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Pakistani sugar costing lower in saarc region

Prudent policy may bring Pakistan into export market

BY SYED JAMIL AHMED RIZVI, FCMA
Sep 24 - 30, 2001

Sugar Mills' Capacity/Utilization

In Pakistan 67 Sugar Mills are operating having crushing capacity of 361,300 tons of cane per day (TCD). Seven Sugar mills extended capacity but they are unable to utilize. Based on 160 days season these sugar mills have a total crushing capacity of 58 million tons of sugarcane capable to produce 5 million tons of refined sugar and 3 million tons of molasses.

In order to enable the country to be self-sufficient in sugar, a minimum area of 1.150 million hectares should remain under sugarcane cultivation, which can produce 50 million tons at an average yield of 43.86 tons per hectare. The Government should insure that at least 76% of the sugarcane grown in the country is utilized by all sugar mills. It means that a total of 38.3 million tons if compulsorily utilized by the mills can easily produce white refined sugar of 3.3 million tons per season at an average sucrose recovery of 8.62%. Pakistan present population is 13.5 million head count. With an average growth rate of 2.5% per annum, the population of the country will grow year to year as shown in graph and table I. The per capita consumption of sugar in Pakistan is about 22 kg. The estimated domestic consumption is provided in table I and graph IA. Keeping in mind the balance production of agricultural sector and peculiar problems the sugar industry face due to being its status of political industry, and its seasonal nature the minimum production of 3.3 million tons per season will be sufficient enough to meet not only the domestic demand but also make surplus sugar available during the next three years as shown in the table.

It is very important point that by utilizing 38.3 million tons of cane against their normal plant capacity of 58 million tons of sugarcane, the mills would still have unutilized capacity of 34%. This clearly signals that the existing mills are sufficient enough to produce the country's requirement of sugar until the next three years. The Government should focus its policy for increasing the production of sugarcane on the existing area under cultivation and sugar output by the available mills. It should not encourage further increase in the number of sugar mills.

MAJOR STATISTICS

1.

Operating Mills

67

2.

Cane Crushing Capacity

58 million tonnes

3.

Capacity Utilization

66 %

4.

Production

 

Refined Sugar

5 million tonnes

 

Molasses

3 million tonnes

5.

Average Sugar Cane Yield per hectare

 

(i) Pakistan

43.86 tonnes

 

(ii) World

60.00 tonnes

6.

Average recovery

 

Pakistan

8.62%

7.

In 1998-99 , 73 Sugar mills produced

3.521 million tonnes

8.

National demand

3.20 million tonnes

9.

Labour force

100,000 people

10.

Involvement in the production of sugar cane

9 million people

11.

5 years Average Cost of production (1996-2000)

Rs. 14850 / tonne

12.

5 year Average Selling price (1996-2000)

Rs. 14920 / tonne

13.

Land under cultivation

1.01 million hectares

14.

Land required to cultivate and achieve self-sufficiency in production

1.15 million hectares

The sugar industry which is the second largest in the country after textile, has great economic significance for the country. This could be gauged from its immense employment potential, providing jobs to more than 100,000 labour force and involving about 9 million people of rural population in the production of sugarcane.

Sugar is commonly used as a sweetener. It is one of the world's valuable nutritious foods and is the main source of carbohydrates and provides inexpensive calories for human body. Pakistan is producing high quality sugar of international standards but it is costlier due to various factors.

TABLE I: 
Projections of Demand & Sugar Production Capacity

Year

Population in Million

Domestic Consumption in Tons

Projected Sugar Prod. Capacity In tons

Sugar surplus (shortage) Tons

1998-99

134.51

2959000

3530850*

571850

1999-00

137.51

3025220

2414746*

(610474)

2000-01

140.94

3100680

3304360

203680

2000-02

144.47

3178340

3304360

126020

2002-03

148.08

3257760

3304360

46600

2003-04

151.78

3339160

3304360

(34800)

2004-05

155.58

3422760

3304360

(118400)

Per capita consumption 22 kg [Excluding Beet Production] * Actual
Economic Survey 1999-2000

 


 

Table II: 
Sugarcane cultivation, Crushing and Sugar production

Year

Area Planted Hectares

Sugarcane Produc-
tion Tonnes

Yield Per Hectare

Cane crush-
ing Tonnes

No. of Mills

Utilisa-
tion % by Sugar Mills

Sugar Produ-
ced Tonnes

Reco-
very %

1985-86

779800

27856300

35.72

12063292

40

43.30

1102316

9.14

1986-87

762000

29925800

39.27

14485439

41

48.40

1255839

8.67

1987-88

841600

33028800

39.25

20304087

44

61.47

1743505

8.59

1988-89

876900

36975700

42.17

21707520

45

58.71

1817935

8.37

1989-90

854300

35493600

41.55

20501339

48

57.76

1828904

8.92

1990-91

883800

35988700

40.72

22603696

51

62.80

1908838

8.44

1991-92

896000

38865000

43.38

24795815

53

63.80

2296698

9.26

1992-93

884600

38058900

43.02

27274806

61

71.66

2375289

8.71

1993-94

962800

44427000

46.14

34181899

63

76.93

2900523

8.49

1994-95

1009000

47168447

46.75

34193290

66

72.49

2983101

8.72

1995-96

963100

45229700

47.00

28151434

66

62.24

2449598

8.70

1996-97

964511

41998409

43.54

27152918

68

64.65

2378751

8.76

1997-98

1056200

53104200

50.28

41062268

71

77.32

3548953

8.64

1998-99

1155100

55191100

47.78

42994911

71

77.90

3530931

8.21

1999-00

1010000

46363000*

45.90

28982711

67

62.51

2414746

8.33

*Economic Survey 1999-2000 Source: PSMA

Existing mills area sufficient enough to produce the country's requirement of sugar. The government should, therefore, focus on increasing the production of sugarcane on the existing area under cultivation and sugar output by the existing mills. It should not encourage increase in the number of sugar mills.

