SUGAR INDUSTRY

Capping production can only add to the cost of production

By SHABBIR H. KAZMI
May 10 - 16, 2004

Sugar production during the recently concluded crushing season exceeded 4 million tonnes. When the carry forward stock is added to the production, the total availability exceeds 4.6 million tonnes against an estimated demand of around 3 million tonnes or a surplus of 1.6 million tonnes. The supply glut will only add to the miseries of sugarcane producers and the millers. While the efforts should have been to attain even higher production, it seems that the economic managers want to bring down the production to avoid surplus sugar crisis.

According to industry sources, "The policy stance seems completely devoid of logic as the aggregate installed crushing capacity is estimated around 75 million tonnes of sugarcane capable of yielding at least 8 million tonnes refined sugar at present low recovery level. The efficiency of the industry has been contained by limited supply and quality of sugarcane and all the more by disrupted marketing and supply system".

However, if one looks at various measures recommended by one of the committees and approved by the Prime Minister, it seems that the policy planners are either completely ignorant of 'sugarnomics' or are bent upon eradicating the most important agro-based industry of the country. The Committee has failed miserably in understanding the importance of sugar industry, which is evident from the proposal that sugarcane and sugar production should be contained.

One of the reasons for higher cost of production of sugar in Pakistan has been low capacity utilization, hovering at less than 50%. Any attempt to further lower the capacity utilization rate can only make locally produced sugar more expensive. The cost of production of sugar in Pakistan is already very high as compared to other sugar producing countries. That is the reason sugar cannot be exported from Pakistan. Therefore, the suggestions should have been made to double the sugarcane and sugar production in the country rather than to contain their production.

Sugar industry has been asking the government to discontinue sugarcane support price system. However, sugarcane growers, enjoying political clout, always succeed in convincing the government not only to continue with the system but also to enhance sugarcane support price year after year. It seems a paradox because the government has discontinued fixing support price of cotton and cotton growers have benefited from it. The problem is that despite the support price incentive sugarcane growers have not been able to enhance sugarcane production because they are never willing to increase the production. They know that they can squeeze higher price, above the government stipulated price, only if the sugarcane is in short supply.

However, some sector experts believe that the yield in Pakistan is low due to a number of factors. These include inadequate water supply, improper crop management, insufficient nutrient supply and cultivation of low yielding varieties. All these problems cannot be resolved without the active participation of all the stakeholders.

The inadequate supply of sugarcane and its procurement at higher than stipulated support price is due to the absence of 'zone system'. This system was in force in the past and helped a lot in improving sugarcane supply and ensuring running of mills at optimum capacity utilization. Many mills still support the system but the mills enjoying political clout are resisting its implementation. The situation has remained unresolved only because no department or division at federal or provincial level is responsible for regulating sugar industry. All those who enjoy political clout manage to move the tentacles and manage to get the decision that suits them the best.

It is a common complaint that Islamabad takes more than required time to formulate and announce the policy and implementation also often runs into snags. Since sugar industry supports rural economy and situation is real grim, it is necessary to protect the interest of all the stakeholders. No stakeholder should be allowed to benefit at the expense of another stakeholder, no matter how small it may be or lacks political clout.

There is a need to change the cropping pattern of our crops by changing the relative price incentives of various crops. The first step towards changing the cropping pattern is to get out of the support price mode. It may be noted that the desire to change the cropping system is inconsistent with the existence of support price of sugarcane. By fixing a support price for sugarcane and forcing the industry to pay the same price will encourage the farmers to grow more cane and therefore, continue with the existing cropping pattern. The change in cropping pattern can only be achieved by changing the relative price incentives. That is, on the one hand the government will have to discourage farmers to grow sugarcane and at the same time encourage them by offering better relative price to grow value-added drops. The decline in the size of the sugarcane crop will reduce sugar production.