Those who demand reform in the sugar sector in Uttar Pradesh often cite the example of Maharashtra, the country's largest sugar producing state. While Uttar Pradesh has been criticised roundly for fixing the sugarcane prices so high that mills have run up arrears of thousands of crores, Maharashtra has been admired for linking sugarcane prices to sugar prices.

However, as on April 15, Maharashtra too has run up sugarcane arrears of Rs 3,500 crore. Though this is way below the arrears of Rs 11,000 crore in Uttar Pradesh, it is worth noting that a year ago there were zero arrears in Maharashtra. As a result, resentment amongst farmers is high. The mills are being blamed for inefficiency.

Maharashtra had set up the Sugarcane Price Regulatory Authority. It said that while sugarcane prices should be linked to sugar prices in the market, under no circumstances should the farmer be paid less than the fair and remunerative price mandated by the central government - Rs 2,200 per tonne for the 2014-15 crushing season.

However, thanks to bumper production, sugar prices have fallen sharply, to the extent that the mills find it difficult to pay the fair and remunerative price. The Bharatiya Janata Party-led Maharashtra government recently announced waiver of sugarcane purchase tax and Rs 2,000-crore interest-free loan so that mills can clear the dues of the farmers. This apart, the office of the Sugar Commissioner has initiated the recovery process against about 140 mills that have not fully paid the sugarcane growers.

Now that sugar has been fully decontrolled (earlier, the government used to control prices by overseeing the monthly release from the mills to the market), the mills have to become efficient if they want to survive. Maharashtra's politically influential cooperative sugar industry is somewhat lacking in this discipline. (Apart from 99 cooperative mills, there are also 79 private mills in the state.) The accumulated loss of 65 (functional) cooperative mills in 2013-14 was a whopping Rs 2,547.06 crore and they had a negative net worth of Rs 2,347.54 crore.

The cooperative mills were rattled after Reliance Industries in May 2006 expressed its desire to produce ethanol by using the facility of a closed industrial unit in the sugarcane rich Pune district. Sharad Pawar, who was the Union agriculture minister at that time, said that no one will supply sugarcane to them once Reliance Industries enters the sector. He asked them to wake up or face the consequences. Although Reliance Industries' plan did not materialise, a large number of cooperative sugar mills continue to operate below capacity and without professionalism and transparency,
 

Despite a scathing report by the National Bank for Agriculture and Rural Development in early 2011 for dillydallying over repayment of loans to banks and payments to farmers, cooperative sugar mills preferred to look at the government for a host of packages to survive temporarily.

In September 2013, Pawar again threatened not to help the mills unless they turned competitive and innovative. He asked them to focus on increasing per-hectare productivity and reduce reliance on state and central governments for a bailout. Subsequently, the Comptroller & Auditor General in its report for 2014 slammed the Maharashtra government for its lax approach towards the recovery of dues from cooperative sugar mills.

A long history of growth
It was way back in 1950 when Vitthalrao Vikhe-Patil set up the first cooperative sugar mill in the cane growing Ahmednagar district. Vikhe-Patil took the lead to address the issue of exploitation of cane growers by private mills and money lenders. After the formation of Maharashtra in 1960, the successive governments encouraged the development of cooperative sugar mills and provided part of the capital, loans, subsidies and export incentives for sustaining the financial health of the sector. However, over the years, the sugar mills turned power centres and training ground for aspiring politicians. Cooperatives also became family enterprises.

A senior government officer admits that lack of professionalism impacts the optimum use of resources and restricts the sugarcane crushing capacity, thereby impacting the financial viability of the mills. A high-level committee appointed by the previous Congress-NCP government blamed high cost of production and low profitability for the present state of affairs. The committee observed that due to lack of proper management skills, sugar mills were unable to control the cost of chemicals, manpower, fuel and transportation.

Swabhimani Shetkari Sanghatana, which is a representative body of sugarcane growers, has been at the forefront to demand higher prices for sugarcane. Its president Raju Shetti, also a Member of Parliament, alleges that cooperative sugar mills have been diverting money into politics. Besides, promoters are also responsible to make the mills sick and then close them down. After they shut the mills, they themselves buy these mills. The privatisation has turned the people against the sugar barons. He says the bailout packages provided by the Central and state governments have not made mills financially sound nor have sugarcane growers benefited.

Prakash Naiknavare, country head of Sugar Maxx Inc, says: "Maharashtra still can remain a role model for sugar sector provided it does some serious introspection along with SWOT analysis at this crucial juncture. About half of the total sugarcane processing has now state of the art automation due to the rise of the private sector, and access to the Jawaharlal Nehru Port Trust gives a distinct advantage." However, he insisted that the need of the hour is to inject professionalism from top to bottom.

Naiknavare, who was for 12 years the managing director of the Federation of Cooperative Sugar Mills in Maharashtra, notes that the major challenges include lack of marketing management and adequate training. He, however, hopes that timely steps will help the state retain its supremacy on the sugar map.
 

The federation's present managing director, Sanjeev Babar, says the picture is not bleak but insists that cooperative sugar industry in particular will have to explore diversification option.