DEPARTMENT OF MANAGEMENT (LSM)

TERM PAPER

OF

MANAGERIAL ECONOMICS

ON

DEMAND AND SUPPLY RELATION OF THE SUGARCANE AND

THE ELASTICITY OF PRICE RELATED TO THAT COMMODITY

SUBMITTED TO: SUBMITTED BY:

MR. SUMIT GOYAL SHUJA QAMMER

REG NO: 10904442
ROLL NO: 03
SECTION: S1906
MBA (IT)
2ND SEM.
 ACKNOWLEDGEMENT

The most precious moments are those when we get an opportunity to remember
and thank everyone who has in some way or the other motivated and facilitated
us to achieve our goals.
First of all I thank to GOD ALMIGHTY ALLAH for giving me power to pen
down the term paper in its present shape. I thank the entire teaching staff
especially Mr. SUMIT GOYAL Lect. LSM for sharing his valuable
knowledge with me & for providing his able guidance and support. I also thank
to my classmate who every time helped me out and encouraged me for carrying
out the task.
I fall short of words to thank my family, who stood beside me while completion of
my task.

SHUJA
QAMMER
 TABLE OF CONTENTS

INTRODUCTION

REVIEW OF LITRATURE

OBJECTIVES OF THE STUDY

INDIAN ECONOMIC PROFILE

SUGARCANE POSITION IN INDIA

METHODOLOGY AND RESULTS

SUMMARY AND CONCLUSION

REFERENCES
 Economic analysis of sugarcane in india
(Demand and supply elasticity estimates of sugarcane in
India)
The paper is all about the supply and demand elasticties of sugarcane in
India. The paper is entirely based on the secondary data. Data was collected
from the different agencies through websites. In order to analysis the
demand and supply elasticities simple econometric approach was laid down.
The paper is divided into four sections. Section (i) Introduction. Section (ii)
Indian economic profile. Section (iii) sugarcane position in India (vi)
Methodology and results. Section (v) Summary and conclusion.

