Sugar industry position clarified 

Any one aware of ground realities governing Pakistan's sugar industry, at least for the latest past four years at a stretch, will find the contents simply paradoxical, discounting readers' right to get facts, instead of writer's prejudices.

The Pakistan Sugar Mills Association has, time and again, categorically stated the problems faced by the sugar industry and details of parleys held at least four ministerial level meetings, appearing in media, bear testimony to truth. Write-up under reference, being inspired by ignorance, compels the PSMA to come out once more with facts to keep the record straight.

This note is set in order of providing information on the latest current season and extend in reverse order to the preceding three years so as to provide proper insight and in sound sequence.

During the latest 2003-04 (2002-03) season, national sugar industry rolled out a record sugar output at 3.997 (3.662) million tons, up 9.14 per cent, by higher efficiency as can be seen from processing of 43.468 (41.911) million tons of sugarcane, up 3.71 per cent and achieving an average sugar recovery improved to 9.19 (8.74) per cent.

Negating such a fine performance can be sheer ignorance or mere negligence or poor aptitude or in the worst form getting carried by prejudices and bias. The PSMA has been releasing since several years past its two statistical statements regularly each fortnight, one relating to sugarcane crushing, production and recovery and second on lifting and stocks held at a given point of time.

As of June 15, 2004, sugar lifting was 2.140 (2.006) million tons, leaving stocks at 1.876 (1.677) million tons. These figures have invariably been authentic and transparent.

The writer of the article has expressed his unhappiness on procurement of 500,000 tons of sugar by the Trading Corporation of Pakistan. This was done after thorough appraisal of the situation from time to time as such lifting was staggered in lots of 100,000 tons each in November 2003 and January 2004 and process of 300,000 tons still underway.

It may be noted that sugarcane crushing process terminated by April 2004. Procurement of this quantity by the TCP has been after several meetings on joint federal and three provincial ministerial level with representatives of the sugarcane farmers organizations and the PSMA. It was not an act in isolation or unusual.

For the latest four years at a stretch, sugar industry has been compelled to carry unusually high and rising load of stocks each. A huge surplus has been blocking its funds and kept sugar price depressed, inflicting huge losses to the industry.

Sugar availability, surplus stocks:

* Includes 531,930 tons on processing raw sugar by the industry.

** Exports by TCP.

In the three years, stocks with the sugar industry doubled, with highly adverse impact on prices, revenues, liquidity and extending it eventually to eroding equity. Is it pampering?

The writer seems totally ignorant about rigid regime relating to cost of sugar production, sharply contrasted by market mechanism determining sugar sales price. This greatest paradox appears to be unknown to him.

Can any writer justify his analysis by ignoring facts of primary consideration and question pragmatic decisions? Sugarcane support price is fixed by the government, on average constituting 65 to 77 per cent of the production cost.

Similarly, wages, utilities and other costs of production process have been about 16 per cent. Variable costs aggregate to 87 per cent and this 'minimum' is determined by the government while the industry has no say in it.

Huge load of unsold stocks, creating oversupply, contrasted by inelasticity in demand plummeted persistently sugar price like proverbial nine pins. This can be seen from the following.

Season          Average wholesale       Price fall





                price, Rs/ton           Rs./ton





2000-01        24,159                    -





2001-02        20,416                   3,743





2002-03       18,299                    2,117





2003-04       17,099                    1,200

Price fetched by the industry could not cover costs of production and as a result, sugar industry stands devastated despite its sterling performance evinced by production trend. Does it mean pampering of the sugar industry?

The writer is oblivious of the fact, need and justification of the government of Pakistan to decide support price for sugar cane, about which the sugar industry has no say.

Sugar industry seeks either free market for both cane and sugar, or price support for both. It is absolutely inappropriate to fix price of raw material, leave end-product free and place them diametrically opposed! Due to this sugar industry has become oppressed, to say the least.

