Would the Pakistani sugar industry be able to survive
the post WTO free trade era beginning next year? As is, the industry is
looking at record production of around 4.1 million tons when the
crushing season ends next month both in Sindh and Punjab.
The major problem of the local sugar industry is not
the production but the cost of it which makes it highly incompetitive in
the international markets for exports. In addition, the high production
costs also deprives the domestic consumers any benefits that their
counterparts elsewhere in the world would derive from the economics of
surplus. In fact, the exchequers have suffered substantial losses as the
government was forced by the sugar mills to buy the surplus stocks.
The country is looking at record sugar production of
4.1 million tons, a million ton more than needed to meet domestic
consumption. There would be a surplus of 500,000 ton even after the
Trading Corporation of Pakistan lifts an equal volume from the sugar
mills. Finance Minister Shaukat Aziz, chairing the first meeting of the
newly established Sugar Board on the 12th of this month, decided to buy
another 0.3 million ton of sugar from the mills in addition to 0.2
million ton already lifted by the TCO to bail out the sugar industry
which would push losses to the exchequers.
The question is for how long the local sugar industry
would be able to survive with the government patronage? Certainly, the
support could not keep on continue indefinitely at such high losses to
the exchequers particularly in the post WTO era. What can justify
protecting the industry at uneconomic costs which offer no benefits to
the consumers locally and enjoy little prospects of exports due to
incompetitive prices in the international market.
Subsidizing an industry which does not offer any
relief to consumers on the one hand and is incapable of competing in the
export market on the other hardly makes not any economic sense unless
measures are taken to drastically improve its performance. As is, the
sugarcane is an extremely water-intensive crop which puts an enormous
pressure on an already scarce water availability in the country.
What could explain the presence of 76 sugar mills in
the country that a collective crushing capacity of 5.5 million ton that
exceeds domestic consumption of by huge 2.4 million tons. The presence
of such a large number of sugar mills, the majority of which were issued
licenses due primary to political favours, has only resulted in
unplanned production of sugarcane and sugar that is the primary cause of
the "crisis of surplus" presently. Do we really need all these
sugar mills and their collective production capacity when the
consumption of the commodity is increasing by just 2 per cent per annum
that would take domestic consumption over 15 years to touch the 5.5
million ton level?
One of the other nagging aspect of the performance,
or lack of it, of the sugar industry is that it discourages sugarcane
farming because sugar mills owe billions to the growers at any given
time. For instance, a report prepared by the Cane Commissioner last
September said that 39 mills in Punjab collectively owed Rs 906 million
to the growers. The growers, however, disputed the figure and claimed
that the volume of the outstanding amount was much higher than that
provided by the Commissioner which was based on the figures provided by
Pakistan represents around 8 per cent of the total
global sugarcane crop but it represents a far lower percentage of global
yield that averages around 4 per cent which fluctuates around just over
19,000 kilos per acre which is as much as 45 per cent less than the
lowest world average. Moreover, the yield fluctuates highly from year to
year depending on rains and availability of irrigation water. That
explains the wild fluctuations in sugarcane production from year to
year. In addition to low yield the sucrose content of Pakistani
sugarcane is low compared to the world average — just 8-9 per cent
against 13-15 per cent, which even the induction of latest technology
can improve only marginally.
The 76 sugar mills of the country represent billion
of rupees in investment and yet the beginning of the QTO next year casts
a heavy cloud on the future of Pakistani sugar industry primarily
because of high production cost that is feared to force it out of very
own market. Thus far the industry has been able to survive on subsidies
and bailing out by the government but the high production costs which
runs makes it impossible to export the commodity.
The situation is worsened by the fact that the
developed countries refused to abolish heavy subsidies to their farmers
at the WTO's Cancun meeting in September last despite strong concerns
raised by the developing world. US and EU fork out huge $ 400 billion
subsidies to their agriculture sectors making it impossible for farmers
in the developing world to compete in the international market. The
refusal is feared to push the farm and the related sectors, of which
sugar is a part, in the developing world out of their own markets
because of incompetitive prices.
The question is where would Pakistani sugar industry
standing a year from now? Will still be there?