The sugar cooperatives of Maharashtra contribute substantially to the state’s economy, and were instrumental in making farmers in the sugar belt prosperous. Ninety five per cent of sugar produced in Maharashtra comes from the cooperative segment and the rest from the private mills. The turnover of the cooperative industry in the state is Rs.12,000 crores. Maharashtra’s cooperative segment accounts for 30 per cent of the national sugar production. Each year, sugar cooperatives contribute Rs.1800 crores to the state exchequer and a further Rs.450 crores to the central exchequer through the network of 182 sugar cooperative mills in the state.

Despite their impressive record and current size, however, sugar cooperatives today are losing their sheen, with nearly 40 per cent of the mills losing money and facing closure. State-wide, 71 mills are sick, and in Vidarbha alone, 17 are either sick or have already gone under liquidation. The early days of the cooperative movement, which saw farmers come together to protect their collective interest, have given way over the years, and been replaced by corruption and mismanagement of the affairs of cooperatives. A vast class divide has also steadily eroded the collectives, with a few farmers – holding massive tracts of land and producing vast quantities of cane – dominating the management of mills, and even acting vindictively against the interests of small farmers.

A success story

The first sugar cooperative was established by Vithalrao Vikhe Patil as a reaction to the plight of cane-growing peasants who were trapped by landlessness, money lenders and the exploitative policies of private sugar mills. In the mid-1940s farmers struggled to market their sugarcane. Extracting sugar from cane was expensive, so most of the farmers used to convert their sugar into jaggery. This would invariably lead to an excess of jaggery in the market. Inevitably the price of jaggery would reach rock bottom, leaving the farmers trapped between the high costs of cane processing and the low prices for jaggery. This could only be overcome if cane farmers were assured of off-take of their cane by mills at reasonable prices. And in 1948, Vikhe Patil achieved just that, organising the sugarcane growers of 44 villages in Ahmednagar district in western Maharashtra. The result was Asia’s first cooperative sugar factory, commissioned in 1950.

Although in theory all farmers were shareholder of the mill, the distance between the board and the small farmers is so great that some farmers remove their shoes before entering the Chairman’s office.

The hallmark of a sugar cooperative, like many other agricultural co-operatives, is the inclusion of all farmers as shareholders of the processing unit regardless of the size of their holding. A typical mill caters to 20,000 shareholding farmers. The members come together and raise 10 to 15 per cent of the seed money by way of share capital. The State government, with a view to encourage and promote the cooperative initiatives, took up equity position upto 30 per cent of the capital investment in many cooperatives, while balance was raised through cooperative financial institutions.

Land-holding was, and still is, the sole criterion for membership in such societies. “For a farmer to become a shareholder in a mill, the main thing is that the land should be in his name. And he has to make a commitment to contribute a certain amount of cane per season and the mill is bound to take his sugarcane,” says Ashok Kalbhor, Chairman of Yashwant SSK Ltd, a sugar cooperative at Theur, about 30 kms from Pune. The mill, with a capacity to crush 3500 metric tonnes daily, has 18,000 members and a 25-strong Board of Directors. When I visited the mill, its entrance was lined with trucks filled with sugarcane from nearby villages. The place was abuzz with farmers big and small, many in broad turbans and still others in safari suits, their attire reflecting their economic standing. There were farmers with small landholdings of just three acres, while other farmers with huge land holdings contribute as much as 7000 tonnes of sugar cane to the mill.

With so many families’ fortunes tied to the success of each mill, successive governments have taken care to ensure a reasonable price for cane growers. Although a levy on sugar mills is used to fund procurements of sugar for the Public Distribution System, over the years most farmers found the support prices adequate. “There might be some problems with the sugar cooperative segment, but it is solely responsible for making farmers prosperous. Because of the cooperatives, farmers have better schools and better education for their children,” says Prakash Naiknavare, Managing Director, Maharashtra State Co-op Sugar Factories Federation.

This is especially significant, given the great vagaries of sugar economics. The sugar industry has been known for decades for its cycles of surpluses and shortages, typically every three or four years, but the collectives helped protect the livelihoods of hundreds of thousands of families through the cooperatives and their systems of guranteed off-take and credit.