INTRODUCTION:
Knowledge of demand structure and consumer behavior is essential for
a wide range of development policy questions like improvement in nutritional
status, food subsidy, sectoral and macroeconomic policy analysis, etc. An
analysis of food consumption patterns and how they are likely to shift as a
result of changes in income and relative price is required to assess the food
security-related policy issues in the agricultural sector. This analysis is based
on a matrix of price and income elasticity of demand for sugarcane. In the
short run, with relatively inflexible production, changes in the structure of
demand are the main determinants of observed changes in market prices for
non-tradable goods and of imports and exports of tradable goods. In medium
and long runs, the structure of final demand is an important element of more
complete models that seek to explain the levels of production and
consumption, price formulation, trade flows, income levels and government
fiscal revenues.
The term paper was assigned to me to analysis the supply and demand of
the sugarcane in India. This case have been analyzed by taken data from the
RBI bulletin and different economic agencies of India like department of the
sugarcane of India. The paper is based on the secondary data and tools have
been employed for the time series data from 1999- 2008. Demand is simply
measured by taken overall consumption of the sugarcane in India. The
problem for taken final consumption was that the sugarcane is the
intermediate product used for the consumption of the final production. Much
difficulties arise to measure the overall consumption of the sugarcane. So
the entire attempt made was to meet the data at the aggregate level. Macro
economic part was laid down for the sugarcane. So for as the supply is
concerned the supply was taken at the production level. The prices were
taken from the agency of the department of the sugarcane India website.
The prime concern of cane growers and the sugar industry is to achieve
higher sugarcane productivity and high sugar recovery both of which support
maximum economic return. In India, widely varying soil fertility domains is a
major limitation to reaching this goal. The results of on-farm experiments
conducted during 2003-04 and 2004-05 have clearly established that
productivity can be significantly improved when balancing N and P us ndia is
a major sugarcane growing country, with production of about 281 million
metric tons (M t) from a production area of approximately 4.2 M ha.
Sugarcane occupies 51% of the total cultivated area of Uttar Pradesh, with a
large number of supporting sugar factories. Despite large total production of
sugarcane in the state, average productivity (58.2 t/ha) is lower than the
national average of 66.9 t/ha (Indian Sugar, 2008). The productivity of the
crop is low mainly due to its late planting after wheat harvest (April to May).
A short growing period, coupled with inadequate and imbalanced fertilizer
use, make the crop more susceptible to shoot borer infestation and other
pest problems. A recent farmer participatory survey conducted by the
authors revealed that growers generally apply >200 kg N/ha and 45 to 60 kg
P2O5/ha. However, use of K, secondary nutrients, and micronutrients is
altogether missing. Farmers are experiencing declining responses to N and P
due to omission of other essential nutrients in their fertilizer schedules.
Adoption of balanced and judicious use of all needed nutrients can help
improve cane productivity and enhance sugar recovery by rendering
resistance against biotic and a biotic stresses, and better synthesis and
storage of sugar (Yadav et.al., 1993). Farmers are reluctant to shift cane
planting time to the spring season (February to March) and sacrifice staple
wheat crops
intended for human and animal use. Therefore, participatory on-farm
experiments were planned to enhance the productivity of late planted
sugarcane through fertilizer management including K, S, and Mg application
along with N and P. On-farm experiments were conducted at 10 locations in
the Meerut district of western Uttar Pradesh during 2003-04 and 2004-05.
The soils were sandy loam to loamy sand in texture, neutral to slightly
alkaline in reaction (pH 6.4 to 8.1), low in EC (0.34 to 0.38 dS/m) and
available N (76 to 103 mg/kg), and medium in available P (5.4 to 9.1 mg/kg)
and K (64 to 99
mg/kg). Each experimental site served as one replication thus the six
treatments were evaluated as 10 replications in both study years (Table 1).
Nutrient application rates were determined based on soil testing and
subsequent crop responses. In treatments 1 through 5, the sources of N, P,
K, S, and Mg were:
urea (46% N): diammonium phosphate (18% N and 46% P2O5); potassium
chloride (60% K2O): elemental S; and magnesium sulphate (16% MgO and
13% S). The sixth treatment differed, as the K, Mg, and S rates were supplied
through a potassium magnesium sulphate source having 22% K 22% S, and
11% Mg. One third of the N and the entire quantities of P, K, S, and Mg were
applied at the time of planting. The remaining N was top dressed in two
equal splits (i.e., 50 day after sowing (DAS) and 85 to 90 DAS). Basal
application of Zn was uniformly done in all plots using 25 kg zinc sulphate
(ZnSO4·7H2O). Other crop management was as per existing farm practice
REVIEW OF LITRATURE

Surabhi Mittal (2008) in his paper “supply and demand trends of sugarcane” provides the
demand and supply projections for sugarcane for different years. These projections have been
based on change in productivity levels, changes in price, growth of population and income
growth. A comparison with projections provided by other scholars has also been made in the
paper. Subsequently, the future supply-demand gap has been discussed in the light of policy
requirements. It is concluded that an increase in total demand is mainly due to growth in
population and per capita income. A diversification in consumption basket significantly away
from consumption of sugarcane. On the supply side, production is constrained by low yield
growths. This is more specific in context of total cereals and sugarcane. While in the short and
medium term, there might be surplus of sugarcane in the country, these prospects are likely to
diminish in the years to come. This situation is even more alarming for edible oil, sugarcane and
pulses. To meet the future food requirements, the country shall have to either increase
agricultural production, or depend on imports. In this light, the paper suggests that the policy
focus needs to be laid, towards productivity enhancement in agriculture, through public
investment in irrigation, development of roads, research and extension.

