Impact of Regulation on Sugar Sector: The Way Forward on Firms Profitability and Efficiency

The study has analyzed the trends in administratively determined prices of sugarcane, i.e. Fair & Remunerative Price (FRP) and State Advised Price (SAP), their diversion and relationship with cost of sugarcane for the period 2000–01 to 2014–15. Its effect on cost of sugar production and trends in ex-mill sugar prices have also been analyzed. It has also empirically estimated the relationship between sugar and sugarcane prices and also calculated the profitability and technical efficiency of sugar industry in India. The trends in cane price arrears along with possible reasons have also been analyzed. The study is based on secondary data collected from various published sources. The study has found that the surplus production of sugar for the past few years has resulted in declining ex-mill sugar prices, while the administratively determined sugarcane prices have shown an increasing trend. The absence of co-integration between sugar and cane prices and the existing inefficiency in Indian sugar industry has resulted in mounting cane arrears to be paid to the sugarcane farmers. However, during the past two years, cane arrears have declined due to a number of government measures like production subsidy to sugarcane farmers, interest free loan and soft loan to sugar industry, etc. The study concluded that various public policies have shown a positive impact on the area under sugarcane. The problems of non-profitability of sugar industry, delayed payment to sugarcane growers and inefficiency in sugar industry need urgent policy attention.