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Sugar industry in financial crisis
M.A Siddiqui
ARTICLE (October 31 2002) : The sugar industry of Pakistan is facing financial crisis for the last three years and especially units located in the province of Sindh are under great financial burden.
This is an industry, which is supposed to be the second largest industry of Pakistan, having great effect on the agro-based economy of the country. Direct relationship with farmers on such a large scale is not seen in any other industry and as such the sugar sector has its peculiar nature. Being a produce which starts deteriorating soon after harvesting sugarcane farmers require a very special treatment. Similarly it is the longest crop and as such requirements and expectations of the farmers are great from this crop.
Although the area which comprises Pakistan is not new to sugarcane or sugar industry, the growth of the industry during the past 55 years has been tremendous. From 2 small units in 1947 with a crushing capacity of 1500 tons the number has risen to 78 with a crushing capacity of 62 million tons of cane (1550 million maunds) and a sugar production capacity of 5.30 million tons.
The domestic demand is between 3.20 to 3.40 mullion tons and we have about 2 million tons excess capacity which is lying idle as increase in sugarcane cultivation to that extent requires lot of efforts and planning which are so far lacking. Exports also have become difficult due to higher cost of production.
Industry's contribution: Some facts are to be kept in view while discussing the industry. The following figures are important:-
| i)
Area under cane cultivation |
|
Hectare |
|
Punjab |
Sindh |
NWFP |
Pakistan |
| 2001-2002 |
689,800 |
240,693 |
106,500 |
1,036,993 |
| 2000-2001 |
581,200 |
238,842 |
105,800 |
925,842 |
| 1999-2000 |
680,162 |
230,561 |
104,050 |
1,014,773 |
| 1998-1999 |
780,300 |
270,800 |
103,300 |
1,154,400 |
| 1997-1998 |
685,300 |
261,586 |
108,600 |
1,055,486 |
| Total |
3,416,762 |
1,242,482 |
528,250 |
5,187,494 |
| Average |
683,352 |
248,496 |
105,650 |
1,037,498 |
|
|
| ii)
Cane production (Average during above period) Million
tons |
|
30,458,036 |
14,244,650 |
4,827,800 |
49,530,486 |
iii) Crushing average for above period |
|
22,427,452 |
12,092,686 |
1,311,766 |
35,831,904 |
iv) Cane crushing to production |
|
73.63 |
84.89 |
27.17 |
72.34 |
v) Yield per hectare (Average for above period) |
|
44.056 |
57.144 |
45.68 |
47.722 |
vi) Sugar production capacity -M.Tons |
|
2,800,000 |
2,260,000 |
240,000 |
5,300,000 |
vii) Actual production (Average for above
period) |
|
1,800,912 |
1,126,590 |
104,327 |
3,031,829 |
viii) Utilisation of Capacity |
|
64.32 |
49.85 |
43.47 |
57.20 |
Points emerging from above figures:
1) Over-installed capacity.
2) 72% utilisation of cane produced.
3) Idle capacity of about 43%.
4) Lower yield per hectare - out of 16 cane producing countries Pakistan is at 15th for yield and 11th of recovery percent cane. Against our average yield of 47 tons, India produces 68.60 tons per hectare.
Contribution to agricultural economy government exchequer and social sector:
i) Even on Governments minimum price sugar mills pay Rs 40 billion to growers. Market rates of cane always have remained higher than government. Minimum price and payment is much more than that. During the last crushing season 2001-2002 payment to farmers as cane price was over Rs 45 billion.
| ii)
Government gets revenues in the shape of: |
| a |
Sales tax @
18% minimum |
Rs 9 billion |
| b |
Turnover tax
minimum @ 0.50% |
Rs 300
million |
| c |
Road cess. |
Rs 670
million |
| d |
Market
committee fee. |
Rs 179
million |
These are direct revenues. Other production factors provide government exchequer a minimum of Rs 5 - 6 billion.
The industry employs directly over 200,000 persons and indirect employment to over 1,000,000 individuals.
It is unfortunate that an Industry making such a contribution to rural economy and government exchequer is becoming sick. Almost all the balance sheets of Sindh sugar mills are going to be red for 2001-2002 with heavy borrowings and outstanding liabilities.
There is a misunderstanding in the minds of general public about the price of sugar. Retail price comprises the following -
- Mill to market expenses including transport, commissions, profits and transit losses - Average Rs 1.50 per kg. - Sales Tax @ 18%.
If selling price of sugar in market is Rs 20 per kg., mills get -
| Selling
price |
20.00 |
| Less:
mill/market expenses |
1.50 |
|
18.50 |
| Less: S.
Tax (a) 18%. |
2.87 |
| Price
available to mills. |
Rs 15.68 |
This does not cover even the cost of raw material paid to farmers.
To improve the situation, instead of expecting too much from the government, the industry and farmers have to find a solution. One can not survive without the other. If miller becomes financially pauper, the farmer should not expect return and vice versa. We have to -
i) improve yield and recovery percentages. Even by improving yield by 25% we can increase cane production to 60 million tons instead of 49 million without increase of area under cultivation.
ii) With improvement of recovery by 1% coupled with improvement in yield we can increase sugar production to 4.200 million tons instead of 3.197 million tons of 2001-2002 resulting in 1 million tons surplus for export.
iii) Millers should avoid unnecessary competition to achieve narrow interest. Healthy competition will surely result in better financial results.
These measures will provide one million tons of surplus sugar for export, which without asking for subsidies from government could be exported to earn foreign exchange. Higher production is certainly going to reduce cost of production.
iv) By-products of sugar industry be utilised and industries be set up for proper and beneficial utilisation.
v) Government's support at whatever level is be provided as this industry is a source of high revenue distribution for rural/agricultural economy, collection for government revenue and employment for masses.
Source:
Business Recorder |
Pakissan.com;
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