Research Paper Volume : 4 | Issue : 2 | February 2015 • ISSN No 2277 - 8179

COMMERCE
COST BENEFIT ANALYSIS OF SUGAR INDUSTRY IN KEYWORDS : Production,Cost,material,
Overhead,Profit.
GULBARGA DISTRCIT

ASHOKKUMAR G.POLICE Head of the Department of Commerce H.K.E Siciety’s SMT V.G.College for women, Aiwan-
PATIL E-Shahi,Gulbarga

DR.GIRAM S.J HOD and Research Guide Vaidhynath College,Parli(V) Dist: BHEED

ABSTRACT The Indian sugar industry as green industry its future determines the livelihood of millions of farmers. The growth
of these companies plays a prominent role in the economic development of the nation. The growth of an industry is
based on its success and productivity. It is the primary test of the success of an industry. The consumers and the government are directly or
indirectly involved in this industry. If the productivity is more, there will be the technological innovations and the economic will be growth
high. The productivity and efficiency mainly depend upon the age and region of the industry.

INTRODUCTION To study the costing structure of sugar industry in Gulbarga dis-

Sugar Industry is the second largest agro based industry in In- trict.
dia, next to textile. This is the only industry, located in the ru-
ral part of the country. About five crores of sugarcane farmers, To offer suitable suggestions on the basis of the findings through
their dependants and a large mass of labourers are involved in the study.
sugarcane cultivation, harvesting and other related ancillary
activities. This constitutes 7.5 per cent of the rural population. HYPOTHESES
Besides, over a five lakhs of skilled and semi-skilled workers, The researcher has framed the following hypotheses and tested
mostly from the rural areas, are employed in the sugar industry, in the study.
and the annual wage bill of the industry is around `1,000 crores,
per year. Presently, Indian sugar industry contributes 15 per cent The effect of overheads on the net sales is not significant.
of the world sugar production. Though, there are more than 700
sugar mills in different stages of installation, almost 450 mills The effect of interest paid on the net sales is not significant.
alone are in operation. The annual turnover of the industry goes
to `30,000 crores, and cane growers, use to get `6,000 crores, as GEOGRAPHICAL AREA
sugarcane price. The study is restricted to the Gulbarga Distract of Karnataka
state. Since the researcher belongs to a farming community, in-
IMPORTANCE OF THE STUDY terested in the economic development of Gulbarga District and
Sugar industry, being an agro based industry, boosters the rural interested in making a study of the cost Benefit analysis of sugar
development, by providing employment opportunities, directly Industry in Gulbarga District of Karnataka the researcher has
and indirectly. Millions of people get benefitted, by this industry. undertaken this study.

The first and foremost factor to be considered is the ‘cost’. Each PERIOD OF STUDY
and every cost in sugar production should be analyzed, and the The sugar industry is cyclical in its nature, which is normally of
necessary steps are to be taken, to reduce the cost. There should four to five years i.e. two years of bumper sugarcane crop, fol-
be a keen watching, whether each and every rupee spent gives lowed by two years as shortage of sugarcane - due to drought
the maximum utilization. or of market position, and one year is a normal. Naturally, this
cycle affects the cost effectiveness and the economy of the sugar
STATEMENT OF THE PROBLEM industry. Therefore, the researcher has decided, to cover a period
Cost reduction is the essential part of the sugar industry so it’s of two cycles i.e. five 2004-2005-2008-09. It has been considered
real and reduction in unit cost is utmost important. Cost effi- as an appropriate period, for the analysis of cost.
ciencies which is the key to survival and growth in present and
future global cutthroat competition a rational approach for con- METHODOLOGY
tinues cost reduction programme to keep cost structure to the In this study, the research work is based, mainly on primary, as
lowest possible level. In long run cost efficient organization has well as, secondary sources of information. As a part of primary
best chances for survival and growth and it is continues phe- source, collected through structured questionnaire from farmers
nomena. the researcher has visited personally, to some of the sample re-
spondents and sugar industry. The interviews with the officials
OBJECTIVES OF THE STUDY and executives were organized, to understand the financial and
The objectives of the present study are: technical problems of the sugar industry.

