ACHIEVING SELF-SUFFICIENCY IN SUGAR PRODUCTION
DR. M. SHARI
Mar 1 - 7, 2010
The world is facing a second consecutive year of a significant gap in sugar production and consumption. The first revision of the world sugar balance for October 2009 to September 2010 put world production at 159.887 mln tonnes, raw value up by 6.911 mln tonnes or 4.5% from the last season. A forecasted limited growth in sugar output in Brazil, a modest production recovery in India after last season's unprecedented shortfall, and a higher sugar crop in the EU have become the three major supply features of 2009/10.
World consumption is expected to grow at a rate significantly lower than the long-term 10 year average (1.71% and 2.66% respectively). The lower growth is attributed to impacts of the 2008/09 global recession on sugar consumption growth rates in developing countries as well as soaring world market prices. Even so, global use of sugar is expected to reach 167.134 mln tonnes. Therefore, the growth in global production is far too small to cover sugar consumption and the world statistical deficit is expected to reach 7.247 mln tonnes as against 8.404 mln tonnes projected in September, 2009.
WORLD SUGAR BALANCE
. 2009/10) 2008/09 CHANGE . (MLN TONNE, RAW VALUE IN MIN T IN % Production 159.887 152.976 6.911 4.52 Consumption 167.134 164.316 2.818 1.71 Surplus/Deficit -7.247 -11.340 . . Import demand 52.072 48.180 3.892 8.08 Export availability 52.079 48.250 3.829 7.94 End stocks 53.471 60.725 -7.254 -11.95 Stocks/Consumption ratio in% 31.99 36.96 . . Source: ISO quarterly market outlook November 2009
SUGARCANE IN PAKISTAN
Sugarcane is an important source of income and employment for the farming community of the country. It also forms essential item for industries like sugar, chipboard, and paper. Its share in value added of agriculture and GDP are 3.4 percent and 0.7 percent respectively. In 2008-09, sugarcane was sown in the area of 1029 thousand hectares, 17.1 percent lower than last year. Sugarcane production for the year 2008-09 was estimated at 50 million tons against 63.9 million tons last year. This indicates significant decline of 21.7 percent over the production of last year. The main reasons of lower production are shortage of irrigation water, shifting of area to rice crop less use of DAP and nonpayment of dues to farmers by the sugar mills on time for the last yearís crop.
AREA, PRODUCTION, AND YIELD IN LAST FIVE-YEAR
YEAR AREA PRODUCTION YIELD 000 HA % CHANGE 000 TONS % CHANGE KGS/HA % CHANGE 2004-05 966 . 47244 -11.6 48906 -3.8 2005-06 907 -6.1 44666 -5.5 49246 0.7 2006-07 1029 13.5 54742 22.6 53199 8.0 2007-08 1241 20.6 63920 16.8 51507 -3.2 2008-09 (P) 1029 -17.1 50045 -21.7 48634 -5.6 P: Provisional (July-March) FBS.
Pakistan will scrap taxes on the import of 700,000 tons of white sugar by the private sector to meet shortages. The government has also decided that the import of 500,000 tons of white sugar through the state-run Trading Corporation of Pakistan will be done by March 31. Tenders for 300,000 tons of sugar have already been issued. It has been decided to do away with a 16% sales tax and 0.85% excise duty on the import of sugar as incentives for the private sector to import 700,000 tons. The private sector will have to import this quantity by end-June. Government also plans to import another 500,000 tons of white sugar late in the year for building strategic reserves.
Hussain et al (2006) concluded that the sugarcane crop is beset with many problems: first abysmally low yield leading to yearly fluctuation in production, and secondly monopolistic exploitation of sugarcane growers by the powerful sugar syndicate. The sugarcane is highly water consumptive crop, thus losing comparative advantage in water scarce scenario. The DRC (at import parity prices) was 0.59, 0.52 and 0.57 for Punjab, Sindh and Pakistan respectively and remained almost same up to fifth year. Thus, Pakistan will have comparative advantage in sugar cane production as an import substitution crop (import parity prices) in the future. The DRC at export parity prices was 1.51, 1.10 and 1.19 for Punjab and Sindh respectively. This shows that in the future Punjab would have no comparative advantage in sugarcane production at export parity prices.
Pakistan should grow sugarcane only to maintain self sufficiency level as it will be cheaper to produce locally than to import. It will not be feasible for country to grow for export purposes. On the other hand, the country should increase sugarcane productivity per unit of resource use especially scarce irrigation water. Thus, Pakistan (Punjab and Sindh) has no comparative advantage in producing sugar at export parity prices (price risk scenario). However, crop can be grown as an import substitution crop to cater the needs of sugar industry.
NATIONAL SUGAR POLICY 2009-2010
Overview of the sugar industry: The country right now has 83 functional sugar mills of which 45 are in Punjab, 31 in Sindh and 7 in NWFP. The total crushing capacity of the mills is about six hundred thousand (600,000) tons per day. The capacity utilized by the mills is about 60-70% dependent upon the sugarcane production and sugarcane purchased by the mills.
Sugar production during 2007-08 was 4.7 million tons whereas, the production of sugar during 2008-09 stood at 3.19 million tons, a decline of 32%. The sugar production in 2009-10 is expected to be around 3.1 million tons. Such cyclical shortages warrant proper use of scarce foreign exchange to bolster depleting stocks on emergency basis. Stabilizing sugar prices especially during rising price trends necessitates subsidies involving a further burden on the national exchequer.