Comparison with Other Economies of the SAARC Region

A comparative analysis of Sugar Industry average selling prices in Pakistan, Bangladesh and India is tabulated below:

COMPARATIVE RATIO OF COMPONENTS OF SELLING PRICE IN SAARC
(All values in equivalent Pak rupees)

.

Pakistan

Bangladesh

India

.

Rs/Tonne

%

Rs/Tonne

%

Rs/Tonne

%

Sales Revenue

17180

100.0

26195

100.0

17228

100.0

Govt. Taxes

1582

9.2

1412

5.4

1139

6.6

Production (Factory) Cost before Depreciation

13695

79.7

28676

109.5

16794

97.5

Other (Selling, Administrative, Finance & Dep) Costs

1893

11.0

(7706)

(29.4)

(4207)

(24.4)

Operating Profit (Loss)

10

0.1

(11599)

(44.3)

(4912)

(28.5)

TOTAL

17180

100.0

26195

100.0

17228

100.0

Computer rounding off difference of 1 expected.

 


 

COMPARATIVE SALES AND COST OF SALES

 

PAKISTAN

BANGLADESH

INDIA

Sales

17180

26195

17228

Cost of Sales

17170

37794

22140

 


 

COUNTRYWISE COMPARISON OF SUGAR PRICES

.

PAKISTAN
Rs/Tonne

BANGLADESH
Rs/Tonne

INDIA
Rs/Tonne

Sales Price before Govt. Taxes

15598

24783

16089

Govt. Taxes

1582

1412

1139

Sales Price/ tonne

17180

26195

17228

PRODUCTION (FACTORY) COST OF SUGAR BY ELEMENT

Following Table compares the make up of the elements of production cost of sugar before depreciation in Pakistan, Bangladesh and India.

Elements of Costs

PAKISTAN

 

BANGLADESH

INDIA

 

Rs/Tonne

%

Rs/Tonne

%

Rs/Tonne

%

Raw & Packing Materials

11645

85.0

15979

55.8

14007

83.4

Stores & Spares

594

4.3

841

2.9

569

3.4

Fuel & Power

203

1.5

1093

3.8

191

1.1

Labour

1082

7.9

8414

29.3

1426

8.5

Other Overheads

171

1.3

2349

8.2

601

3.6

TOTAL

13695

100.0

28676

100.0

16794

100.0

Computer rounding off of difference of 1 expected.

 


TABLE:  Country wise input cost and profitability of Sugar Industry for the Year ended 1998 - 1999

Comparison

Following observations are made from the above cost comparison

Pakistan has the most efficient operations of sugar mills as compared to Bangladesh and India.

Labour and Overhead costs in Pakistan shows much better unit cost most probably due to better capacity utilization as against Bangladesh & India.

If we manage to utilize the remaining 34% unutilized capacity we can maximize sugar production on the available hectarage for continued self-sufficiency.

The Government should seriously think about the critical problems facing the sugar industry and take remedial measures.

Since the de-zoning the incentive for sugar mills to direct resources for the development of good variety cane in its area has almost diminished because the grower is free to take his sugarcane to any mill irrespective of which mill advanced him the loan for development. De-zoning is thus also one of the major causes of the sickness of the sugar industry. However, larger interests of the growers of the area and those of the others associated with a sugar mill that collapses due to non-availability of cane is badly affected.

In this situation some mills which can not offer immediate hard cash payment to the growers in their zones normally start starving of the raw material and are ultimately closed which results in the collapse of an important national asset, loss of revenue to the government exchequer, unemployment among the nearby rural population. Thus closure of sugar mill contributes to a decline in the GDP as well as to an increase in poverty.

The government should seriously think about this critical problem and make remedial measures alongwith those suggested below to avert the crisis in future.

Timely review of support prices by the government provides incentives to farmers for cultivation of crops. Since Pakistan is an agrarian country and is heavily indebted, it is absolutely essential that a balanced policy for cultivation of the four major cash crops wheat, cotton, rice and sugarcane, as well as the minor crops of oil seeds should be chalked out to meet the food requirement of growing population of the country. An incentive should be provided to the growers for cultivation of sugarcane on 1.15 million hectares.

The support prices of sugarcane can not work at all through the free market forces due to the simple reason that retail price of sugar is regulated by the Government through imports. The support prices of other cash crops such as wheat, rice and cotton are also similarly regulated. It is obvious that two economic theories (1) principle of supply and demand governed by market forces for cane, and (2) government control - of retail price of sugar cannot work together and will further worsen the sugar crisis in the country.

The writer is Director Research, Admin & Finance at Institute of Cost and Management Accountants of Pakistan (ICMAP)