Question

Why sugarcane industry is more successful with cooperative sector?

Answer 1

1.Mills are pretty scale-dependent:
In the sugar industry, the mill adds a lot of value, since sugar (or jaggery) is easily traded, stored, transported, and quality is fairly uniform compared to the cane crop. The sugar mill also has scale economics: larger capacity mills have lower costs ( storage, waste disposal costs, electricity , and distribution costs). A mill running at 80% capacity may lose money given the high fixed costs, but make a lot at 95%. So they need a high utilization rate.
2.Farmers face the risk of predatory behavior by the mill:
The perishability of sugarcane, combined with the high transport costs (fresh cane has a lot of water and bagasse) means that the local mill has a lot of negotiating power over the farmers in its catchment area. Farmers generally HAVE to sell to the local mill given the high transport costs and perishability. When the sugar crop output is greater than the capacity of the local plant, the mill owner might drive a hard bargain and push farmers to accept a very low price for the sugar product. The mill is a monopolist(not monopolist).
3.The mill faces the risk of underinvestment by farmers:Knowing that the mill owner might screw them, the farmers might underinvest in sugarcane and grow something else (which might be less lucrative than sugarcane, but at least doesn’t put the farmer at the mercy of the mill owner). For the mill, the risk of all the farmers growing wheat that year is a worrisome one.