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Volume : 2 | Issue : 12 | December 2013 • ISSN No 2277 – 8179 Research Paper
Dr. B Vijaya Professor in Commerce, Dept of Commerce, Gulbarga University Gulbarga
Sangashetty Kanteppa
Assistant Professor in Commerce, Govt First Grade College Manahalli
Tq.Dist:Bidar PIN 585403,karnataka
ABSTRACT The basic aim of any organization is to maximize the profit so we have two options, one is increasing the
sales and another one is decreasing the cost of product. Here cut down the expenditure and reduce the cost of
production and the cost reduction is real and permanent reeducation in unit cost without reducing quality. The basic object of this paper
is what is the best way the cost of sugar production per unit can be controlled and reduced. To find out present cost management
loop wholes in sugar industry and give suitable suggestion to overcome those hurdles with The collected information and tabulated
by using simple calculations and presented result by using graphs and tables.
Cost Management in Sugar Industry KEYWORDS : Cost of Production, Cost
Reduction, Profit and Management
Cost reduction is the essential part of the sugar industry so it’s
real and perment reduction in unit cost is utmost important.
Cost efficiencies which is the key to survival and growth in
present and future global cutthroat competition a rational approach
for continues cost reduction programme to keep cost
structure to the lowest possible level. In long run cost efficient
organization has best chances for survival and growth and it is
continues phenomena.
Introduction to sugar industry
Diversification of activities is the characteristics feature the
co-operative movement in the country performance of the cooperative
have been rendered possible by peoples own efforts
coupled with government policy of encouragement and support
to the movement.
State Govt and the central Govt placing the co-operative organization
on a sound footing has been a major contributing factors
of co-operative sugar factory is one of the life blood sector industries
of India. The sugar industry provides life to 35 million
sugar cane farmers and it is bread earning to 5 lakh peoples .its
contribution to central Govt is Rs 1000 crores and state Govt is
600 crores by way of Tax and Cess.
Review of the Literature
P.N.Devekar in 1951 studied “the sugar industry in Bombay
division. In his study he explained development of sugar industries
and their problems. And also explained economics of
sugarcane and sugar with reference to the irrigation, transport,
manufacturing etc. The study points out the necessity and importance
of sugar co-operative in the Indian economy.
Paul Pigors Collected original contributions of Douglas M C
Gregor Rensis Likert and other eminent American writers on
management and personal administration they have touched
the aspects of organization planning and management development
the need for development of cost management practice
with the emphasis on cost control and cost reduction.
RBI 1980 A Study Group studied the problems of sickness in
sugar industry erosion of profit of sugar mills is mainly due to
mechanical obsolescence has been concluded by various committee
constituted after 1980 recommendation of these committee
Modernization and rehabilitation are considered as the
way to reconstruct the sugar industry.
R.M.Kharche the co-operative sugar factories in Maharashtra
in his doctoral work in 1987 and it was published in the year
January deals with method of licensing, financial structure,
the supply of cane, cost of production, or development and
policy of management.
Need of the study
The sugar factory and production, marketing, finance, technology
and the rest of other aspects of sugar industry by the No
of researchers as can be seen in review of literature on sugar
industry. But a little attention has been devoted to the internal
structure and cost management policies and practices followed
by these industries. The study is most helpful and gives needed
suggestion to improvement in existing cost management philosophy.
Statement of the Problem
The present study is confined to study of “Cost Management in
Sugar Industry”. In the opinion researcher the main focus of this
report is to find out the soundness of cost management and efficiency
in the management to enhance the quality in cost management

Objectives of the study
The following are the important objectives of the study
1. To examine the working efficiency of sugar mills.
2. To find out the factors responsible for high cost per unit of
sugar production.
3. To give suggestions to reduce cost per unit of sugar production.
Methodology and Data collection
It is empirical research researcher has analyzed the cost of production,
components of cost of production and the recovery of
sugar. Percentage method has been used to analyze the cost elements
and break even-recovery of sugar The secondary data
were obtained from the sugar fed journal and profit & loss a/c
and related dissertation records which are maintained by sugar
1. The working efficiency of sugar mills.
India has emerged as the largest production of sugar in the
world. Indian sugar sector accounts for 2.5% of the country
industrial production and co-operative sector of the sugar industry
made rapid progress till recently accounting for not only
nearly 50% of the national production of sugar.
