SUGAR INDUSTRY OF PAKISTAN

DR. M. ZUBAIR
(feedback@pgeconomist.com)
Mar 1 - 7, 2010

Sugarcane is cultivated on about one million hectares with the production of around 50 million tones in Pakistan. It provides raw material to the 2nd largest agro based industry comprising 83 sugar mills. Besides a major source of livestock fodder during winter it plays a crucial role in providing employment to millions of rural farming and non farming population of the country through forward and backward linkages, and adds billions of rupees in the rural income. Local production saves billions of dollars in imports by meeting the sugar requirement of population of over 170 million.

Sugarcane is a high water delta crop. Under depleting water resources of the country, horizontal propagation of sugarcane crop may not be the economic proposition. Therefore the most likely policy option regarding development of this crop would be to exploit unrealized potential in its yield as Pakistan has not yet achieved this potential that ranges from 70 to 80 tones per hectare.

CURRENT SITUATION

- Sugar consumption in Pakistan is about 4.2 million tones per annum.

- During 2008-09, 3.2 million tones of sugar was produced, however previous stock of about one million tones saved the country from imports.

- During 2009-10, sugar production of 3 to 3.4 million tones is expected due to further reduction in area (8.74%) and production (6%). Ref: Table 1.

- Total sugar mills in Pakistan are 83 (33 in Sindh, 42 in Punjab and 8 in NWFP).

- Crushing season of 2009-10 started in Sindh in the end of November however in Punjab and NWFP the mills started operation in 1st week of December.

- Provincial governments announced sugarcane prices for 2009-10 as Rs. 102/maund in Sindh, Rs. 100/maund in Punjab and NWFP. However, on an average the mills purchased sugarcane at around Rs. 175/maund from the farmers. The sugarcane purchase by the mills ranged in between Rs. 110 to Rs. 270/maund. It happened due to less cane production and competition among the mills.

- Current ex-mill sugar price is Rs. 62.5/kg and is expected to rise further. Ref: Table 2

- TCP needs to import 10 lac tones of sugar.

TABLE 1: SUGARCANE AREA AND PRODUCTION AND SUGAR PRODUCTION FOR THE YEAR 2008-09 AND 2009-10

AREA (MILL. HA) PRODUCTION (MILL. T) CANE CRUSHED (MILL. T) RECOVERY (%) SUGAR PRD. (MILL. T)
2008-09
1.03 50 34 (68%) 9.45 3.2
2009-10 (EXPECTED)
0.94 47 38 (80%) 9 3.4

Based on the actual average sugar recovery obtained during 2008-09 crushing season, cost of processing cane into sugar is Rs. 10 per kg, mills profit Rs. 1 per kg, value of molasses Rs. 11 per 40 kgs of cane, and GST Rs. 3.15 per kg of sugar. The Agricultural Prices Institute (API) has estimated following producer prices of sugarcane at various levels of wholesale prices of sugar. Any improvement in recovery and value of byproducts shall enhance the parity price of sugarcane without affecting the industry.

TABLE 2

WHOLESALE PRICES OF SUGAR
(RS/100 KGS)
SUGARCANE PRICES
(RS/40 KG)
Rs. 3500 81
Rs. 4000 99
Rs. 4500 116
Rs. 5000 134
Rs. 6250 160

REASONS FOR LOW SUGAR PRODUCTION

Sugarcane production for the year 2007-08 was estimated at 63.9 million tones with a record sugar production of 4.6 million tones, the highest ever in the country's history. For the millers, the 2007-08 crushing season was very profitable as they did not pay the announced cane price by the government. On an average the farmers got Rs. 40/maund against Rs. 65/maund announced by the provincial governments. This situation discouraged the cane growers and they switched over to other crops. Besides this major reason, the other causes of low cane production in the following years are:

1- Unnecessary delay in payments to farmers by sugar mills
2- Spread of unapproved and low sugar content varieties
3- Absence of quality control system
4- Poor control over sugarcane prices by the government
5- Low and imbalance fertilizers use
6- Poor weed management
7- Poor management of ratoon crop
8- Inadequate irrigation water supply

RECOMMENDATIONS

- Cost of production of sugarcane should be reduced by cultivating high yielding varieties of the cane.

- Industry should reduce cost of production of sugar by converting byproducts into value added products (ethanol).

- Government should maintain subsidy on the inputs.

- Under the rising trend in sugar prices both in global as well as in domestic markets and less domestic production it would be advisable for the government to maintain stocks at least to meet one month's requirement at 3.5 lac tones through either buying from the domestic market or imports.

- To avoid uneconomic expansion in sugarcane acreage and sugar mills, sugarcane production should be confined to meet only domestic requirement.

- To improve the economics of sugar and sugarcane production, cultivation of high sucrose cane varieties by the growers and conversion of molasses into value added byproducts like ethanol should be encouraged by the provincial governments.

The author of this article is Coordinator Sugar Crops Program NARC, Islamabad.