Bansal (1975) while examining the changes in the production pattern of sugarcane for six years
from 1964-65 to 1970-71 observed that while the non food grains failed to make much headway,
there have been a marked increase in the production of sugarcane, the study revealed that in
addition to the area diverted from crash crops, sugarcane also took all the gains in the country
away.He observed that during 1964-65 to 1970-71 Punjab and Haryana showed the highest rate
of increase in production of sugarcane as a result of increase both in area and yield these two
states to the central procurement food contrasted the total additional production during this
period. For sugarcane as a cash crop in Punjab, Haryana and Gujarat are the only states where
substantial gains have been achieved indicating an increase of 68% in production. The share of
these states in the all India production increased from 10.8% in1964-65 to 15% in 1970-71. He
further analyzed the supply and demand responsiveness of sugarcane and finds that in intial years
of independence, sugarcane price was quick responsive to price. But after that india start
exporting sugarcane , it shows sudden decline in price responsive ratio i.e. 0.9 to 0.8. thus
sugarcane remains more responsive to demand and supply interaction.

OBJECTIVES OF THE STUDY

To know the responsiveness of price to the supply of sugarcane

INDIAN ECONOMIC PROFILE:

In India, the distinguish can be made between policy regimes, especially the era of state
planning up to 1991 and the market-reform period since 1991. In the planning period,
international trade played only a minor role and industrialization was affected heavily by state
investment plans, which attempted at least mildly to promote the laggard regions. One great
impetus to national growth came via the Green Revolution, which led to sharp increases in grain
productivity in regions such as Punjab and Haryana specifically adapted for the improved crops,
mainly wheat.40 After 1991, market forces and international trade have played a larger role,
though the insertion of India into the global economy has been much less dramatic than in the
case of China.

India started planning with first year plan 1951-56 and started economic reforms in
1991.The trend growth rate of the GDP during the year 1992-93 to 2006-07 touched 6.6%. Some
structural changes take place in the economy of India. The share of the agriculture sector in NDP
has been decreased from more than 50% to 19.5%. Structural changes took place in the industrial
sector of the economy. The economy is moving towards the more liberalization.
Demographically Indian economy is second most populous country in the world. The population
rises to 111.2 crore in 2006.41 Inflation in India showed quite fluctuating trend in the fiscal year
of 2001-02 the inflation rate was 1.6% and then started fluctuating and stood at 11.05% in
june,7, 2008. The economy of India is more open and share of merchandise imports and exports
increases in current GDP at market prices to 37.3% as against 14.7 % in 1990-91.The volume of
Indian exports and imports has been increased, exports volume increased by 15.8% mainly due
to items like crude material items, machinery and transport equipments. The first year of the
eleventh plan, 2007-08 shows a trade deficit of the $80.94 billion which is the cause of the
worry. The study of the trade balance shows that India has positive trade balance only in the year
1972-73 and 1976-77 when country receives $ 134 million and $ 177 million respectively.
Overall the economy of India is growing fast than the economy of Pakistan.42

