SWEETENER ONE OF THE BASIC FOOD COMPONENTS
UNTAPPED POTENTIALS OF SUGAR INDUSTRY
SHABBIR H. KAZMI
July 23 - 29, 2007
Sweetener is one of the basic components of the diet of people of Pakistan. Though, with the passage of time types of sweetener has changed from gur and raw sugar to refined sugar. Be it Gur production or production of refined sugar the basic raw material remains the same, sugarcane. Over the years sugar sale has come out of rationing system to free-market system. However, the government continues to fix sugarcane support price and control retail price of sugar through various regulatory measures.
The month of Rajab has just begun and headlines have started appearing about hike in sugar price. It was reported that sugar price in the retail market has been raised to Rs 35 per kilo. However, it must be kept in mind that the most recent increase in price is in anticipation of Ramadan. Not only that sugar has become expensive but prices of most of other consumables are inching upwards, particularly the confectionery items.
It has been pointed out repeatedly that the policy planners of Pakistan fail to comprehend the dynamics of this industry and most of the decisions made by the government are contrary to the recommendations of the stakeholders. Be it the commencement of sugar crushing season or import of raw sugar industry has noting but to regret. Most of the decisions are made in the name of protecting the interest of small farmers, who remain the worst sufferers. Their payments are delayed and/or withheld by the mills whether there is a bumper sugarcane crop or an acute shortfall.
However, gone are the days when the mills were run for more than 250 days, now the crushing season could hardly be stretched to 150 days. The policy planners may say that the statement is incorrect but the fact is that the industry is working at less than 50% capacity utilization for many years. The reason being that there is no substitute for sugarcane and the crop has been highly inadequate.
The policy planners make tall claims about undertaking projects in the rural areas for creating new job opportunities for poverty alleviation. However, they completely ignore the sugar industry, which is the driving engine of rural economy. It is often said that sugarcane is the second most important cash crop. However, it is important to note that the sugarcane production has a direct impact on the rural economy because the produce is used by the mills also located in the rural area. As against this cotton produced in one areas is used by the spinning mills located hundreds of mills located away from the area of production.
Knowing the fact that the capacity utilization of sugar industry is less than 50% due to inadequate production of sugarcane, all the stakeholders have to find a solution.
The logical solution is double the production of sugarcane to facilitate the mills operate at the optimum capacity utilization. Operating sugar mills at optimum capacity would on the one hand facilitate higher production of sugar in the country and on the other hand bringing down cost of production, through economies of scale. The added advantage is availability of higher exportable surplus and probability of earning extra foreign exchange. For many years precious foreign exchange is being wasted on imported of low quality sugar.
Rising fuel import bill and energy cost are the twin problems affecting economy of the country adversely. While the energy cost has become unbearable by the people, rising energy cost is rendering local manufacturers and exporters uncompetitive. Sugar industry has the capacity to help in overcoming the twin issues.
POL import bill can be contained by introducing bio fuel in the country. It is a blend of petrol and alcohol. The technology is in use for decades in many countries. Pakistan can benefit from their experience. Many sugar mills have distilleries attached and bulk of the ethyl alcohol produced is exported. At times mills also found exporting molasses more economical than its conversion into ethyl alcohol.
All the mills have in-house power generation capacity. During the crushing season the mills do not buy electricity from utility companies. When the mills are not working they have to buy electricity from the utility companies. In the prevailing scenario, country suffering from acute power shortage, sugar mills can become supplier of electricity from the utility companies, during off-season. The mills can provide electricity at much lower rate compared to thermal power plants operating on furnace oil and even gas.
Sugar industry has the potential to overcome both the issues bringing down gasoline import bill and generating electricity throughout the year. However, the first option could not be exercised because of pressure of international oil marketing companies operating in the country. These companies fear that blending of oil with alcohol will make them dependent on local producers of alcohol. They impression being created is that some changes have to be incorporated in the fuel combustion system and alteration will reduce the serviceable life of engine.
The second advantage is being wasted due to stubbornness of the policy planners. According to various reports meetings were held between the representative of the sugar industry and the government officials. Reportedly the two sides have agreed to make this dream come true, though after couple of years. However, the sources privy to the industry say that the government is not ready to pay the tariff being demanded by the industry. It is learnt that the government is not ready to pay the tariff being paid to the IPPs, on the basis that the fuel being used by the mills (baggase) is far cheaper than fossil oil and gas. However, industry's point of view is while the government is willing to offer any bulk power purchase tariff to thermal power companies, why is it not willing to offer similar tariff to the sugar mills.
According to local media reports sugar mills are once again expressing their inability to commence sugarcane crushing on the dates usually notified by the government. Commencement of crushing season has been a point of confrontation between the government and the millers.
While the government is adamant on commencement of crushing season in October/November, this time millers are not willing to start crushing up to October. Millers complaint that instead of trying to understand the causes responsible for the delay the government always follow arm twisting policy, threatening the mill owners. Such an attitude is bound to aggravate millers' problems but could not put the industry on track.
Recently government has allowed conversion of debt of textile mills into equity. This was not done for the first time similar incentives have been offered in the past. Due to persistent crisis like situation accumulated losses of most of the sugar mills are on the rise, mainly because of bad government policies. This includes persistent increase in sugarcane support price without allowing the industry to make corresponding increase in sugar price.
The persistent increase has not helped in increasing sugarcane production. However, price increase has been proving fruitful for the sugarcane growers. They do not seem to be keen in increasing production as well as productivity. They believe if production is increased it would add to their miseries because during shortage growers succeed in squeezing higher price from the millers.
Having reached the conclusion that imprudent government policies are the reason for persistent crisis like situation for sugar industry, the way forward is to make all the stakeholders sit together and come up with suggestions for overcoming the situation.
The first and the most important point is that the government should allow export of sugar and also offer incentives to facilitate higher capacity utilization. However, this objective could not be achieved without doubling production of sugarcane in the country.
In order to bring down retail price of sugar GST percentage should also be reduced. Sugar is an important component of our food and deserves reduction in tax.
Mills should be encouraged to become partners in bio-fuel (blending of gasoline with alcohol). Rising price of POL products is a national issue and must be dealt accordingly.
Sugar mills should be facilitated to generate and sell power to the utility companies. All the mills are already connected to the national grid. To begin with the bulk power purchase tariff applicable to sugar mills should be equivalent to the tariff being paid to IPPs. However, the tariff could be brought down after five years with mutual consultation.