120.08
F
TOTAL
1050795752.30
1083465005.44
1316478686.59
1297787913.72
1102938346.44
896509172.29
Capital employed
364101492.03
352732788.11
507496365.07
529318560.44
193433343.32
404125268.13
Quick assets
98313658.46
85695731.67
85921649.43
130653719.02
107854218.90
99614506.06
300454289.9
vii
Appendix-III
INCOME OR PROFIT/LOSS STATEMENT AND BALANCE SHEETS
a. Wahid Sandhar Sugar Limited, Phagwara
(`)
Sr.
no.
Particulars
A
2006
2007
2008
2009
2010
2011
Sales
660163101
864756047
946790855
1073142904
1080778594
759889089
1
Opening stock
291239466
368293692
385229712
430356825
390089817
392307321
2
Purchases
487295215
650782817
685631005
714134601
651101959
583069862
3
Direct expenses
102274549
126862761
146794191
148358755
212168772
130747699
4
Less: closing stock
365997244
385229712
430356825
390089817
392307321
540073323
B
Cost of goods sold
(1+2+3-4)
514811986
760709558
787298083
902760364
861053227
566051559
C
Gross profit
145351115
104046489
159492772
170382540
219725367
193837530
D
Operating expenses
22832801
28298190
33869743
29692601
28736189
30589583
E
Operating profit (CD)
122518314
75748299
125623029
140689939
190989178
163247947
F
Non-operating
income
608974
309280
902458
844851
1114724
1814441
G
Non-operating
expenses
51631709
56798522
105661043
109717345
132553619
115965079
H
EBIT (E+F-G)
71495579
19259057
20864444
31817445
59550283
49097309
viii
I
Less: interest
J
EBT
71495579
19259057
20864444
31817445
59550283
49097309
K
Less: Tax
8033815
7892677
9946223
18283375
24747623
17902192
L
EAT
63461764
11366380
10918221
13534070
34802660
31195117
LIABILITITIES
1
share capital
132500800
137500800
137500800
197500800
197500800
197500800
2
Reserve and surpluses
102052403
123336128
141385785
229170890
278427249
318796141
A
Net worth
/ shareholder equity
(1+2)
234553203
260836928
278886585
426671690
475928049
516296941
3
Secured loans
229723244
739025671
836407147
944925064
1004667167
928987622
4
Unsecured Loans
49232382
67732382
66232382
74062382
98793552
51932510
5
Other terms liabilities
12756392
13064212
14837818
15503776
13700667
12846005
B
Total debt/long term
equity (3+4+5)
291712018
819822265
917477347
1034491222
1117161386
993766137
C
Current liabilities
105729600
100631226
357539849
247231372
221199159
319811792
5
Previous year
accumulated
loss/profit
6
Add: Current year loss
7
Less: current year's
profit
D
Profit and loss (5+6-7)
ix
E
Total liabilities
(A+B+C+D)
631994821
1181290419
1553903781
1708394284
1814288594
1829874870
ASSETS
A
Fixed assets
199269559
608717545
635866367
1064750396
1185860746
1089740072
B
Investment
2000000
2000000
2000000
2000000
2000000
2000000
1
Cash and balance
12606685
63400823
184246764
37109509
29749123
35372435
2
inventories
371495820
420732290
474555660
449104176
449490927
584376470
3
loan and advances
46622757
86439761
257234990
155430203
147187798
118385893
C
Current assets
430725262
570572874
916037414
641643888
626427848
738134798
D
Net current asset
324995662
469941648
558497565
394412516
405228689
418323006
1
Previous year
accumulated
loss/profit
2
Add: Current year
loss
3
Less: current year's
profit
E
Profit & Loss A/C
(1+2-3)
F
TOTAL
631994821
1181290419
1553903781
1708394284
1814288594
1829874870
Capital employed
526265221
1080659193
1196363932
1461162912
1593089435
1510063078
Quick assets
59229442
149840584
441481754
192539712
176936921
153758328
x
b. Indian Sucrose Limited, Mukerian
(`)
Sr.
no.
