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Sugar industry at a crossroad
The industry has the great potential

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May 08 - 21, 2000

On one hand, the government is being pressed by the sugar importers to reduce duties on import of sugar, while on the other hand, the sugar producers in Pakistan are insisting to keep the taxes intact in order to safeguard price of their inventory stocks estimated around one million tonnes.

Duty on import of sugar is around 45 per cent and a 20 per cent General Sales Tax (GST) leading to landed cost of sugar in the local market at Rs21 per kg at retail.

Due to shortfall in the sugar production around 3 lakh tonnes of sugar is likely to be imported this year. According to market sources, letter of credits for import of more than half of the required amount has already been placed and the shipments are expected to call on Karachi port sometime next month.

Currently, the sugar in the retail is being sold at Rs22-23, which is feared to escalate further if the government sticks to the current level of duty on sugar import.

Despite the fact that sugar industry in Pakistan with a strong production base with 75 units having an installed production capacity of 4.867 million tonnes has always been suffered of capacity utilization. During the current fiscal the industry produced 2.400 million tonnes which is slightly less than the installed capacity. According to an assessment, 1994-95 was the only year when the industry achieved 75 per cent capacity utilization. Otherwise the capacity utilization has averaged below 50 per cent. This state of affairs clearly indicates that this segment of the industry despite having all potentials to support country's export base never gained the status of a cash crop.

While elaborating the structure of the industry, Aftab Ahmed Khan, a sugar expert told a seminar recently held in Karachi that the most worrying factor is that this industry has co-existed with some built-in problems which have now grown in size along with growth of the industry. This industry has grown without any assistance of by-product industries. Sugar industry in Pakistan has co-existed with poor sugarcane-yield and lowest sucrose yield of sugarcane while the industry goes on working without R&D efforts. He pointed out that establishment of a sugar research institute was still a dream. Production cost has risen so high that profitability has totally been eroded. There are feelings that sugar is a sick industry and should be disbanded.

The structure of sugar industry was for the first time reviewed during the brief tenure of caretaker government of Moin Qureshi. Categorizing the sugar industry into two groups i.e. a) Units under bank-debts and b) Units free from bank debts. It is a harsh reality that despite best of technological and financial skills, mills burdened with bank dues are feared to phase out of existence in near future. A few causalties have already taken place in Sindh as well as in the province of Punjab. Repayment of bank loans is the number one problem of the sugar units. The situation has become so grave that about a dozen sugar mills are likely to be closed. The bank executives insist that either such sugar mills be phased out or sold out to strong sugar mills.

Generally speaking, the present team of the economic managers as well as previous governments have time and again announced to reduce the tax collecting agencies with an objective to check corruption, reduce administration cost and create a conducive atmosphere for investment in the country. However no visible change has been made so far in the tax regime.

The sugar industry in particular has to deal with CBR (Sales Tax) CBR (Income Tax), Sindh Government (Labour Directorate) Sindh government (Local Departments and Directorates, Cane Commission Office and 14 other government functionaries. Coping with such a massive number of government functionaries is enough to bring the industries to the sickness. There should be no surprise if a large number of our industries fall in the category of sick industry.

According to an estimate, a sugar mill of 3000 to 4000 TCD pays Sales Tax and other taxes to the tune of Rs100 million annually. Similarly, larger capacity sugar mills pay larger taxes.

Concluding his remarks, Aftab Ahmed Khan said that sugar industry has great potentials. It has played a sound economic role. This industry which is 100 per cent value added indigenous industry is standing at a crossroad today. A couple of wise decision by the government may rescue the industry from the present impasse. A financial relief package may be offered to the sugar industry as was offered to the textile sector sometime back with reference to bank dues. The government commensurate with the manufacturing cost of sugar may adopt a bold sugar price policy. At the same time sugar industry should now adhere to strict financial discipline to plug all the leakage taking place which escape the books of accounts and should offer for open accountability in cases of financial lapses. The sugar industry must realize the gravity of the situation and mend its ways accordingly because the industry has reached to a now or never position.