To examine the composition of various cost components and Secondary Source

their magnitude, in the total cost of sugar production in Sugar In the absence of cost accounting systems in the sugar industry,
Industry. the researcher had to rely more on the data, which are available,
through financial accounting system. Therefore, the researcher
In the absence of cost data, to find out the cost trend and to took rounds to both of the sample sugar industry and collected
identify the most casual factor, this gives unsatisfactory results. the published annual reports.

To study the impact of under utilization of plant capacity, this For their researcher collected the secondary data through books
ultimately affects the operational efficiency of the sugar indus- journals website etc.
try, and to judge the profitability of the sugar industry.

IJSR - INTERNATIONAL JOURNAL OF SCIENTIFIC RESEARCH 55

 Volume : 4 | Issue : 2 | February 2015 • ISSN No 2277 - 8179
Research Paper

Sample Design ing cost to the total cost is 92.76 in the Bhusnoor Sugar Factory
selected for the study. For the study and observation of so- and 76.55 in the Renuka sugar factory.
cioeconomic position of the farmers will be studied on the basis
of primary data. Cost of Sugar
The Bhusnoor Sugar Factory incur an average of `22415.41 to
Primary data manufacture a tonne of sugar and the Renuka sugar factory in-
Two sugar industries in Gulbarga district has been studied thor- cur an average of `16420.40 only. Except in the year 2005-2006,
oughly. in all the years during the study period, the cost of sugar re-
mains higher in the Bhusnoor Sugar Factory than in the Re-
50 farmers from the catchment area of each sugar industry will nuka sugar factory.
be randomly selected for the study for their socioeconomic de-
velopment. Cost of goods sold
The average cost of goods sold per tonne of sugar is Bhusnoor
Framework of Analysis Sugar Factory `22900 and for the Renuka sugar factory, it is
The study is based on the primary as well as the secondary data, `12000. During the study period, the cost of goods sold is higher
for analytical purpose, only the secondary data are considered. in the Bhusnoor Sugar Factory in all the years. The per cent
Data analysis is made by employing statistical tools, such as share of the cost of goods sold to net sales is 89 in the Bhusnoor
mean, standard deviation, co-efficient of variation, correlation, Sugar Factory and 79 in the Renuka sugar factory.
simple and multiple linear regressions, AGR, CAGR, t-test and
ANOVA. Trend analysis has also been applied by the researcher, SUGGESTIONS
wherever necessary Following suggestions are made to improve the operational effi-
ciency by creating higher yield and higher earning capacity, for
FINDINGS OF THE STUDY all the stake-holders in the sugar industries in study area and in
Raw Material Cost Indian sugar sector.
The average raw material cost per tonne of sugar for the Bhus-
noor Sugar Factory is 15900 per year, whereas, in the case of Need to reduce the cost of sugarcane in the total cost of sugar
the Renuka sugar factory is 13900. Except in the years 2005- production.
2006 and 2006-2007 in all the remaining years of the study, the In the normal course, the percentage share of the cost of sugar-
cost of the raw materials for the Bhusnoor sugar factory is much cane to the total cost of production should be within 70 to 71
higher than the renuka sugar factory. In the Bhusnoor Sugar per cent of the total cost. It is observed, that the sugarcane pric-
Factory , an average of 70.64 per cent is spent for raw materials es paid in India were always higher than the sugarcane prices
and in the Renuka sugar factory , the average is 64.41per cent. paid per tonne in Brazil, Australia, Thailand and South Africa.
Therefore, it is necessary for the sugar industry to design the
Employee Cost sugarcane prices, which should be correlated to the CCS of pri-
mary juice of the sugarcane supplied to the individual sugar fac-
The average employee cost per tonne of sugar in case of the tory. It would, not only reduce the cost of sugarcane per tonne,
Bhusnoor Sugar Factory is `11300 and in the Renuka sugar but will also help to improve the quality of sugarcane supplied
factory is `12000. Throughout the study period, the average by the individual sugarcane grower. Therefore, it is necessary for
employee cost is more in the Bhusnoor Sugar Factory , as com- the sugar industry to concentrate more on sugarcane develop-