Particulars
A
2006
2007
2008
2009
2010
2011
Sales
1017556450
1071720837
1158883345
1017222611
1038436727
1141189318
1
Opening stock
359884959
385548637
570814971
570673958
575949308
614310950
2
Purchases
600147930
855577989
818744845
659999388
689709345
1156498925
3
Direct expenses
146325615
181554487
180487583
192184952
169341511
222573887
4
Less: closing stock
385548637
570814972
570673958
575949307
614310950
1041411458
B
Cost of goods sold
(1+2+3-4)
720809867
851866141
999373441
846908991
820689214
951972304
C
Gross profit
296746583
219854696
159509904
170313620
217747513
189217014
D
Operating
expenses
48158682
39633840
54019201
64163765
81163566
117770879
E
Operating
(C-D)
248587901
180220856
105490703
106149855
136583947
71446135
F
Non-operating
income
1204049
1092811
421737
486266
12651372
97659941
G
Non-operating
expenses
67901755
58533727
34766102
27758871
68828286
60751234
H
EBIT (E+F-G)
181890195
122779940
71146338
78877250
80407033
108354842
I
Less: interest
36885918
36194817
60064916
59155568
103265053
62836791
J
EBT
145004277
86585123
11081422
19721682
-22858020
161480871
profit
xi
K
Less: Tax
55763726
43034402
12083068
9261791
29015067
-2085557
L
EAT
89240551
43550721
-1001646
10459891
-51873087
163566428
LIABILITIES
1
share capital
154182570
154183320
154183320
154183320
224183320
224183320
2
Reserve and
surpluses
123992188
181215568
169926907
208520100
253975053
260254407
A
Net worth
/ shareholder
equity (1+2)
278174758
335398888
324110227
362703420
478158373
484437727
3
Secured loans
549964493
632683717
650423666
921965718
1018710115
1535293371
4
Unsecured Loans
6230000
4451773
4849564
2150000
111057600
100109209
57106549
99308274
110764899
100631940
92825154
86602006
B
Total debt/long
term equity (3+4)
613301042
736443764
766038129
1024747658
1222592869
1722004586
C
Current liabilities
213633580
381344249
544445198
964391527
1217221160
722413641
5
Previous year
accumulated
loss/profit
6
Add: Current year
loss
7
Less: current year's
profit
D
Profit and loss
(5+6-7)
0
0
0
0
0
0
xii
E
Total liabilities
(A+B+C+D)
1105109380
1453186901
1634593554
2351842605
2917972402
2928855954
ASSETS
A
Fixed assets
508837966
594538366
555437437
541717135
900680506
866472624
B
Investment
11722532
11722532
11722532
20222532
20222532
74222532
1
Cash and balance
64496861
81446203
7676859
278201480
212478980
20516350
2
inventories
414647633
609255537
614339994
619977925
686895083
1080717018
3
loan and advances
105404388
156224263
445416732
891723533
1097695301
886927430
C
Current assets
584548882
846926003
1067433585
1789902938
1997069364
1988160798
D
Net current asset
370915302
465581754
522988387
825511411
779848204
1265747157
1
Previous year
accumulated
loss/profit
2
Add: Current year
loss
3
Less: current
year's profit
E
Profit & Loss A/C
(1+2-3)
F
TOTAL
1105109380
1453186901
1634593554
2351842605
2917972402
2928855954
Capital employed
891475800
1071842652
1090148356
1387451078
1700751242
2206442313
Quick assets
169901249
237670466
453093591
1169925013
1310174281
907443780
xiii
APPENDIX-IV
Average cane crushed, percent recovery of sugar and production of sugar in India and
Punjab over the period of 1950-51 to 2010-11
Year
Punjab
India
Sugar
(lakh
tonnes)
Average cane
crushed
(lakh tonnes)
Recovery
(%)
Sugar
Production
(lakh tonnes)
Average
cane crushed
(lakh tonnes)
Recovery
(%)
1950-51
0.11
1.16
9.77
11.01
109.71
10.03
1951-52
0.20
2.17
9.41
14.83
154.95
9.57
1952-53
0.16
2.6
10.21
13.14
131.73
9.98
1953-54
0.16
1.54
10.06
10.01
99.33
10.08
1954-55
0.10
3.2
9.18
16.9
160.11
9.92
1955-56
