Estimation of Economic Efficiency of Sugar Industry in Uttar Pradesh: A Frontier Production Function Approach (original) (raw)

Abstract

Sugar industry of the state of Uttar Pradesh has a symbiotic relationship with the rural masses and serves as a nerve centre for the rural development. The state of Uttar Pradesh is one of the major sugar producing states in the country. The state registered 20.35 lakh ha area under sugarcane cultivation out of the total 44.03 lakh ha of area under sugarcane in the country in 2002-03 (CMIE, 2004). During the same period, the production of cane was 11.62 million tonnes accounting for 38.61 per cent of the total cane production of the country. The state recorded a growth of 2.84, 1.38 and 1.43 per cent annually in sugarcane production, productivity and acreage, respectively during 1961-2002. There is a network of 113 sugar factories in the state out of the total of 453 sugar factories in the country (Anonymous, 2003). In spite of the existing good forward and backward linkages in the state, there was a great deal of instability in sugar production compared with other industries as a result of interdependence and interrelationship between gur, khandsari and white sugar. Nearly 60 per cent of the cane produced in the state is sold to gur and khandsari production units. Cane growers take advantage of the present system of operation and depending upon the acreage of crop, and the price of gur relative to the sugar prices, they regulate supply of cane to the factories thereby posing a serious threat to the sugar industry affecting its performance adversely. Although the state holds a leading position in production of sugar (28.6 per cent of total), its average recovery (9.05 per cent) is below the country's average recovery (9.75 per cent). In view of the slow growth and increasing instability in production, the sugar economy of the state could benefit a great deal from inefficiency studies. Moreover, the estimates on the extent and sources of inefficiencies could help to improve efficiency or to develop new technology to raise the sugar productivity in Uttar Pradesh. This necessitates an analysis of efficiency of the sugar factories across different regions of the state, which in turn, would help in formulating the policy measures to mitigate the various constraints in the Indian sugar industry, particularly in Uttar Pradesh.

Key takeaways

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  1. Uttar Pradesh accounts for 28.6% of India's sugar production with average recovery at 9.05%.
  2. The overall efficiency of the sugar industry in Uttar Pradesh is 73.5%, varying by region.
  3. Private sector factories in the western region exhibit the highest efficiency at 84.29%.
  4. Factory-specific efficiencies range from 45.24% to 92.06%, indicating significant variability.
  5. The study aims to identify inefficiencies to enhance sugar productivity through policy measures.

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References (4)

  1. Anonymous (2003), Indian Sugar Year Book, Volume I, Indian Sugar Mills Association, Ansal Plaza, C-Block, IInd Floor, August Kranti Marg, Andrews Ganj, New Delhi-110 049. Centre for Monitoring Indian Economy (CMIE) (2004), Agriculture, Mumbai, February. Government of India (1965), Sen Enquiry Commission Report on Sugar Industry of India, Ministry of Food, New Delhi. Government of India (1969), Tariff Commission Report on Cost Structure of the Sugar Industry and the Fair Price for Sugar, Ministry of Food, New Delhi.
  2. Government of India (1973), Tariff Commission Report on Cost Structure of the Sugar Industry and the Fair Price for Sugar, Ministry of Food, New Delhi.
  3. Jondrow, J.C, C.A.K. Lovell, I.S. Materov and P. Schmidt (1982), "On the Estimation of the Technical Efficiency in the Stochastic Frontier Production", Journal of Econometrics, Vol.19, No.1, pp.233-238.
  4. Russel, N.P. and T. Young, (1983), "Frontier Production Function and the Measurement of Technical Efficiency", Journal of Agricultural Economics, Vol.34, No.2, pp.139-150.