Big farmer, little farmer

Managing entities with tens of thousands of shareholders is no simple task, and over the years the management of many mills began to lose the purposefulness of the cooperative movement’s beginnings. The basic idea behind the cooperative, of involvement of farmers as shareholders in the sugar mill regardless of the size of their holdings, became diluted, and farmers with larger holdings grew more powerful. This effectively altered the power structure of the cooperatives and corruption became rampant. It is often rich farmers who occupy the top positions in a cooperative, even though most farmers have small or moderate holdings. “It happens everywhere. The big fish always tries to dominate the pond,” shrugs Arvind Jadhav, who is a shareholder in Theur sugar mill. “While small farmers remain small, big farmers become more and more powerful.” At Theur mill, there is no feeling among the farmers that the mill belongs to them.

Naiknavare acknowledges the problem, but is quick to offer an exaplanation too. “Because of the large number of shareholders decision making is usually a very cumbersome process. It is for this reason that cooperatives are very good at missing the bus. I wouldn’t say that the cooperative model is flawed but the implementation is not professional minded. It is difficult to take a decision with such a large number of shareholders,” he says.

Neglect of small farmers is not the only issue. Many farmers allege corruption is the real reason why the cooperative movement today is at a crossroads. One small farmer, speaking on condition of anonymity, explains, “In a sugar mill, there is a cost of converting sugarcane to sugar, which comes under ‘miscellaneous purchases’ and this varies from Rs.400 to Rs.2200 per quintal, so you can imagine the level of corruption in these expenses.” In many cases, management of the mills is almost dynastic, with families of rich farmers governing the mill as if it belongs to them and not to the shareholders. Most of the time, a farmer with small land-holding will not even bother to fight the elections [to the board].”

Farmers at Theur sugar mill agree that they would never really contest elections. They cite the case of the Sangamner factory’s governing body election around 1995. Like other factories, rich farmers also governed this factory. A small farmer named Tanpure decided to contest the elections. Not only did Tanpure lose the elections, he also had to sell his produce at a much lower price simply because the rich farmers made sure the mill delayed the collection of his harvest from his land. If sugarcane is not cut in time, the sugar yield will be lower, and mills offer a lower price as a result. Poor farmers are often also in debt to rich farmers, and this is another reason they are forced to tolerate mill managements that blatantly favour the larger shareholders.

Changing times

Amidst all this, the economy of sugar has changed greatly. While domestic sugar production has increased in the last decade, consumption has grown at a sluggish pace. This has led to accumulation of stocks with sugar mills, and as a result, prices have remained depressed. This year, the government’s support price of Rs.1300 per quintal is too low, feel farmers. “I will suffer a loss but I have to sell the yield at this price. The price has been fixed by the government, but it doesn’t meet our expenses,” says Sachin Patil, a sugarcane farmer.

Sugar factory owners too are inclined to agree. “The government has offered the price of Rs.1300 per quintal this year. But we have given Rs.900 per quintal to the farmers and additional Rs.600 per quintal was spent on conversion from sugarcane to sugar. So the selling price is less than the cost price. We are not recovering our investment. Also, in a sugar factory today, sugar has become a by-product. Alcohol, which used to be a by-product, provides more profit now. In fact, we are able to meet factory demands only because of alcohol,” says Kalbhor. Yashwant SSK Ltd produces 32,000 litres of alcohol, which is sold through tender.

Globally too, a glut in production has kept sugar prices low, and to keep out low-priced imports, the government has a high tariff in place. Low global prices also mean limited export potential for Indian sugar. Only five per cent of Indian sugar is exported, and in an effort to boost exports, both the Central and state governments have announced incentives. This year the Maharashtra government has announced an the export subsidy of Rs 1,000 per tonne, which is over and above the export subsidy of Rs 1,350 a quintal announced by the Central Government. The subsidy is available for exports upto 10 lakh tonnes. These may prove vital, especially significant since the production this year is a record 79.06 lakh tonnes, against 67 lakh tonnes last year, and the state could be left with a significant carryover stock at the end of the sugar season.