Capacity Utilization and Production Efficiency of Sugar Industry of Bangladesh: An Application of DEA

Abstract

The current production of Sugar in Bangladesh is about 60 metric tons, which is only about 5% of the total demand for sugar in the country. One of the causes of lower sugar production in the industry is the insufficient supply of sugarcane in the factories and the sugar recovery rate is very low. Again, the industry is running only at 33% of its sugar production capacity and is a losing concern for the government of Bangladesh. The study aims to investigate the capacity utilization and production efficiency of sugar mills and identify the relationship between these two. It uses Data Envelopment Analysis (DEA) to measure the production efficiency of 15 sugar mills under BSFIC for a period covering from the fiscal year 2015-16 to 2019-20. DEA is a linear programming-based technique that mirrors the capability of a decision-making unit to attain the highest level of output from a given set of inputs. To measure the efficiency, the study considers the consumption of sugarcane, crushing days, the number of employees as input variables, and the amount of sugar and jaggery production as output variables. The result shows that the overall efficiency under CRS is 0.868, which indicates that the industry is running with a 13.2% efficiency loss. The lowest efficiency score in the industry is for Rangpur Sugar Mill (0.664) represents that the mill can reduce its consumption of inputs by 33.6% without affecting the number of outputs. The findings can help policymakers formulate policies to enhance the operating efficiency of the sugar mills running in the economy. It can also provide guidelines to the development partners in identifying the priority of their development initiatives.