Mar 10 - 16, 2008

Pakistan remains an agrarian society despite serious efforts to move people away from agriculture to manufacturing and services. Though, there has been migration of people from rural areas to metropolis bulk of the population continues to draw their income from agriculture.

Sugarcane is often termed cash crop but sugar constitutes an integral part of Pakistanis' daily food. In the recent past sugar price hovered at record levels because of increase in cost of production due to hike in sugarcane support price. On top of every thing, lack of comprehensive sugar policy adds to the miseries of sugarcane growers and the millers.

To begin with Pakistan has an installed capacity to produce about six million tons sugar, based on 150 days crushing season. However, over the last five years average annual production has flitted around three million tons. The average capacity utilization has been around 50%. Poor capacity utilization is because of acute shortage of sugarcane in the country.

As compared to adjoining areas of India sugarcane yield in Pakistan is around half and low yield results in higher cost of production. Since feudal lords enjoy access to power corridors, every year they succeed in convincing the government to raise sugarcane support price. Despite constant increase in support price growers have kept the supply much lower as compared to the demand.

Interestingly, millers are often accused of operating as a cartel to keep sugarcane price low and sugar price high. However, according to some sector experts growers have formed cartel after the phasing out of "zone system". Over the years a group of middlemen has developed which buys sugarcane from growers at a much lower price and sell it to mills at inflated price.

Traditionally, mills used to issue "indent" to growers but now these middlemen grab the indent and also collect the payment from the millers. These middlemen are "influential" people of the area and know how to extort money from the millers. Some of the mills can be held responsible for the state of affairs because payment to growers were withheld for months and years.

Millers attribute delay in payment to growers to a number of factors, the worst being constant hike in sugarcane price without corresponding increase in sugar price. However, some independent analysts are of the view that at times mills have been buying sugarcane at much higher rate as compared to the price fixed by the government.

However, mills say that in order to keep the mills running they often become hostage to the growers. They say, "We have limited time to crush sugarcane. On top of this, it is a continuous process and mills cannot afford to face "no sugarcane" situation. Therefore, to keep the mills running we are forced to buy sugarcane at any price. Subsequently, growers and the government made this basis for fixing support price for the next year."

According to industry experts the government fixes price irrespective of quality, which adds to the cost of production. The quality of sugarcane is determined in terms of sucrose content, which varies from area to area. The sucrose content depends on soil fertility, water availability, climatic conditions and overall crop management. Ironically, all these factors are uncontrollable to a large extent.

Climate and soil conditions of Sindh are ideal for sugarcane cultivation, which is also evident from high sucrose content. The province has been producing huge surplus sugar in the past. However, over the last two decades huge crushing capacity was added in Punjab, most of the mills were established in the cotton growing areas. The result is that average recovery is low in Punjab, which effectively adds to the cost of production. Cultivation of sugarcane in cotton growing area has also impaired cotton production in the country.

To improve the competitiveness of the local sugar industry some radical changes have to be made in the government policy. First and the most important is achieving higher capacity utilization, which is not possible without increasing sugarcane production in the country, output has to be doubled.

To double the output there is no need to bring additional area under sugarcane cultivation. Yield can be improved through cultivation of high yielding varieties, balanced used of fertilizer, adequate supply of water and applying the latest crop management techniques. Higher yield will also help in bringing down cost of production.

To encourage growers to cultivate more sugarcane the government will have to announce a comprehensive sugar policy. The key points of this policy should be 1) no embargo on export of sugar with minimum 4 million tons production benchmark, 2) discontinuation of fixing support price of sugarcane, 3) incentive for higher production in the shape of exemption from payment of sales tax, if production exceeds the average of last three years.

Since most of the mills are carrying huge accumulated losses, two-year moratorium on payment of loan installments and interest charges has to be provided. This incentive will be available only to those companies, which succeed in raising production by 25% at least.

On top of every thing the government should establish "Sugar Board" on the pattern of Cotton Board. The members of Board must have representation of all the stakeholders. Its primary mandate should be to revamp government policy and also review performance of the industry. It should be made binding on the Board to get the monthly reports published in the leading newspapers.

Sugar industry is the driving engine of rural economy and should be on the priority list of the government. This year the country is expected to produce around 60 million ton sugarcane sufficient to produce 4 million ton sugar. It is a good omen and must be considered an opportunity with grabbing.