RESOLVING SUGAR CRISIS
Oct 4 - 10, 2010
Over the last few years, the lingering sugar crisis has gone from bad to worse mainly because of myopic policies of the government and vested interest. The assertion that millers alone are responsible for the crisis is incorrect and misleading. In fact, the feudal lords, having access to power corridors, are responsible for the prevailing situation. In fact, they wear various caps i.e. growers, middlemen and the millers. The role of bureaucrats has also been disappointing because they are efficient in maintaining cordial relationship with all the groups but are least bothered about the industry termed 'driving engine' of the rural economy. Though, nearly a dozen ministries at federal and provincial level claim roles in developing policies governing sugar industry, none seems to understand 'sugaronomics'.
Pakistan has a long history of efficient operation of sugar mills, when staff used to get around bonus and shareholders were paid dividend up to 45 per cent. It was mainly because mills used to operate up to 50 days and there was no excise duty applicable on sugar produced above the stipulated number of days. As against this, crushing is restricted to around 150 days and there is no incentive for mills for longer period. In fact, crushing days have reduced because of highly inadequate supply of sugarcane. Neither the government nor the growers seem interested in enhancing production.
Sector analysts say that growers want to keep sugarcane supply restricted so that they could squeeze more money from the millers. They also say that farmers hardly attempt to increase productivity. Sugarcane yield in Pakistan is nearly half of the yield achieved in India. In Punjab, lower yield is because of cultivation of sugarcane in 'cotton belt'. Many of the areas have dry and high temperate climate, which is suitable for cotton but certainly harmful for sugarcane. Average yield and recovery in Punjab are far lower as compared to Sindh.
Over the years, sugar industry has remained 'single product' industry, which raised the cost of production. Though lately efforts were made to for product diversification, optimisation remains a far cry. Industry has not been able to make best use of molasses and baggase. Bulk of the molasses produced in the country is exported and attached refineries of sugar mills barely run the distilleries. The government is keen on popularising use of blended petrol (E-10) but neither the mills nor the oil marketing companies are ready to go for massive marketing/sale of E-10 despite being more efficient and environment friendly.
Similarly, government has failed in offering an attractive bulk power purchase rate for sugar mills. While the government encourages independent power producers and even the rental power projects, it is not willing to offer an attractive rate for sugar mills and granting them IPPs status. Sugar mills have attached powerhouse where steam is produced by burning low cost baggase. The delay in finalising the tariff is because ministry of water and power is not ready to offer sugar mills a rate being offered to IPPs and RPPs. Sugar mills have the capacity to collectively produce more than 3,000 megawatt electricity that too close to the point of consumption, also to help in containing transmission and distribution losses.
Cost of sugar production has spiraled because of persistent hike in support price of sugarcane and also due to inability to broaden the product mix. If the government is serious in bringing down cost of production optimum capacity utilisation of mills, producing wider range of products from molasses and awarding sugar mills the status of IPPs can change the entire landscape. However, none of these can be achieved without doubling sugarcane output in the country. The country needs no additional area under sugarcane cultivation but improvement of yields.
Since increasing sugarcane production will take longer time under the makeshift arrangement mills should be allowed to import raw sugar. An incentive may also be provided by announcing that half of the quantity of raw sugar could be exported. Mills may also be allowed to retain the foreign exchange earned from export of refined sugar to finance raw sugar import next year.
Experts are of the view that retail price of sugar could be reduced to half over the next three years by adopting the above stated policies. All the attempts to import refined sugar must be discouraged. The government has been committing the mistake of importing refined sugar at higher prices and at a wrong time. The government must put complete ban on import of refined sugar and facilitate import of raw sugar.
The government should also stop fixing sugarcane support price. When the government stopped fixing cotton support price decades ago why it is adamant now on fixing sugarcane support price? The policy of pricing on the basis of weight should also be discontinued and the new benchmark should be recovery of sugar. The proposed policy would bode very well for the sugar mills operating in the cotton-growing belt.
The government has constituted 'Sugar Board', which has failed in coming up with suggestions to increase sugarcane output and bringing down cost of indigenously produced sugar. A new board must be announced at the earliest.
It may also be kept in mind that this year both production and yield are expected to be 25 per cent higher, at least due to more than ample supply of water. The government should also not insist of commencing sugarcane crushing till early December to attain maximum recovery. Running the mills early and closing intermittently is worse than commencement of crushing late and running the mills at optimum capacity. Act prudently and see the difference. If other countries can achieve high production at lower cost, why not Pakistan? SK