Private Benefits at Public Cost? Sugar Cooperatives in Maharashtra.

A K D Jadhav, Mumbai has written scathingly about sugar cooperatives in Maharashtra (Economic & Political Weekly, February 16-22 2008).

Sugarcane is auspicious for a “cultural Hindu” like me. I was raised in Western Maharashtra where I often saw a standing crop of sugarcane (see picture below). It gave me a great solace.

Sight of sugarcane getting transported from fields to factories in bullock-carts and trucks brought great excitement to us. Many boys- and few men- chased those vehicles to pull out a long sugarcane stick. It almost always was a very dangerous game. I remember many accidents those acts caused.

During the sugarcane season, in the evenings, our mother often took three of us to a particular sugarcane juice bar ऊसाचे गु-हाळ at Miraj. There a male buffalo pulled a huge, creaky, wooden juicer. If it didn’t scare, the sound always precluded any conversation, making us concentrate on the act of drinking.

Even today a glass of sugarcane juice at Muralidhar sugarcane juice bar मुरलीधर रसवंती गृह on Bajirao Road, Pune gives me greater pleasure than a glass of beer or any other beverage.

Despite movies like "The Contest" सामना 1975, I believed sugar cooperatives generally did more good than bad for farmers of Maharashtra and the society at large.

That impression started to change few years ago.

In Maharashtra, sugar cane covers just three percent of the land yet corners around 60 percent of the state irrigation supply and is a cause of substantial groundwater withdrawals; the water table in places has dropped from 15 metres to around 65 metres in the past 20 years.

Frontline March 2005:

“…There was a time when the sugar cooperatives did benefit rural areas. The very first sugar cooperative, which was established by Vithalrao Vikhe Patil, was a reaction to the plight of cane-growing peasants who were trapped by landlessness, moneylenders and the exploitative policies of private sugar mills. In the mid-1940s peasants struggled to market their sugarcane. Extracting sugar from cane was expensive and uneconomical. So the cane was made into jaggery. But as there was a surfeit of raw sugarcane and jaggery prices invariably reached rock bottom. In 1948, Vikhe Patil organised the sugarcane growers of 44 villages in Ahmednagar district in western Maharashtra. The outcome was Asia's first cooperative sugar factory, which was commissioned in 1950…

… The strength of the movement was the involvement of the farmers who were shareholders in the sugar mill regardless of the size of their holdings. Over the years, this truly democratic idea got corrupted and farmers with larger holdings grew more powerful. In practice, this altered the power structure of the cooperatives. In the elections to the governing bodies of the sugar factories, money became such a powerful tool that the top posts of chairman and vice-chairman usually went to the richest farmers even though the majority of members were farmers with small- or medium-sized holdings…

…`Private benefits at public cost' is how a report of the World Bank summed up the role of Maharashtra's sugar cooperatives. Though the cooperative movement has helped rural Maharashtra, it has also been at a high cost to the exchequer. Sugar cooperatives have a complicated structure, which makes it possible for them to incur losses but not profits. This is because profits are fully distributed among the members of the cooperative, whereas losses are not; losses accrue to the cooperative. It is bad enough when a cooperative makes losses but when it is shown to be making a loss when it has actually made profits, then the members of the cooperative are being cheated of their share of the profits. In addition, the burden on the government rises because the government bears the losses of the sugar cooperatives and also provides subsidies.

Though initially the subsidies provided to the cooperative sector did benefit farmers both rich and poor, they gradually came to benefit only the rich farmers…

… With low cash inputs, high subsidies, high returns and generous financial support from the State, it is clear why sugar cooperatives are attractive to promoters. But these have also been the reasons for the cooperative movement's downfall…”

A K D Jadhav:

“…As far back as 1977 Michael Lipton in his book Why Poor People Stay Poor highlighted the driving force behind unequal associations as their susceptibility to capture. The cooperative movement of Maharashtra is a classic study of this phenomenon, whereby the Maratha Deshmukhs sought to use caste as a means to induct Maratha Kunbis (peasants) in their bid to capture and perpetuate power and pelf.

Y B Chavan, schooled in M N Roy’s dialectics, saw the potential for building the edifice early in his life. The contrived Maratha “majority” through Kunbi (OBC) induction in large swathes of western Maharashtra in the 1950s and 1960s, around the time of the formation of the state, created an opportune moment for Chavan and his 96 clans (96 kulis) to capture the state Congress and through it the levers of political power in the state.
Almost immediately thereafter the cooperative movement received large sums of tax-payers’ money as virtual handouts from the state budget. The extraordinary scheme was and is still based on a special debtequity of 90: 10, the debt being provided by the cooperative banks based on state guarantees and 90 per cent of the equity being provided by the state from its budget as a direct handout.

Maratha clansmen backed by Kunbi numbers were encouraged to get into “coops”, pick up readymade projects of Rs 10 to 20 crore (1960s and 1970s), access 99 per cent of the funds from the state and its institutions and use the structure to perpetuate their hegemony.

What Baviskar calls the “success” of the cooperative movement in Maharashtra is in fact a humongous failure of the rule of law. The genesis of the sugar cooperative lies not in the “business” of making sugar and earning wealth for the cooperative but in the use of the structure as a medium for siphoning off funds from the treasury into the coffers of the kulaks. All the sugar coops have thrived on running subsidies not only by way of the original infusion of fixed and working capital by publicly funded institutions, but with continuous infusions at regular intervals thereafter in the form of revival and restructuring grants, soft loans and government guarantees.

For this reason it is not possible to understand Baviskar’s pride in the 5 million tonnes of sugar produced in Maharashtra, because that sugar is produced at a huge cost to the state exchequer, depriving other sections of society of public funds to which they have a far greater claim.”