International competitiveness of Indian sugar industry

Abstract

Despite being the largest producer of sugar in the world, doubts are often raised about global competitiveness of the Indian sugar industry by quarters concerned with future direction of industry’s trade in a liberalized and global framework. The doubts are compounded by several factors like swinging government policy over export and import and widespread controls at different levels of the industry. The objective of the present research is to unveil the true picture about the global competitiveness of this industry and to analyze the factors responsible for its competitiveness. The research questions which are specifically addressed are: 1. Is the sugar industry in India internationally competitive in the domestic as well as in foreign markets? How robust is the international competitiveness? 2. How does the international competitiveness vary across major sugar producing states in Indi a? 3. What is the broad pattern of international competitiveness of the Indian sugar industry in the early 90s? 4. How strong is the competitive positions of India's well known Sugar factories? 5. What are the factors affecting the international competitiveness of Indian sugar industry? Which factors are more important which are the factors within the control of firm and the nation and which are beyond their control? 6. What is the impact of downstream units (utilized by the product of sugar industry as raw material) on the international competitiveness of the Indian sugar industry? Earlier studies on international competitiveness of Indian sugar industry are found to be quite partial and incomplete as they fail to take into consideration the competitive potential of the entire biomass of sugarcane as it passes from the hands of the farmers to the industry for various possible users. They are essential static in nature and refer to a single point in time and thus fail to bring out the robustness of result. This is particularly important when not only the international prices are volatile but also these are subject to fairly large changes in a number of parameters both at home and abroad. The present study is based on domestic resource cost (cost) analyze using a policy analyze matrix (PAM ) framework which is capable of incorporating a large number of policy parameters covering the entire gamut of industrial uses of the bio-mass called sugarcane and thus providing a broader social perspective to the whole exercise. It also enable to judging the robustness of result arrived at through sensitivity analyze. The present study estimates international competitiveness of Indian sugar industry at national state and firm level. For state level analyze six major sugar producing states namely Maharashtra, Uttar Pradesh, Tamil Nadu , Karnataka, Andhra Pradesh and Gujarat. For firm level analyze sample firms are selected from the states of Maharashtra , Uttar Pradesh and Gujarat of varying sizes and complexity. Following are some of the important findings of the study: • On the import front, the sugar industry in India and in all the major states remains internationally competitive in all the three years - i.e. 1990, 1994 and 1995. Global competitiveness in the domestic market in fact improved in a good crop year {i.e. 1995) over the other two years. • On export front, India and all its major sugar producing states except Karnataka and Tamilnadu are not internationally competitive in sugar in the year 1990. In 1994 only the states of Gujarat, Karnataka and Maharashtra become export competitive. However, the industry becomes fully (i.e. for the country as well as its major states) export competitive during the good crop year of 1995. • All the sample firms except one (Palaj) are also found to be internationally competitive on the import front. • Some good cooperative and private sugar firms like Warana, Balrampur and Simbhaoli are globally competitive; some firms like Gandevi and Sanjivani are marginally non competitive, while a weak unit like Palaj remains consistently and significantly below global competitiveness mark on export front. • Downstream units (distillery, paper and chemical) consistently improve global competitiveness of the sugar industry. • International price of sugar and exchange rate are two international level parameters that have major influence on competitiveness of this industry, but even a large country like India has only a limited control over these parameters. • Cane crushed, sugar recovery rate and cane yield are three parameters that have major impact on competitiveness of this industry and which are within the control of firm and nation. • Non-tradable and tradable items of cane production cost, and cane processing cost including wage bill, interest expenses, cane development expenses and local transportation expenses are some of the items which too have significant influence on international competitiveness of the sugar industry. Interestingly, these are some of the parameters, which are primarily under the control of the firms at the micro level. • Some implications of the present study are: • In sharp contrast to the fear expressed in the earlier literature on India's sugar global competitiveness position {i.e. the results based on the traditional and partial measures), a comprehensive DRCR analysis shows that India as well as its major sugar producing states are in a strong position to face international competition not only In the domestic market but also in the international market. However, not all the states and firms are always likely to be competitive in the international market. Only potentially efficient states and firms which economies on the use of net • non-tradable resources and maximize the production of net tradable resources are going to remain competitive even under adverse conditions with unfavourable movements of such parameters as the exchange rate, international price, cane yield, sugar recovery rate etc. • Through establishment of downstream by - product units and by moving the parameters under control of the government and firms in a favorable direction (e.g. by partly relaxing the repressive regulations in this industry) it is possible to improve the competitiveness of the firms which are not far below the competitiveness mark. • This methodology coupled with sensitivity analysis is capable of isolating the potentially competitive firms from those, which are totally inefficient and do not stand a chance of survival in a competitive environment even with reasonable government support.