Table1.Indian sugar Industry at glance
No. of Installed Factories: 450
Public Sector: 67
Private Sector: 135
Cooperative Sector: 248
Capacity: 131.2014 lakh tonnes
Public Sector: 12.751 lakh tonnes
Private Sector: 43.0782 lakh tonnes
Cooperative Sector: 75.3722 lakh tonnes
Sugar Production (2010-11): 24.20 Metric Million Tonnes
Capacity Utilization: 131.32 %
Volume : 2 | Issue : 12 | December 2013 • ISSN No 2277 – 8179 Research Paper
Total Turnover: Rs.70885.2 Million
Average Recovery: 9.84%
Area Under Cane: 37.86 lakh hectares
Yield: 65.4 tonnes / hectare.
CARG: 7 – 10%
Table2.Sugar Production
Year Production(mmt)
1997-98 12.86
1998-98 15.54
1999-00 18.20
2000-01 18.51
2001-02 18.53
2002-03 20.14
2003-04 13.99
2004-05 12.69
2005-06 19.26
2006-07 28.30
2007-08 26.30
2008-09 14.48
2009-10 18.90
2010-11 24.20
*Source:NFCSF(Natinonal Federation of Co-operative Sugar
Factories Ltd,New Delhi
*(mmt): Metric Million Tonnes.
Above diagram clearly show that there is increasing in sugar
production upto 20(mmt) 1997-98 to 2002-2003, decreased up
to 13(mmt) in the year 2004-05 ,in the year 2006-07 it reached
highest i.e 28 (mmt) and lastly in the year 2008-09,2009-10,&
2010-11 ,the sugar produced 14,19 & 24 (mmt) in respective
2. Factors responsible for high cost per unit of sugar production.
Sugar industry in India is facing lot of challenges. Profitability is
continuously thinning out for the millers & global level competition
is becoming an unrealistic expectation. Some of the challenges/problems
faced by the sugar industry can be highlighted
· Government regulates sugarcane pricing, levy quota, sales
& export/import. Moreover, sugar is classified as an essential
commodity in the Essential commodities Act. 1955.
· Sugar is an item of mass consumption and plays vital part
in daily life we need 270 lakha tonnes of sugar for internal
consumption. the Govt of India purchase 40% of total
production of sugar as levy sugar from the factories at predetermined
price for public distribution and factories are
allowed to sell remaining 60% in the open market normal
levy price is always lower than open market price it is very
clear that levy price is less than cost of production and definately
it enhance the loss of sugar mills.
· Average crushing capacity is very low at just 2000 TCD.
· A long term perspective is lacking from the govt. Decisions
are taken ad-hoc & only as an immediate measure rather
than a long-term policy change.
· Political consideration in government sugar policy. For example:
Fixation of SAP by the state Govt. Poor quality of sugarcane
in terms of Sucrose Content.
· High cost of production due to unusually high price paid by
millers to growers & poor quality of sugarcane. The actual
price paid by millers to cane growers is way above the minimum
price set by Central Govt (SMP). Generally, they pay
the price set up by the respective State Govt. (SAP which
is higher than SMP). At times of cane shortage, the actual
prices can be higher than also.
· Low yield, low rate of recovery & frequent drought in tropical/sub-tropical
regions. Horizontal Growth of the Industry.
Small size sugar plants are being set up all over the country.
· Most of sugar units in India utilize production capacity below
50%.Low capacity utilization and inadequacy of raw
material led to closer of100 sugar factories in India.
· Sugar prices have been a political issue rather than economical
issue. Many times it worsens economy of sugar factories.
· Fluctuations in sugarcane production due to inadequate
irrigation facilities, lower sugarcane yield, and frequent
droughts in tropical and sub-tropical areas where sugarcane
is grown on a large scale.
3. Suggestions to reduce cost per unit of sugar production
· Deregulation of the Sugar industry.
· Having a number of small players in the market, Increase of
high capacity mills/companies is definitely advantageous. It
will help in creating a level playing field for Indian Companies
in the world market as well as increase their ability to
absorb losses.