0.38
4.31
8.87
18.62
188.37
9.83
1956-57
0.59
6.3
9.01
20.59
211.87
9.73
1957-58
0.83
8.88
9.42
19.78
197.39
10.01
1958-59
0.70
8.18
8.58
19.18
194.87
9.84
1959-60
1.02
11.19
9.14
24.21
244.2
9.91
1960-61
1.22
13.72
8.92
30.28
311.09
9.74
1961-62
0.91
11.01
8.22
27.3
279.37
9.77
1962-63
0.61
6.96
8.93
21.35
207.65
10.24
1963-64
0.69
7.95
8.67
25.62
256.32
9.96
1964-65
0.98
11.58
8.49
32.32
334.59
9.64
1965-66
0.60
7.5
8.58
35.32
364.04
9.68
1966-67
0.35
4.19
8.32
21.58
216.59
9.91
1967-68
0.27
3.26
8.2
22.47
225.99
9.94
1968-69
0.38
5.46
6.93
35.57
376.61
9.46
1969-70
0.69
7.93
8.73
42.61
456.72
9.33
1970-71
0.48
5.61
8.57
37.4
382.04
9.78
1971-72
0.31
3.57
8.75
31.08
309.74
10.03
1972-73
0.42
5.13
8.09
38.73
404.064
9.57
1973-74
0.67
8.04
8.3
39.49
422.83
9.34
1974-75
0.77
8.57
9.02
47.95
484.25
9.9
1975-76
0.82
9.62
8.53
42.61
418.49
10.19
1976-77
0.86
9.4
9.16
48.4
489.67
9.92
1977-78
0.99
10.11
9.01
64.57
672.88
9.66
1978-79
0.94
9.94
9.43
58.41
597.15
9.78
xiv
1979-80
0.52
5.15
10.14
38.58
390.48
9.88
1980-81
0.51
5.86
8.78
51.5
515.98
9.98
1981-82
1.49
15.34
9.71
84.4
873.56
9.66
1982-83
1.5
14.17
10.62
82.3
826.94
9.96
1983-84
1.46
13.96
10.47
59.2
590.22
10.03
1984-85
1.42
13.39
10.63
61.4
600.69
10.24
1985-86
1.46
15.02
9.78
70.2
685.76
10.23
1986-87
2.34
24.15
9.69
85
852.24
9.98
1987-88
2.1
20.75
10.18
91.1
939.43
9.7
1988-89
2.45
25.47
9.61
87.5
856.93
10.21
1989-90
2.95
32.36
9.13
109.9
1111.49
9.89
1990-91
2.75
31.02
8.95
120.5
1223.19
9.85
1991-92
3.84
41.73
9.23
134
1339.87
10.02
1992-93
4.09
43.51
9.39
106.1
1030.02
10.31
1993-94
3.11
33.62
9.27
98.3
983.48
10.01
1994-95
3.19
35.05
9.13
146.4
1476.43
9.93
1995-96
6.33
73
8.7
174.8
1747.61
9.43
1996-97
6.13
69.21
8.86
130.4
1303.79
9.9
1997-98
3.31
36.6
9.05
128.5
1291.88
9.95
1998-99
3.11
36.63
8.49
155.4
1575.6
9.85
1999-00
4.21
46.24
9.1
182
1785.15
10.2
2000-01
4.96
51.13
9.7
185.1
1766.51
10.48
2001-02
5.93
62.81
9.45
185.3
1803.21
10.27
2002-03
5.87
60.35
9.72
201.4
1943.24
10.36
2003-04
3.9
40.06
9.72
135.5
1325.11
10.22
2004-05
3.15
32.2
9.79
126.9
1247.71
10.17
2005-06
3.38
36.76
9.18
193.21
1886.72
10.22
2006-07
5.5
50.91
9.55
281.99
2792
10.17
2007-08
5.34
57.61
9.26
262.98
2499
10.55
2008-09
2.4
26.04
9.29
263.3
1450
10.03
2009-10
1.81
21.12
8.59
189.05
1855.48
10.2
2010-11
2.85
34.33
8.8
245.4
2398.07
10.17
xv
VITA
Name of the Student
: ABUJAM ANURADHA DEVI
Father’s Name
: Abujam Ibochouba Singh
Mother’s Name
: Abujam Chandrakala Devi
Nationality
: Indian
Date of Birth
: July 23, 1983
Permanent Address
: Sugnu Makha Leikai, P.O. Sugnu, District-Thoubal,
Sugnu-795101, Manipur
EDUCATIONAL QUALIFICATION
Bachelor’s Degree
University and year of award
: B.Sc. Agricultural (Hons.)
HNB Garhwal University, Srinagar (Uttarakhand), 2007
Percentage of marks
: 8.27
Master’s Degree
M.Sc. (Agricultural Economics)
University and year of award
Central Agricultural University, Imphal, 2010
OCPA
: 8.34/10.00
Title of the thesis
: “Economics analysis of fish farm production in Thoubal
district of Manipur”
Doctorate’s Degree
University and year of award
: Ph. D. (Agricultural Economics)
Punjab Agricultural University, Ludhiana, 2013
OCPA
: 7.94/10.00
Title of the thesis
: “An economic analysis of sugar industry in Punjab”
Awards/Distinctions/Fellowship/Scholarships
 Cleared All India ICAR-JRF examination for PG programme
 Central Agricultural University Merit Fellowship during Master’s Degree
 Punjab Agricultural University Merit Scholarship during Ph.D. Degree
 Awarded INSPIRE Fellowship by DST, Government of India, New Delhi