SUGAR INDUSTRY THE DRIVING ENGINE OF RURAL ECONOMY
SHABBIR H. KAZMI
May 31 - June 6, 2010
Many economic managers accept the fact that sugar industry has the potential to drive the rural economy, but have failed to realise this potential. The failure can be gauged from the fact that the industry capable of producing 9 million tons sugar produces around 1/3 quantity. This not only increases the cost of locally produced sugar but often results in short supply necessitating its import. The added problems are erosion of foreign exchange reserves, payment of millions of rupees subsidy and worst of all consumers paying very high price. If due attention is given to this industry, cost of production of sugar can be brought down substantially. Enhanced production of ethanol can help in containing oil import bill and the added advantage is generation of more than 3,000MW electricity at a nominal cost. However, all these objectives cannot be achieved without understanding sugar industry dynamics.
The basic reason for the highly dismal performance of sugar industry is an acute shortage of sugarcane in the country. It is true that growers still cultivate low yielding sugarcane varieties but the real cause of short supply is cultivation of sugarcane in cotton growing belts. Sugarcane and cotton require two entirely different sets of climatic conditions. Sugarcane needs a lot of water, high temperature and humid climate, whereas cotton requires high temperate and dry climate. The difference is visible from the average yield and recovery obtained in these areas. In areas suitable for sugarcane cultivation not only yield is relatively very high but average recovery is also as high as 11.5 per cent. However, when sugarcane is cultivated in cotton growing belt not only yield goes down drastically, but averages recovery is around 8 per cent. Only the successive governments can be held responsible for granting permissions to establish sugar mills in the cotton growing belt of Punjab. While the owners of these mills continue to produce tons of money the ultimate sufferers are the sugarcane growers and the consumers.
In a bid to enhance sugarcane production the successive governments have been following the policy of increasing sugarcane support price, which has proved counterproductive. The policy has helped neither in increasing production nor productivity. Due to acute shortage of sugarcane, the new breed of brokers has emerged. Being the powerful figures of the areas they get the 'indents' issued in their names and pass these on to small farmers at lower rates. They also get the payment from the mills but delay passing it on to the farmers. In fact now the sugar industry is being run by the politicians-turned industrialists and feudal lords.
The business community has become subservient to them. Since politicians and feudal lords are also the members of provincial and national assemblies and senate they also influence government policies.
The policy planners are fully aware that one of the ways to enhance production of refined sugar in the country is to import raw sugar and process it while sugarcane crushing is going on in the country. However, the resistance by the farmers has never allowed import of raw sugar but insisted on import of refined sugar. The recently concluded crushing season is the exhibit of this anti-state policy.
Sugar industry's suggestion to import raw sugar was turned down and contrary to the advice of sector experts unchecked import of refined sugar is going on. This policy has not only eaten up millions of dollars of precious foreign exchange reserves but also forced the government to pay billions of rupees subsidy on sale of imported sugar through Utility Stores.
In the oil marketing business, two foreign companies enjoy substantial market share and have been resisting sale of ethanol (motor gasoline blended with ethyl alcohol). Hurdles are being created in the distribution of ethanol by the state own oil marketing company. The situation becomes all the more frustrating because hundreds and thousands of tons of molasses, the feedstock used for producing ethyl alcohol is being exported and the country has to spend billions of dollars on the import of motor gasoline.
Initially, there was resistance against granting sugar mills the status of independent power producers (IPPs). For the information of those who are still ignorant, every sugar mill has an attached power house, which generates electricity from baggase, a byproduct and a very low cost fuel. While the Ministry of Water and Power is ready to pay up to 17 cents per unit to the rental power plants (RPPs) it is not willing to pay a tariff to sugar mills being paid to the IPPs. The logic is 'since baggase is a low cost fuel the applicable tariff should also be low', whereas sugar mills are demanding the tariff being paid to IPPs.
Ministry of Water & Power and NEPRA completely ignore the fact that both the IPPs and RPPs are fossil oil based (either using gas or furnace oil) but power plants of sugar mills use baggase, which can help in bringing down oil import bill. The added advantage is low cost of generation, which can help in bringing down average tariff being charged from the consumers. This clearly shows the ulterior motives of the high ups of the Ministry and allows the public to say that RPPs are the product of 'kickbacks'. Though, this allegation is vehemently denied by the Ministry the circumstantial evidences suggest that these allegations carry weight. The Minister said it is because of contractual agreement that the government could not supply gas to RPP units. However, any sensible person can ask the simplest question, were the honorable minister and concerned official of his ministry ignorant of the gas supply position when the agreements were signed? The reply is no and the contracts were signed only to reward the near and dear.
It has been highlighted repeatedly that if the economic managers of Pakistan are serious in accelerating GDP growth rate of the country they would have to focus agriculture. Sugar industry has the potential to not only boost GDP growth rate but also help the country in overcoming energy shortage (gasoline and electricity). By ignoring sugar industry, policy planners are creating hurdles in achieving the targets