SUGAR INDUSTRY DRIVER OF RURAL ECONOMY
IT NEEDS BETTER TREATMENT BECAUSE OF THE POTENTIAL ADVANTAGES
SHABBIR H. KAZMI
Dec 29 - Jan 04, 2009
Importance of agro-based industries in Pakistanís economy just cannot be undermined. Sugar industry is said to be driver of the rural economy and offers enormous potential to earn foreign exchange through export of sugar and ethanol and save foreign exchange through production of bio fuel. It can also be a dependable source of low cost electricity. However, all these potentials can only be harnessed if there is a comprehensive sugar policy aimed at maximizing sugar export.
Most of the ill-informed policy markers reject the idea of sugar export and insist on putting an embargo. The basis of their decision is failure of sugar industry to produce sufficient quantity to meet the local demand. However, they do not realize that shortfall in production is not because of any inadequacy or limitation of the industry. The industry is capable of producing over 6.5 million tons of refined sugar but output often remains below 4 million levels.
Determining the current sugarcane crushing capacity should not be a problem. Since it is continuous process industry daily sugarcane crushing capacity is dependent on availability of sugarcane, unloading and cane crushing speed. A review of the data for the last five years shows that the average capacity utilization has remained around 50%. It suffices to prove that the operations of any industry that operates at 50% capacity utilization just cannot be economically viable.
On top of poor capacity utilization, persistent increase in sugarcane support price has increased the cost of production but corresponding increase in ex-mills prices of sugar is neither approved by the government nor acceptable for the consumers. There has always been pressure on the mills to bring down price but the government has never made any serious attempt to bring down support price of sugarcane.
In fact rising cost of input of the agriculture sector is the basis for hike in the support price. On the flipside the reason for higher cost per ton of sugarcane is mainly due to very low yield, almost half as compared to India. The reasons for poor yield include from cultivation of sugarcane in climatically unsuitable areas to cultivation of low yielding varieties and from inadequate availability of irrigation water to bad crop management.
During this crushing season (2008-09) industry is estimated to produce 3.8 million tons sugar as against a projected demand for 4.2 million tons. Some of the quarters have already started ringing bells that the country needs to import about half a million tons refined sugar to avoid hike in its price due to supply falling short of demand.
However, industry experts categorically reject the proposal because more than one million ton stock is available with the mills and the Trading Corporation of Pakistan. They also oppose the move because it is not an appropriate time to import sugar. Import of refined sugar, while the crushing season is on, impairs lifting from the mills in general and the mills in Sindh in particular.
There are two points of views about import refined sugar. While on group insists on importing refined sugar the other group strong pleads import raw sugar. Both have their own reasons but import of raw sugar carries more weight. The most important being saving foreign exchange reserves the added advantage is better capacity utilization and better economy of scale.
Curtailment of sugarcane crushing season due to lower availability of sugarcane also bleaks power generation and ethanol production prospects. Lately, sugar mills have invested heavily in improving power generation facilities and installing/expanding ethanol production capacities. In case of shortfall in sugarcane output both the advantages could not be exploited, rather mills will have to bear higher financial and depreciation costs.
Till today sugar industry has remained a single product industry - sugar and two byproducts - baggase and molasses. Baggase is mostly used for power generation and molasses being exported. Lately, sugar mills were being considered for granting the status of IPPs, mainly being a source of low cost power generation and their location in the rural areas. However, the point of conflict was bulk power purchase rate. While the mills were demanding rate equivalent to the IPPs government was insisting on lower rate because of using low cost fuel. This point must be resolved immediately to ensure granting each sugar mill the status of IPP.
Both the mills and the government should work on improving sugarcane yield rather than increasing support price. Improved yield will give better return to the farmers and enable the mills to achieve higher production, also facilitating in bringing ex-mills price of sugar. However, this target cannot be achieved without allowing removing ban on export of sugar.
To facilitate the growers and the mills, one ministry should be held responsible for sugar industry. At present in case any strategic decision has to be made about a dozen federal, provincial and district governments have to be consulted. Ironically, most of these offices hardly extend any helping hand to the industry. In fact some of the departments/ministries hamper smooth operation of the industry.
It is necessary to specifically mention the office of Cane Commissioner. The Act under which this office was created has become defunct. Therefore, all the governmental allocations made to the office have no legal cover and role to play. If this office has o be maintained, it must also be given proper legal covers.
Since sugar mills have to borrow heavily special arrangements should also be made for lending to mills at lower rate. This is a unique industry which operates for less than 150 days and maintain huge inventory for the remaining days therefore, it qualifies for financing at a discounted rate.