|Annual Review 1990
|M. Akram (Chairman)
It is a pleasure and a privilege for me to present the 25th Annual
Report of the Pakistan Sugar Mills Association. It is gratifying to note
that the PSMA has come of age by completing a quarter century 9f its eventful
existence. Its contribution may not be measured in mere quantitative terms.
However, in emergence of the sugar industry as one of the major sub-sectors
of Pakistan's manufacturing sector, PSMA's role has been material. From
its platform, problems stemming growth and development of the sugar industry
have always been properly agitated and often remedies found. Furtherance
of its crucial role is imperative so as to impart strength to the sugar
Over the recent past, sugar industry has shown fairly firm production
trends. It is optimistically looking for achieving self-sufficiency in
sugar. It has been a priority pursuit always. The sugar industry, at the
same time, must organize itself for a diversified base of operations.
Its present structural framework is not profound. Revised growth design
encom¬passing diversification and strategy to advance on sound lines
in this direction needs to be formulated, sooner the better. Joint efforts
in this context are a pre-requisite.
The PSMA belongs to all of its members. It would be in fitness, therefore,
to propose to all the members for more active participation in the PSMA
affairs so as to promote its performance. It would help in creating more
conducive environment for the sugar industry.
|The year 1989-90 emerged as of a record sugar production. Being the third
year in succession of rising sugar production trend, it was unlikely to
scale a new height. The healthy trend gauges breaking the cyclical shackle.
Overall sugar production at 1,855,961 metric tons for 1989-90 represents
a token increase over the previous year's sugar output at 1,849,741 metric
tons. Higher sugar production was achieved despite sugar production from
beet was lower at 27,057 (31 ,806) metric tons.
Sugar production by the industry, from its principal activity of sugarcane
crushing, recorded an increase to 1,828,904 metric tons as against 1,817,935
metric tons of the preceding year. Higher sugar production was achieved
despite lower at 20,501,339 metric tons of sugarcane crushing, latter
denoting a fall of 5.4% over 21 ,707,520 metric tons of 1988-89.
A happy tiding in overall sugar production could be maintained contrary
to the curtailment in quantum of sugarcane availability for crushing operations.
It was achieved by improvement to 8.92% in the rate of sugar recovery.
For the previous year, it was 8.37%.
The latest recovery rate of 8.92% forms the highest of the past three
years in which sugar production set the finest record of having it consistently
over 1.8 million metric tons. Sucrose at 8.92% cannot be considered the
best, not even by our own record.
Sugar production could not make a major thrust during the review year
due primarily to reduced availability of sugarcane. Area under sugarcane
crop for 1989-90 dropped to 854,300 (876,900) hectares. As a result, sugarcane
production rolled down to 35,493,600 (36,975,700) metric tons. Unfavorable
trend in area and production was compounded by sugarcane yield on average
down to 41,547 (42,166) metric tons.
During the review year,-average sugarcane yield per hectare in farms
retreated but average sugar recovery on sugarcane crushing in the factories
advanced. As a result, sugar production increased. Substantive efforts
are needed to increase area under sugarcane crop and yield factor per
hectare. Improving yields and recoveries is a challenge which demands
a befitting response.
Each of the three zones represented a different trend during the review
The performance of the sugar industry in the Punjab attracts attention.
Sugarcane crushing increased to 9,151,085 (8,288,070) metric tons, sugar
production rose to 765,133 (666,983) metric tons and recovery improved
to 8.36% (8.05%). Its contribution at 41.23% (36.06%) in national sugar
production was commendable, which deserves con¬solidation for growth
Sugar production in Sindh declined to 983,087 (1 ,013,600) metric tons
due to lower at 10,457,782 (11,922,974) metric tons of sugarcane supplies.
Sindh's reassuring feature was recovery rate improved to 9.4% (8.5%).
Share of Sindh in overall sugar production declined to 52.97% (54.80%)
Performance of the sugar industry in NWFP was weaker. Sugar production
rolled down sharply to 80,684 (137,352) metric tons. Sugarcane supplies
reduced sharply to 892,472 (1,496,476) metric tons. Short spell of operations
eroded recovery rate to 9.04% (9.18%).
