THE SUGAR INDUSTRY

 

Limited availability of sugarcane is the key factor affecting profitability of sugar mills

By SHABBIR H. KAZMI
May 21 - Jun 03, 2001

Sugar production capacity, based on government specified recovery benchmark, is calculated around 5.5 million tonnes per annum. Whereas, effective capacity exceeds 6 million tonnes per annum. However, the limited supply of sugarcane has resulted in nearly 45 per cent capacity utilization over the last many years. Pakistan possess tremendous potential to increase sugarcane and sugar production. Sugar industry has the huge potential for earning foreign exchange through export of sugar and molasses. Therefore, there is a need to examine factors which are adversely affecting sugaronomics.

The first and the foremost important point for due diligence is availability of sugarcane in the country. A review of the data regarding production of sugarcane and sugar indicates only 45 per cent capacity utilization due to non-availability of sugarcane. The area under sugarcane cultivation has remained around one million hectares for the past seven years. Sugarcane production during this period remained between 42 to 45 million tonnes jolting sugaronomics.

The main reason for low production of sugarcane is poor yield poor by any yardstick. A comparison of 16 sugarcane producing countries indicates that Pakistan is 4th in terms of area under cultivation, 15th in terms of yield and 11th in terms of sugar recovery. Therefore, there is an urgent need to increase sugarcane yield at farms and improve sugar recovery at mills. This is the unanimous opinion of all the stakeholders associate with sugar. It needs precise strategy to resolve the situation as no other alternate is available.

Most of the reasons, major irritants pertaining to the industry, are known to the government. However, it will not be out of context to reiterate them. These are:- 1) breakdown of harmonious relationship among sugarcane growers and mills, 2) lack of appropriate institutional structure for sustainable research and development (R&D) and its application and 3) non-release of funds from Road Cess for R&D despite huge funds collected by the government from sugarcane growers and sugar industry.

It is true that de-zoning has created acrimony between sugarcane growers and sugar industry and has caused huge losses to the industry as well as to the government. It is surprising that an industry which contributes over Rs 70 billion to GDP is not attached with any one particular ministry. It has to deal with three ministries (industries, commerce and agriculture) at federal and provincial levels. Besides, the industry is being governed under the 'Sugar Factories Control Act 1950' which has become obsolete and outdated now.

Mechanism to prevent disruption and lend support in transition to free marketing, particularly sugarcane, on which its availability and sustained performance of sugar mills depends has not evolved. As a result performance of sugar industry portrays fluctuating fortunes. At times there is over supply and at times huge quantities have to be imported.

The worst deterrent to sugar industry has been ill-timed import of sugar. As a policy no sugar should be imported during the crushing season. The experience is contrary to this philosophy. The ill-timed import of sugar ultimately affects lifting of sugar from mills, delay in payment to sugarcane growers and increase in inventory carrying cost. The mills located in Sindh have been the worst sufferer of this policy.

Another important derogatory factor which needs immediate attention of policy makers is the support price structure and its determination procedure. Support price has been in vogue since 1978 and has lost utility, purpose and objectivity. The policy was aimed at ensuring adequate return to sugarcane growers. However, this has become a serious deterrent in improving yield.

At present sugar industry consists of 78 units 32 in Sindh, 40 in the Punjab and 6 in NWFP. Out of this 65 operated during 1999-2000 sugarcane crushing season. These mills crushed 29 million tonnes sugarcane and produced about 2.4 million tonnes sugar. Sugar production in Sindh has been above one million tonnes with maximum at 1.374 million tonnes denoting a surplus of about half a million tonnes. Whether there is a surplus or shortage of commodity in the country the mills located in Sindh are the worst sufferers.

OUTLOOK

Sugar industry is an important agro-based industry and backbone of Sindh's economy. It is also the lone catalyst of rural development. There is a potential to increase sugar production, by two fold, by increasing yield and improving sugar recovery. The issues related to this industry cannot be resolved without the GoP playing a lead role.

Introduction of zone system is an appropriate step and its implementation should not be delayed. It will help in improving yield, increasing sugar production and will ultimately benefit the sugarcane growers.

Not only that sugarcane support price has to be rationalized other irritants like collection of Road Cess, Surcharge on Road Cess and Market Committee Fee issues have to be resolved on priority basis.