In terms of overall growth performance, the last five years (2002-03 to 2007-08) have been the
golden period for the economy with the annual growth rate hovering around 9 per cent. The
economy has joined the ‘trillion dollar-economies-club’ both at the official exchange rate ($1.09
trillion 2007 est.) and on a PPP basis ($2.965 trillion 2007 estimate). On the per capta basis,
however, India ranks among the poorest countries of the world. According to the world
development index 2008, India had a GDP per capita of $634 in 2006. This is despite a sharp
acceleration in the annual per capita income growth rate which almost doubled from a yearly 3.1
and 3.7 per cent during the eighties and nineties to a yearly average of 7.2 per cent for the period
2003-04 to 2007-08. However, a growing deficiency of infrastructural facilities, increasing
labour cost, rising income and regional inequalities and slow agricultural growth are some of the
challenges that leads to slow down the growth momentum that Indian economy achieved in the
past five years.
Sugarcane cultivation and development of sugar industry runs parallel to the
growth of human
civilization and is as old as agriculture. Though sugarcane is considered to
have spread to India
from Polynesia, the importance and use of sugarcane and sugar in the
country’s socio-economic
milieu is deep-rooted and immense. In the present scenario too, sugarcane
and sugar continue to
be important for India’s rural economy. Sugar industry has been a focal point
for socio-economic
development in rural areas by mobilizing rural resources, generating
employment and higher
income, transport and communication facilities. About 4 million sugarcane
farmers and large
number of agricultural labourers are involved in sugarcane cultivation and
ancillary activities,
constituting 7.5 per cent of rural population. Besides, the industry provides
employment to 5 lakh
skilled and semi-skilled workers in rural areas. Other typical features of sugar
sector include, (i)
sugar as an essential commodity although 75 per cent of available sugar is
consumed in bulk,
viz., industrial and small business segments; (ii) sugar industry has to pay
higher prices (state
advised prices) than the recommended statutory minimum prices; (iii) high
variability in yield
and area; (iv) decline in crushing period and its adverse effect on viability of
sugar processing
units; (v) mills not equipped to make refined sugar and (vi) lack
diversification of activities in
favour of co-generation and ethanol production.

SUGARCANE POSITION IN INDIA:

(a) Production of Sugarcane:.

Apart from sugarcane being an important cash crop, it ranks third in the
list of most cultivated crops after paddy and wheat. India is one of the
largest sugarcane producers in the world, producing around 300 million
tones of cane per annum. Production of sugar is the second largest agro-
processing industry in the country after cotton and textiles. India also
 happens to be the second largest sugar producing country (after Brazil),
contributing 15 per cent to white crystal sugar production. Further, India
is the only country that produces plantation white sugar unlike other
countries that produce raw or refined sugar or both.
(b) Sugar Processing
India has 566 sugar mills in the country, of which 56 per cent are in the
co-operative sector,
34 per cent in the private sector and the remaining 10 per cent are in the
public sector. These
processing units are located in 80 major districts and a large number of
these units are in
Maharashtra (142 in the co-operative sector and 12 in the private sector
during 2008-09) and
Uttar Pradesh (28 in co-operative sector, 64 in private sector and 22 in public
sector as at end
2005-06). The increased number of sugar factories has affected the
availability of sugarcane for
processing and in turn the viability. Most of these processing units work for
six months in a year
(September to May) and the capacity varies from 750 to 10,000 tones per
day. For the triennium
ending 1999-2000, the 367 processing units worked for an average period of
148 days whereas
425 units for the triennium ending 2004-05 worked for just 112 days. This
was due to increased
number of units as well as capacities. Existing prices of sugar (Rs.1,600 per
quintal), molasses
(Rs.3,500 per ton), rectified spirit (Rs.25 per liters) and bagasse (Rs.1,200
per ton) are not
enough to pay farmers and is an area of concern.
(c) Commodity Specific Studies on Sugarcane
 Recently the studies on sugarcane in Uttar Pradesh, Karnataka and
Haryana were completed and individual reports have been published by the
ROs. These studies have analyzed the economics of sugarcane cultivation
and sugar production for the reference year 2005-06. The
studies have clearly brought out that sugarcane cultivation especially in
Haryana and Uttar
Pradesh was not an economic proposition/ profitable venture as the returns
received were
insufficient to cover all costs, particularly when family labour was accounted
for. In the case
of sugar processing as well, the studies observed that by and large, sugar
processing as a solo
activity did not work out to be a viable proposition for the sugar mills. Indian
sugar industry has entered the strongest up cycle (lowest stock to use ratio)
in the history of 50 years after witnessing supply glut in previous two sugar
seasons in a row (SS 2006-08). In SS2006-07, sugar production reached all-
time high of 28.3 mn tons, registering a growth of 46.6% on yoy basis and it
declined marginally by 7.1% to 26.3 mn tons in SS2007-08. Sugar production
reached an all-time low of 14.7 mn tons during SS2008-09 due to sharp fall
in the sugarcane acreage. However, sugar consumption continued to grow at
a steady pace. It grew at a CAGR of 4% during SS 07-09.In SS2008-09, on
account of a steep fall in sugar production and fall in the stock to use ratio,
the average wholesale prices increased by almost 50% on yoy basis. This
had a positive impact on the margins of sugar companies in the Q4FY09.
The production of sugar is spread across the country. Maharashtra, Uttar
Pradesh, Karnataka, Tamil Nadu, Gujarat and Andhra Pradesh are the major
sugar producing states in the country. In SS2007-08, these six states
together accounted for almost 92% of the total sugar produced in India. In
SS2007-08, the State of Maharashtra produced the highest sugar at 9.1 mn
tonnes followed by UP with 7.3 mn tonnes. These two states together
account for almost 62% of the total sugar produced in India.
Sugarcane is the primary raw material for the sugar industry. It accounts for
almost 75%-80% the total operating cost of the sugar industry. UP is the
largest sugarcane-producing state in the country and accounted for about
37% of the total sugarcane output in SS 2007-08 followed by Maharashtra
with 24%. Even though, UP is the largest sugarcane-producing state in the
country it is the second-largest sugar producer in India as drawls and
recovery rates in UP are one of the

