S. KAMAL HAYDER KAZMI,
Research Analyst, PAGE
Oct 4 - 10, 2010
Presently, Pakistan has the 5th largest sugarcane growing area in the world and is the 15th biggest global producer of sugar. Sugarcane is grown on around a million hectares and provides raw materials to 84 sugar mills in the country. The sugar industry is the country's second largest agro industry after textiles. Besides its edible use, Pakistan also uses sugar to produce alcohol for medicinal purposes, ethanol for fuel, chip board manufacturing, etc.
In FY2009/10 (Oct/Sept), Pakistan's sugarcane production was estimated at 47.8 million metric tonne (MMT), down 2.2 million tons from last year's estimate.
The decrease in sugarcane area and lower production during the last couple of years were attributed to the non-transparent government sugar policies, significant increase in minimum support prices for competing crops (e.g. wheat and rice), dwindling water resources, and higher input costs.
Internal disputes between Pakistan's sugar growers and processors also plague the industry. Procurement practices used by sugar processors such as delaying the crushing season, buying cane at less than the support price, and withholding payments hurt the farmers' profitability. On the other hand, sugar processors complain that farmers grow unapproved varieties that produce low sucrose content resulting in lower sugar production and recovery rates. As a result of the fluctuations in quantity and quality of raw material, sugar mills have been required to operate at 50 per cent of their installed capacity.
Furthermore, the lower sugarcane supplies have also forced most of the mills in cane producing areas to close 1-2 months earlier than normal.
Despite the industry's troubles, the tighter sugar supplies have led to higher sugar prices and benefited sugar growers. This trend is projected to continue in FY2010/11. In FY 2010/11 sugarcane production is forecast at 52.7 MMT, an increase of 10 per cent over the previous year due to an anticipated increase in planting area.
Cane prices may range from Rs1,200 to 1,800 per ton, which is significantly higher than last year. The higher prices are likely to persuade farmers to grow more sugarcane in 2010, thus FY2010/11 cane acreage is expected to increase 14 per cent to 1,075 thousand hectares.
In FY 2010/11 refined sugar production is forecast at 3.75 MMT, primarily due to anticipated increase in area under sugarcane 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 per cent crushing and 8.9 per cent recovery. The production decreased primarily due to a smaller growing area, which is down 8 per cent from the previous year.
PRICES OF SUGARCANE BY PROVINCE (RS PER 40 KG)
YEAR PUNJAB SINDH KP BALOCHISTAN 2000-01 35.00 36.00 35.00 36.00 2001-02 42.00 43.00 42.00 43.00 2002-03 40.00 43.00 42.00 43.00 2003-04 40.00 41.00 42.00 43.00 2004-05 40.00 43.00 42.00 43.00 2005-06 45.00 58.00 48.00 - 2006-07 60.00 67.00 48.00 - 2007-08 60.00 67.00 65.00 - 2008-09 80.00 81.00 65.00 - 2009-10 100 100 100 -
The FY2010/11 sugar consumption is forecast at 4.28 MMT. Consumption estimates for FY2009/10 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. In FY2010/11 sugar imports are forecast at 700,000 MT, and in FY2009/10 sugar imports are estimated at 1,030,000 MT. On January 2010, the economic coordination committee decided to import 1.25 million tons of refined sugar from the international market.
Accordingly, the government of Pakistan authorised trading corporation of Pakistan to import 500,000 MT for government stocks and the remaining 750,000 MT for the private sector before June 2010.
The ECC also decided that the private sector import would be exempted from sales taxes and other duties to ensure that landing cost of imported sugar will range around Rs50 per Kg and retail price Rs55. The ECC also decided to scrap the 16 per cent GST in order to stem the rise of sugar prices.
Imports of raw sugar are subject to a 25 per cent import duty, whereas imports of refined sugar may enter duty free. Moreover, Pakistan's sugar industry continued to deal with uncertainty in FY2009 due to decreasing sugar production and a lack of coordinated government policy. Sugar prices have been on the rise since May 2008 and reached record levels in Sep 2010. The sugar retail price is around $803 per ton, about more than 60 per cent higher than last year's level.
In Pakistan, the stability of retail prices of sugar will depend on timely imports and prevailing prices in the international market. Recent floods have massively affected the production of sugar industry in the country. However, the 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 of the government.