June 30 - July 06, 2008

Sugar industry in Pakistan often faces crisis because the policy and decision makers often fail in understanding the importance of this industry. On top of every thing, sugarcane production is a seasonal operation spread over around 150 days and sale of finished product continues throughout the year. Therefore, huge resources are required to undertake operations, including inventory carrying. The industry mainly suffers because no particular ministry is responsible for overseeing operations of this industry but "too many hands are spoiling the curry".

To begin with the industry has been producing single product (sugar) and has failed in diversifying the product range. Even two of the much talked about by-products i.e. molasses and baggase have been wasted. On top of this fixation of minimum sugarcane procurement price by the government has resulted in many malaises, the worst failure in improving yield. As the farmers know that their produce will always fetch higher money they are least interested in improving the yield.

Another reason for poor yield is cultivation of sugarcane in "cotton belt", particularly in Punjab. Permission to establish sugar mills with large capacities in cotton growing areas was the biggest mistake, which was followed by cultivation of sugarcane in areas which does not enjoy agreeable climates and soil conditions. This has led to two contentious issues 1) lower sugar content in sugarcane and 2) reduction in cotton production.

The climatic and soil conditions of Sindh are most favourable for the cultivation of sugarcane, evident from an average recovery of over 10.5% compared to an average recovery of less than 8% in Punjab. Sindh used to produce surplus sugar, which was then supplied to many other areas of the country. However, establishment of big sugar mills in Punjab created glut of sugar in Sindh. Since mills were not allowed to export sugar, the miseries of mills located in Sindh compounded and their accumulated losses brought them to the verge of bankruptcy. As lifting from mills was very slow payments to the growers were also delayed. Instead of finding the root cause for delay, mills were pressurized to make payment.

On top of all the odds the successive governments thought it convenient to import sugar to meet the demand. However, ill-timed import of refined sugar compounded problems of sugar mills located in Sindh because imported sugar found way to Karachi market due to port of delivery.

One could only regret the imprudent decisions of the successive governments but cannot change the history. Therefore, the most appropriate decision is to increase sugarcane production in the country to bring down the cost of sugarcane. The second but also most desirable decision is to discontinue the policy of fixation of sugarcane price by the government. If the government could stop fixing cotton prices in nineties, why is it insisting on continuing fixing price of sugarcane? While there may not be any logic behind this, presence of groups having vested interests prevails on.

Along with this, the government should also announce a policy, allowing export of sugar if production exceeds 3.75 million tons. To further facilitate the manufacturers the government should also declare production above the stipulated quantity tax free. For the sake of argument it may be said that allowing above stipulated quantity tax free may affect revenue collection but in fact larger production will help in 1) achieving higher production making the country self sufficient and saving the dollars being spent on its import, 2) facilitating earning foreign exchange through export of sugar and above all 3) achieving economy of scale and optimizing cost of production.

Crushing additional quantity of sugarcane will also yield higher quantity of molasses and baggase. Conversion of all the available quantity of molasses will help in containing import of petrol - biofuel. It is worth noting that in many countries biofuel is corn based but adding alcohol to petrol will be more beneficial.

Bulk of the baggase is produced in the boilers by the sugar mills. Part of the quantity produced is used in chipboard manufacturing. As the available quantity of baggase increases mills will find it attractive to use it for power generation. It is estimated that sugar industry in aggregate can produce 3,500MW during off season. Keeping in view the prevailing acute shortage if mills are offered the rate being offered to IPPs they can further enhance power generation.

It is believed that policy makers are not willing to offer sugar mills tariff equal to the tariff being paid to the IPPs. The argument is that IPPs use furnace oil, which is relatively more expensive, compared to baggase. Therefore, sugar mills should not be offered the same rate.

It is necessary to clarify that Pakistan is blessed with sugarcane and its production can be doubled through proper crop management, balanced use of fertilizer, and timely application of pesticides. Therefore, efforts should be made to increase sugarcane production in the country. The added advantage will be higher production of ethanol and electricity.

Above all sugar industry is the driving engine of rural economy. Enhanced production and productivity will improve rural income; contain flow of people from rural to urban areas; and above all boost GDP and per capita income.

To achieve all the above stated objectives the country needs a "Sugar Policy"encompassing all the sub sectors. It should be based on rewarding those who achieve the target. The key parameters will include setting a realistic and achievable sugarcane production target, providing incentives for producing sugar above the target, and facilitating the mills to produce ethanol and electricity.