METHODOLOGY AND RESULTS:

So far the methodology issue is concerned the econometric approach was

laid down. We simply laid down the regression equation. The regression
equation was laid down to estimate the elasticity of demand for sugarcane
with respect to P (price) and with respect to Y ( income). The equation
second was laid down to estimate the supply elasticities with respect to price
and income for sugarcane.
Qd = bo + biP +µ (i)
2

Regarding the bi in equation (i) we expect the sign to be negative since the
demand is the negative function of the price.
In equation second we except the bi to be the positive since the supply is
positively related to price. The elasticities are simply depicted from the
constant (bo). The results are provided in below.
Results and discussion:
So far the results are concerned bo was negative confirmed our result that
the demand is negatively related to price. The bo is less than one that means
the demanded is relatively less elastic. As the value close to one. The R 2 is .
869 means that 86 5 is variation in demand denoted by our model and the
rest is residual not explained by our model. The t value is significant at 10 %
level of significance.
As far as the supply is concerned the supply is elastic and is positively
related to price. The R2 is .642 means that 64 % is variation in supply
denoted by our model and the rest is residual not explained by our model.
The t value is significant at 10 % level of significance.

Qd = 1.8023 - .00320 (p)

R2 = .869 t = .01

Qs = .340 + 0.0030(p)
R2 = .642 t = .025

Table 1.1 sugarcane position in india

Year sugar pro price

intermediate consu

1999-2000 413.15 302.04 370.4

2000-01 467.89 321.43 379.8

2001-02 496.90 338.51 376.5

 2002-03 500.91 376.97
398.3

2003-04 510.98 387.45 406.4

2004-05 530.98 403.78 411.7

2005-06 504.13 423.45

428.7

2006-07 554.55 498.88 489.7

2007-08 575.02 410.55 495.8

2008-09 585.44 487.98 501.8

Source: RBI bulletin, Economic survey of india 2008-09, and different

issues.

Fig 1 production of sugarcane in india

SUMMARY AND CONCLUSION:

The paper was all about the supply and demand elasticties of sugarcane in
india. The paper is entirely based on the secondry data. Data was collected
from the different agencies through websites. Inorder to analysis the demand
and supply elasticities simple econometric approach was laid down. The
results shows that the demand is negatively related to the prices of the
sugarcane in india. But as for as the demand elasticity with respect to the
prices of sugarcane is concerned it was estimated to be greater than one
(1.80) which is relatively highly elastic. The supply shows that supply
increases as the price of the sugarcane increases in india. As for adds the
elasticity of supply with respect to price is concerned it is less than one .340
and is less elastic.
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