In Shamli district, barely two hours from Delhi, a rusted padlock hangs on the gates of a cooperative sugar mill that once crushed 2,500 tonnes of cane daily. Weeds push through the concrete yard. The boiler house, silent since the 2019-20 season, looks like an industrial ruin. Seven kilometres east, another cooperative mill — similar vintage, similar capacity — hums through the crushing season, pays farmers within fourteen days, and posted an operating surplus of approximately ₹11 crore last year. I have spent months trying to understand what separates the dead from the living in Uttar Pradesh’s cooperative sugar sector, and the answer is far more uncomfortable than “poor management.”
Uttar Pradesh produces more sugar than any other Indian state — over 12 million tonnes in the 2026-26 season by most estimates. Yet its cooperative sugar mills, once envisioned as farmer-owned engines of rural prosperity, are overwhelmingly sick. Of the 100-plus cooperative mills established across the sugar belt spanning Muzaffarnagar, Shamli, Meerut, Saharanpur, Bijnor, and parts of Rohilkhand, only a fraction operate at viable capacity today. The rest are closed, partially functional, or surviving on government lifelines.
Why UP’s Cooperative Sugar Story Matters Beyond the Sugar Belt
This isn’t just an agricultural problem — it is a cooperative governance problem. The Ministry of Cooperation, established in 2021 under Amit Shah, has made reviving cooperatives a national priority. The PACS modernisation drive, NCDC funding pipelines, and NABARD refinance schemes all assume that cooperatives can be turned around with capital and technology. But UP’s sugar belt is living proof that money alone doesn’t fix broken institutions. The cooperative sugar sector here is a mirror for what ails cooperatives across India — political capture, board paralysis, and a membership base that has lost faith.
The Origins: Built on Post-Independence Idealism
UP’s cooperative sugar mills trace their roots to the 1950s and 1960s. Inspired by Maharashtra’s spectacularly successful cooperative sugar model — anchored by mills in Ahmednagar and Sangli — the UP government began licensing cooperative mills across western and central UP. The logic was straightforward: farmers who grew sugarcane should own the mills that processed it, capturing value beyond the farm gate. The Uttar Pradesh Cooperative Sugar Mills Federation was established to coordinate operations, procurement, and marketing.
By the 1980s, UP had a dense network of cooperative mills. Many received concessional loans from NCDC and state government equity. Cane-growing families in Muzaffarnagar and Bijnor saw these mills as community institutions — not just factories. Elections to mill boards were fiercely contested, nearly as heated as panchayat elections. That intensity, I would learn, turned out to be both the sector’s fuel and its poison.
How a Cooperative Sugar Mill Is Supposed to Work
The model, on paper, is elegant. Farmers in a designated cane area become members by purchasing shares — typically ₹1,000 to ₹5,000 per member. They are obligated to supply their cane to the mill, and the mill is obligated to purchase it at the state-advised price (SAP). Revenue comes from sugar sales, molasses, bagasse-based cogeneration, and sometimes ethanol production. After operating costs, the surplus is distributed back to members or reinvested.
The thriving mills I visited follow this model with discipline. Daurala and Titawi area cooperatives, for instance, have invested in cogeneration units that sell power back to the grid, adding ₹3-5 crore annually to revenues. They maintain transparent weighbridge systems, pay cane arrears within the 14-day statutory window, and hold genuine board elections. Their crushing capacities have been expanded from 2,500 TCD to 5,000 TCD over the past decade.
| Parameter | Thriving Cooperative Mills | Sick Cooperative Mills |
|---|---|---|
| Crushing capacity utilisation | 85-95% | Below 40% or nil |
| Cane payment cycle | Within 14 days | Arrears of 6-24 months |
| Cogeneration/ethanol unit | Operational | Absent or non-functional |
| Board elections | Regular, contested | Superseded or politically captured |
| Outstanding NCDC/bank loans | Serviced on schedule | Classified as NPA |
| Approximate annual surplus | ₹5-15 crore | Negative / accumulated losses |
What Is Killing the Majority
The sick mills share a disturbingly consistent pattern. First, political interference in board appointments. State governments — regardless of party — have historically superseded elected boards and installed administrators loyal to local MLAs or ministers. These administrators treat the mill as a patronage machine, not a business. Procurement contracts, transport tenders, and even labour hiring become tools for political reward rather than operational efficiency.
Second, cane diversion. When a cooperative mill delays payment, farmers quietly sell their cane to nearby private mills — Bajaj Hindusthan, Balrampur Chini, Dhampur Sugar — who may pay less per tonne but pay on time. The cooperative mill, starved of cane, cannot run at capacity, which raises per-unit costs, which deepens losses, which delays payment further. It is a death spiral I saw repeated in mill after mill across Bijnor and Lakhimpur Kheri.
Third, technological stagnation. Most sick mills never invested in ethanol distilleries or cogeneration — the two revenue diversifiers that have kept the survivors afloat, especially as the central government’s ethanol blending programme pushes demand. Without these, a mill depends entirely on sugar sales, where margins are razor-thin and government-controlled.
One Mill’s Turnaround Offers a Blueprint
In Bijnor district, one cooperative mill that was classified as sick until 2018 managed a turnaround worth studying. The state government allowed a genuinely contested board election. The new board, led by a retired bank manager with actual financial literacy, renegotiated loan terms with NCDC, leased out unused land for a cogeneration unit through a joint venture, and — critically — installed an automated cane weighing and payment system that restored farmer trust. Within three seasons, cane supply normalised, crushing utilisation climbed past 80%, and the mill cleared approximately ₹18 crore in legacy arrears. The formula was not magic — it was governance. Compare this with cooperative sugar sectors in Maharashtra and Karnataka, where mills like Vasantdada Sugar Institute-affiliated units have sustained profitability for decades through professional management and genuine member participation.
What Comes Next: Policy, Ethanol, and a Narrow Window
The next five years are decisive. India’s ethanol blending target of 20% by 2026-26 has created enormous demand for sugarcane-based ethanol. Cooperative mills that can establish distilleries — with NCDC or NABARD financing — have a viable future. The Ministry of Cooperation’s push to computerise and modernise PACS (Primary Agricultural Credit Societies) could also create better grassroots financial infrastructure around cooperative mills. But the window is narrow. Private mills are already capturing ethanol capacity aggressively. Every year a cooperative mill stays shut is a year its machinery corrodes, its membership decays, and its cane area gets permanently absorbed by a private competitor.
UP’s state government has announced revival packages periodically — the latest involving approximately ₹1,200 crore in recapitalisation for select mills — but without governance reform, this is ventilator funding, not a cure.
Back to That Locked Gate in Shamli
I returned to the shuttered Shamli mill before filing this piece. A former member, a sugarcane grower with eight bighas, told reporters last season that he now supplies his entire harvest to a private mill thirty kilometres away. He still holds his cooperative membership certificate — he showed it, creased and faded — but calls it “a souvenir.” That single image, a farmer holding a worthless membership card outside a locked factory he technically co-owns, captures everything broken about UP’s cooperative sugar sector. The thriving mills prove the model can work. The question for policymakers, for NCDC, for the Ministry of Cooperation, is whether they have the will to fix governance before the last mills rust beyond repair.
If you work in the cooperative sector, study sugar policy, or simply care about whether farmer-owned institutions can survive in India — follow IICTF for ongoing coverage of stories like this. The cooperative movement deserves scrutiny, not just celebration.