pared to the Renuka sugar factory. The study reveals, that the ment programme, which will help to have quality sugarcane for
Bhusnoor Sugar Factory try to bring down the employee cost. crushing. Naturally, this will reduce the cost of sugarcane, which
The average percentage of share of the employee cost to the total is a major cost component, in the total cost of sugar production.
cost is 5.400 in the Bhusnoor Sugar Factory , whereas, it is 7500
in the Renuka sugar factory. Need to bring down the total cost of sugar production
India has the lowest field production cost in the world followed
Selling and Administrative Overheads by Australia, Thailand, world average and China; while factory
The average selling and Administrative expenses per tonne production cost is the lowest in Thailand, followed by Australia,
of sugar for the Bhusnoor Sugar Factory is `1500 per year, India, world average and China. When the total field and factory
whereas, in the case of the Renuka sugar factory is `1100. The production cost is considered together, it is the lowest in Thai-
average selling and Administrative expenses during the study pe- land, followed by Australia, India, world average and China. In
riod are high in the Bhusnoor Sugar Factory and low in the spite of having the benefit of the lowest field production cost,
Renuka sugar factory. the total cost of sugar production in India is not the lowest,
in the world. It is due to the higher factory cost. Now, India is
Overheads facing the stiff competition from Thailand and Australia in the
The average overheads per tonne of sugar for the Bhusnoor world sugar trade, due to their lower factory production cost.
Sugar Factory is `5200 per year, whereas, in the case of the Therefore, there is an urgent need, to take a resource on top pri-
Renuka sugar factory is `4993.10.Except the years 2004-2005, ority, to reduce the factory production cost of Indian sugar.
2005-2006 and 2006-2007, in all the years during the study pe-
riod, the cost of overheads is higher in the Bhusnoor Sugar Fac- The cost of production in Gulbarga District sugar industries are
tory. The average per cent of overheads to the total cost is 23.04 higher, because it is labour intensive.Sugar factories are shifting
in the Bhusnoor sugar factory, and24.96 in the Renuka sugar to mechanization and automation but the change is very slow.
factory. The pace of mechanization and automation will have to be ac-
celerated.
Manufacturing Cost
The average manufacturing cost of sugar per tonne of sugar in CONCLUSION
the Bhusnoor Sugar Factory is `120744.99 and in the Renuka Sugar factories have been instrumental in initiating a number
sugar factory, it is `216017.39. Except in the year 2005-2006 in of entrepreneurial activities in rural area like Gulbarga District .
all the years during the study period, the average manufacturing Indian sugar industry can be a global leader, provided, it comes
cost is higher in the Bhusnoor Sugar Factory than in the Renu- out of the vicious cycle of shortage and surplus of sugarcane,
ka sugar factory. The average per cent of share of manufactur- lower sugarcane yield, lower sugar recovery, ever increasing pro-

56 IJSR - INTERNATIONAL JOURNAL OF SCIENTIFIC RESEARCH

Research Paper Volume : 4 | Issue : 2 | February 2015 • ISSN No 2277 - 8179

duction costs and mounting losses.

There is a considerable scope for further reduction in the cost

of production of both sugarcane and sugar in India, with liber-
alization of controls on the sugar industry. Consolidation of land
holdings and corporate farming on the raw material side and
expansion of capacity on the unit size are important develop-
ments, and would lead to substantial improvements in produc-
tivity, thereby rendering India a cost-effective producer of sugar,
in the world.

REFERENCE 1. Nikam, G.A.,”General Efficient of Sugar Co-Operatives; A Recovery Approach, Indian Co-Operative Review”, Vol. No.1, 1988. | 2. 4Zaleza, T., “Af-
rican Sugar on the World Market”, Journal of Eastern Affairs Research and Development, No.18, 1988. | 3. Sudaryanto, T., “World Sugar Situation:
The Seemingly Changes on Co-Operative Advantages”, Indonesian Agriculture Research and Development Journal, Vol.10, No.2, 1988. | 4. Summer, U., “The Sugar Market’, Der Market
Furzuker Agrawirtchartt, Vol. 37, No.12, 1988. |

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