· Proper utilization of by-product. Typically, 100 tonnes of
cane crushed gives only 10 tonnes of sugar & the rest is
by-products: Molasses (4.5 Tonnes), Baggase (33 Tonnes)
& Press Mud (2.5 Tonnes) Utilization of these by-products
in an effective manner can substantially increase the profitability
of sugar companies.
· Research & Development there is a need to develop technologies
to improve the production. Countries like Cuba &
Hawaii have higher cane yield than India.
· Production of ethanol will increase profitability as demand
will stay due to the government’s rule of ethanol blending
ethanol with petrol.
· These mills cannot have economies of scale so they have to
incur high production costs. Indian sugar industry is characterized
by high production costs. Therefore, daily crushing
capacity should be extended to 2500 tonnes.
· Special attention is needed to be given on water resource
management. All the area under sugar cultivation should he
brought under drip irrigation to conserve water as well as
fertilizers. Adequate and regular power supply to sugarcane
growers and sugar factories would increase production and
· Supply of clean cane in time and cultivation of quality sugarcane.
· Reduction of down time, administrative cost, and financial
Volume : 2 | Issue : 12 | December 2013 • ISSN No 2277 – 8179 Research Paper
REFERENCE 1. C R Kothari. 2010.Research Methodology, Vishwa Publication, New Delhi | 2. | 3. | 4. A. Vijay
Kumar, “A Comparative Study ofWorking capital Management In Cooperative And Private Companies Of SugarIndustry Of Tamilnadu”, Finance
India,December 1998. | 5. V.Appa rao and Dr.R.Aanada rao,” CostTrends In Nizam Sugar Factory ltd.”,Research Bulletin, ICWA of India. | 6. Government of India. “Report of the
Sugar Enquiry Commission”, Ministry of Food and Agriculture, New Delhi, October 1965. | 7. Divekar.P.M: sugar industries in Bombay division university of Bombay,1951 | 8.
Kamat.G.S:management of co-operative enterprises with special reference to sugar co-perative in maharastra Ph.d thesis pune university 1965 | 9. Govt of India, New Delhi. High
Level Committee on “the Cost Structure of the Sugar Industry” Chairman Sri L.Kumar), 1980. | 10. Baviskar, B.S., ”the Politics of Development, Sugar Co-Operatives in Rural
Maharashtra”,Oxford University Press, Delhi 1980. | 11. Reserve Bank of India, Report of the Study Group ‘Study of Sickness in Sugar Industry’, New Delhi, 1985. | 12. Kharche.R.M:
sugar co-operative in developing economy. Anant Desharathe Publication, Aurangabad January 1989. | 13. Cost Accounting Theory, Problems and solutions By M.N.Arora. Himalaya
Publication House Mumbai First Edition 2006. | 14. Advance Cost Accounting By Jain and Narang. Kalyani Publishers New Delhi.
· Efficient reporting system. And Preparation of financial
budgets and implementation of the same.
· Install Co-Generation Plant and Elimination of waste /
· Optimum inventory maintenance and effective founds management.
· Cost reduction programme should not be considered as a
onetime action or programme. It is not confined to one department.
It should be carried out in all departments continuously
by all employees of the mills.
· All other factors should also be looked into. Cost reduction
needs to be monitored continuously by the management for
· Carrying out repairs of plant and machinery well in time to
avoid loss of production.
· Sale of sugar, and by-products like molasses, bagasse in
such a manner that it involves minimum expenditure and
time and maximum profits are earned.
· Keeping right man on the right job. And do job evaluation
work in time.
· Worker should be made to feel that he is not simply a wage
earner, but he is a part of mill. With this feeling the output /
production would go up at reduced cost.
From the study it is concluded that performance of co-operative
sugar mills in India is very poor when compared with international
sugar industry. This is due to sugar mills do not have effective
control over the cost incurred during the production and
low recovery of sugar from the sugarcane crushed. In order to
have a better control over the cost of new techniques like activity
based on costing etc., to be followed. Recovery of sugar can
be improved by using modern machineries. Hence it will improve
the productivity and increase the profitability. Sugarcane
prices should be fixed on basis of sugar recovery. Attention is
to be given on manufacturing quality sugar as per international
standards at competitive prices.

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