Around 80 percent of the cost of sugar depends upon sugarcane which is the main input for sugar production. Sugarcane is grown with ease in the tropics and the subtropics. However with climatic change and population pressures in sub tropical areas like Pakistan there is inter alia dire need to introduce the farming community to modern techniques that conserve water while enhancing productivity per acre through precision sprinkle agriculture or introduction of alternate crops such as sugar beet etc.
Presently, the sugar sector's byproduct 'molasses' is used as an animal feed locally or exported as raw material. It is however pointed out that 19 sugar mills have distilleries that produce both industrial and fuel grade ethanol from molasses. As such an objective national sugar policy needs to cater to interests of the upstream sugarcane growers, sugar millers and the downstream production of ethanol.
It is heartening to note that the government has recently introduced 'ethanol' as E-10 fuel for mixing with regular motor gasoline. It is expected that this will have salutary effects on the overall economy of the country as it will result in the saving of scarce foreign exchange.
Sugarcane cultivation trend: The growers need to be given targeted incentives to cultivate sugarcane of high sucrose content to increase the yield per acre and profitability for growers. This is pragmatically also required for efficient utilization of a sizeable investment already made in the sugar industrial structure.
Currently the 'Sugarcane Price Notification' ignores the sucrose content of sugarcane. Farmers growing high sucrose content sugarcane are not rewarded with higher price. The farmers producing low sucrose content sugarcane have no incentive to cultivate better varieties. Instead of using 'quality content' criteria in terms of sucrose all sugarcane varieties are still priced on weight. Even though Pakistan ranks sixth in terms of area harvested under sugarcane out of 16 major cane producing countries, we are placed at fifteenth on the list, in terms of both cane yield and sugar yield. This shows that the sugarcane cultivation in Pakistan is faced with many problems and the situation needs to be addressed on priority basis.
Cyclical sugar shortages: The Sugar Advisory Board has been constituted to provide an institutional arrangement to resolve issues likely to be faced by the sugarcane growers and the sugar industry. To meet any shortages between demand and supply, the Board has been advocating the import of raw sugar during the late crushing period. Raw sugar is generally available at around $60-100/ton, cheaper than white sugar and creates seasonal employment in the economy as well. The rationale to import 'raw sugar' during the crushing season is that its processing is viable costing Rs. 4.50 to Rs. 5.00/Kg while after the crushing season it costs around Rs. 8/Kg.
Future sugar demand: Pakistan's population was 31 million at independence in 1947 and now is 170 million. It is expected to touch 208 million in 2020. This situation demands that concerted efforts are made to attain self sufficiency in the production of 'sugar' an essential food item both for the present and for the years to come.
The federal and provincial governments have been periodically introducing policy measures to facilitate sugar millers and sugarcane growers.
The sugar sector globally in the recent past is susceptible to international market fluctuations, weather vagaries as well as a host of other variables like pricing of other agriculture commodities. The general aim of this policy is to strike a fair balance between the interests of the consumer, sugarcane grower, sugar miller, and to cater to unforeseen sugar shortages.
Market forces should decide sugar price, protection for vulnerable groups and assistance to lower income groups. As a principle, sugar price shall be determined by market forces. The government concurs with the opinion of the Commission appointed by the Supreme Court of Pakistan that the cost of production of sugar varies from mill to mill, region to region and from province to province.
Trading Corporation of Pakistan (TCP) shall maintain strategic reserves of 0.5 million tons of white sugar at any one time. These will be replenished through domestic or international procurement as deemed appropriate considering competitive price and local demand. The modalities would be periodically reviewed/finalized by the Secretaries Committee.
Smuggling and Gur issue: Manufacturing of 'Gur' in NWFP may continue, however export of 'Gur' may be banned forthwith. Provincial governments shall ensure that the crushing season annually commences latest by 1st November in Sindh and 15th November in Punjab and NWFP.
Sugar market pricing: The domestic market will be integrated with the international market by providing necessary tariff protection. A study may be undertaken to redefine details of achieving fully competitive market for sugar trade.
Price of sugarcane should be fixed according to sucrose content. Mechanism of pricing sugarcane on sucrose content shall be introduced in all the provinces. As recommended by the Sugar Advisory Board the prices be fixed variety wise initially and afterwards the pricing methodology shall be upgraded in phases in accordance with the best international practices. To achieve this purpose as a test case, two to three mills in each province will be encouraged to subscribe to this practice during 2009-10.
Cane Purchase Receipt (CPR) shall be used as a 'Negotiable Instrument' subject to an operational procedure and legal evaluation as advised by the State Bank of Pakistan. The system needs to be introduced as soon as possible.
Provincial agriculture research institutes in collaboration with the private sector shall evolve site/area specific sugarcane varieties through research and development of high yield/ high recovery characteristics. To supplement the existing initiatives two dedicated projects with latest technology based on public-private partnership are being set up by Ministry of Food and Agriculture.
Sugar production from sugar beet: Sugar production from sugar beet shall be encouraged as a Small and Medium Enterprise (SME) activity to supplement domestic sugar needs. This shall be incentivized through fiscal measures under supervision of MINFA. Provincial governments should encourage the requisite technology shift for the existing mills from sugarcane to sugar beet and consider setting up of new sugar beet mills. To redress complaints of manipulated weighbridges that deprive farmers of their just payments, provincial governments may inter alia use the 'Sugar Cess Fund' to monitor 'kunda' (scales/weighbridges) and sucrose variety testing stations to ensure impartial testing and weighing facility for growers.
The author of this article is Senior Director Social Sciences Institute NARC, Islamabad.