The question is where would Pakistani sugar industry standing a year from now? Will still be there?

Apr 12 - 18, 2004

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 the mills.

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?