It is not sugar cane alone that support price is fixed by the government. Wheat, rice, cotton, oilseeds are other instances. Assess their marketing and of sugar cane and unfair treatment being meted to the latter becomes distinct.

Statutorily, sugar industry is required and compelled to process entire cane crop available. The industry's demand for flexibility to process sugar cane volume to the extent producing sugar adequate for domestic demand is yet to receive consent.

As this is denied, the equity demands to lift surplus sugar by the authorities and at cost plus basis. Procurement by the TCP in compliance with the government directive has been by competitive tender basis, instead of cost plus.

If the writer thinks that to avoid this, the government shall lift the surplus crop, as it buys similarly support price based commodities, sugar industry would not oppose such arrangement!

The writer does not know that 15 countries of the globe produce sugar cane and/or sugarbeet and process them into sugar. Aggregate global output is about at 150 million tons plus.

Of this five to 10 per cent, i.e., seven to 15 million tons enters international trade circuit. Invariably, each country manages liberal support in export of sugar. Pakistan cannot be an exception to applicability of this norm, while ignoring its adherence for four years has just wrought ruins to the sugar industry.

It is no secret that the support mechanism in export of surplus by sugar producing countries is to serve the agriculturists' interests. The European Community is providing support as much as the cost of its sugar production.

Foreign trade counter is managed by each country through import tariff and export incentives. Objecting to it by singling out sugar just reflects prejudice.

The writer's observation that sugar industry never processed entire sugar cane crop is correct, as total crop is never meant for processing. Apart from retaining for seed, leaving in ratoon, using for juices, part of it also goes for fodder of animals.

Sugar industry is statutorily required to utilize the crop made available to it for processing and to ensure its compliance a separate commissionerate with an act is created to supervise.

Under-utilization of capacity held by sugar industry is due to crop size not increasing over the years as could be normally expected by rising consumption. Sugar cane yield has almost stayed put for years to an average of 48 tons/hectare, being one of the lowest among main sugar cane producing countries.

Had dynamics of research and development applied in sugarcane crop, yield could have been doubled and that would have given maximum utilization of the capacity and emerging economies of it could have overcome the problems now being faced.

Expansion in sugar cane processing capacity was carried with reasonably fair projections. Sugar cane crop yield trailing behind candid estimations prevented sugar industrial potentials from a fine flourish. It is not the fault of sugar industry.

Now look at other side of the coin. Assume, if sugar industry would not have existed, what would have been the economic scenario. Import of three million plus tons of sugar @US$ 275/ton would cost US$ 825 million and proportionately more by higher price.

About seven to 15 million tons entering global sugar circuit, three million tons plus demand from Pakistan alone would have skid price by at least 20 per cent. So it could be dollar one billion plus financing in foreign exchange on import of sugar. Could Pakistan afford it?

Besides this drain in forex on balance of payment, rural development of the country would have hanged much in balance. Sugar industry has been ideal for socio-economic surge by its locational compulsion in farmlands.

Pakistan sugar industry provides employment to 47,000 persons directly and about a million overall, inclusive wide spread indirect employment. Value addition of sugar industry at 13 per cent has been the second best within the large scale manufacturing subsector of Pakistan.

Besides sugar, the industry produces molasses, industrial alcohol which are exported and earn handsome foreign exchange. Sugar industry by its strategic placement in rural heartland is the best suited for development and growth.

Bagasse is used in electricity generation on which sugar plants operate and are in a position to provide power to national grid network in winter season when hydel power generation capacity tends to trim.

Bagasse is also used in making of paper and boards, latter having multiple uses as packing material. Medium fibre density wood is also being manufactured by putting into service improved technology of utilizing bagasse.

The writer in concluding para has been tempted to dish out figures of return to farmers on cultivating sugarcane and other crops. This gives the impression that he has been more knowledgeable than farmers. Each farmer would grow a crop which is more rewarding. This is as simple as 2+2=4. If this truth is ignored, ignorance will rule supreme.  

Curtesy: The Dawn

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