SUGAR INDUSTRY

S.M.ABBAS ZAIDI,
(feedback@pgeconomist.com)
Research Analyst
, PAGE
Aug 30 - Sep 05, 2010

Sugar industry enjoys the position as one of the major industries of Pakistan.

Today there are 82 functional sugar mills in the country out of which 45 are in Punjab, 32 in Sindh and five in Khyber Pakhtunkhwa.

Pakistan's FY2010/11 sugar production is forecast at 3.77 million metric tons (MMT), up 10 percent from last year's estimate of 3.42 MMT. Consumption is forecast at 4.28 MMT and imports at 700,000 tons. The government is considering a tax holiday for companies that process sugar beets.

The sugar industry in Pakistan continued to deal with uncertainty in FY2009-10 due to decreasing sugar production and a lack of coordinated government policy.

Pakistan's FY-2010/11 (Oct/Sept) total sugar production is forecast at 3.77 MMT, an increase of 10 percent over last year's estimate. The increase is largely driven by higher prices and a strong demand. Despite efforts to achieve self-sufficiency, Pakistan remains a net importer of sugar. In FY2009/10 sugar imports were forecasted at 1.03 million tons and 700,000 tons in FY 2010/11. Sugar consumption in FY2009/10 was expected to decrease 50,000 tons due to limited sugar supplies and price increases. Sugar consumption in FY2010/11 is forecast at 4.28 MMT.

PRODUCTION

In FY2010/11, refined sugar production is forecast at 3.75 MMT primarily due to anticipated increase in area under sugar cane crop. Pakistan's domestic consumption is expected to be 4.28 MMT. Domestic production will be supplemented through imports. For FY 2009/10, refined sugar production was estimated at 3.42 MMT (raw value) based on 80 percent crushing and 8.9 percent recovery. The production decreased primarily due to a smaller growing area, which was down eight percent from the previous year.

The Minfa and the PSMA have initiated a sugar crop development project utilising sugar beets. The provinces of Punjab and Sindh have already conducted research in the cultivation of sugar beet with limited success. Industrial adoption and commercialisation of sugar beet have been slow because it requires additional research as well as comprehensive planning on the part of the government, industry and the farming community. In addition, the sugar industry is reluctant to promote sugar beet cultivation because of the amount of time needed to process beets into sugar. The hot temperatures and processing delays could also easily deteriorate the quality of the product. Beet processing requires more fuel, making it costlier compared to cane processing. In order to promote this initiative, the government is considering tax holidays.

CONSUMPTION

Consumption estimates for FY 2009/10 was lowered to 4.2 million tons, 50,000 tons less than the earlier estimates due to relatively tight domestic supplies and higher prices.

Although limited sugar supplies and the steady increase in prices have affected household sugar consumption, overall sugar consumption remains the same due to growing demand by the processed food sector (soft drinks, fruit drinks, dairy, confectionary, traditional sweets etc). Bulk consumers such as bakeries, makers of candy and local sweets, and soft drink manufacturers account for about 60 percent of the total sugar demand.

Despite the Economic Coordination Committee of the Cabinet's (ECC's) decision to import 200,000 metric tons of sugar, the Trading Corporation of Pakistan was still unable to arrange timely imports. As a result of the government's inability to deal with the supply situation, the Supreme Court intervened to stabilise sugar prices. Despite the Supreme Court's intervention, sugar prices continued to rise due to the tighter supplies.

International prices of sugar have been on the rise since May 2008 and reached record levels in December 2009. The current sugar retail price is around $803 per ton, about 60 percent higher than last year's level. Local prices are also expected to remain high due to recent floods which have destroyed sugarcane production in the country.

TRADE

In FY2010/11 sugar imports are forecast at 700,000 MT. FY2009/10 sugar imports were estimated at 1,030,000 MT. On January 2010, the ECC decided to import 1.25 million tons of refined sugar from the international market. Accordingly, the government authorised the TCP to import 500,000 MT for government stocks and the remaining 750,000 MT for the private sector before June 2010. Industry reports indicate that the TCP has issued tenders for the import of half a million tons of sugar, whereas private sector is waiting for a drop international sugar prices.

SUGARCANE AREA AND PRODUCTION BY PROVINCE

PROVINCE AREA (000' HECTARES) PRODUCTION (000' MT)
2008/09 2009/10 2010/11 2008/09 2009/10 2010/11
Punjab 665 605 700 31,612 30,300 33,300
Sindh 264 234 270 13,000 12,900 14,760
NWFP 95 100 104 4,400 4,560 4,600
Balochistan 1 1 1 38 40 40
Total 1,025 940 1,075 49,050 47,800 52,700

CONCLUSION

Recent foods will have some affects on the production of sugar. However, the sugar industry and the government must look into the critical issues and should work out a proper mechanism for establishing cordial relation between the mills and the growers and to eliminate the middle man. The availability of sugar must be the main priority.