Almost identical trend prevailed in processing sugar from beet slicing.
Beet sugar output declined to 27,057 (31,806) metric tons, due to lower
at 7.90% (9.13%) recovery rate while higher quantity of 342,198 (341,377)
metric tons of beet was sliced. Contribution of NWFP towards national
sugar production fell to 5.80% (9.14%).
|Sugar Production 1989-90
|No. of Mills
|Sugar Produced M.Tons
|Rate of Recovery
|The salient features of working of the sugar industry during 1989-90 are
as listed below:
- Sugar production at 1,828,904 metric tons on crushing of sugarcane
was higher than 1,817,935 metric tons of the preceding year.
- It was achieved against lower to 20,501,340 (21,707,520) metric tons
of sugarcane available for crushing.
- Sugarcane supplies to the sugar industry declined as a result of sugarcane
production lower at 35,493,600 (36,975,700) metric tons.
- Sugarcane availability reduced due to:
- area under the sugarcane crop shrank to 854,300 (876,900) hectares.
- the national average yield of sugarcane per hectare came down
to 41.547 (43.005) metric tons.
- Adverse influence on sugar production to arise from reduction in
area and yield of sugarcane crop was overcome by average recovery of
sugar improving to 8.92% (8.37%).
|The above facts place problems associated with the sugar industry in sharp
focus. These indicate the areas which warrant attention for application
of remedial measures. It has become imperative to:
a) increase area under
the sugarcane crop,
b) improve crop yield per hectare and
c) further improve sugar recoveries.
All out efforts in complete coordination by the growers, the industry
and the Govern¬ment agencies, particularly Agricultural Ministries
at Federal and Provincial level are required. Despite several constraints,
some listed above, the sugar industry performed satisfactorily during
the review year. Resilience capability of the sugar industry emerges as
a promising feature. Given a better environment to operate, the sugar
industry can produce better results.
|Backlog of Problems
|The year 1989-90 commenced on an ominous note. It is to recall here that
the Sindh Government had imposed ban on inter-district movement of sugar
in early September 1989, ignoring a sizeable 135,037 metric tons of sugar
stocks held by the Sindh sugar mills then. At that point in time, total
sugar inventories with the industry were 228,169 metric tons and the new
season was on the anvil. Ban on sugar movement created an artificial tight
supply situation and a consequent price rise was seen. The problem was taken
up by the PSMA-Centre and Sindh Zone at all levels. The inter-district restriction
on movement of sugar was done away with by mid-October 1989.
pile up with the sugar industry at 172,515 metric tons at the year ending
September 1989 was an unusual phenomena. This happened, besides the reason
listed above, partly due to earlier Federal Budget 1989 announced during
June 1989. By the said budget, exemptions of central excise duty to sugar
produced in excess of an average of the preceding two years and to 50%
on sugar produced for the first two years (by the new mills) were withdrawn
with a retrospective effect. This iniquitous fiscal measure aggrieved
the industry and it was adequately agitated. No relief administered by
the authorities, the aggrieved units of the sugar industry had to seek
a legal remedy. For about six intervening weeks sugar supplies remained
suspended. After furnishing guarantees acceptable to the Central Board
of Revenues, release of sugar stocks by the sugar mills could be resumed.
Resumed flow of sugar was soon disrupted in Sindh by the Provincial Government's
restriction on inter-district movement of sugar.
|Higher sugar stocks apart, the sugar industry had to operate during 1989-90
in a materially changed costs complexion. Inbuilt incentive of maximizing
sugar production through central excise duty exemption was non-existent.
Conversely, sugarcane support price per 40 kgs. was raised by almost nine
percent. Other cost push factors operative during the year were:
tax credit on BMR investments withdrawal and
ii) inflation rate ruling above 11 % in the economy.
While the cost of sugar production represented a considerable increase,
by factors not within the sugar industry's reach to rectify, on the marketing
side problems accentuated. About 16% increase made in petroleum and its
products prices during April 1990 entailed increased transportation and
distribution costs. .
Financial expenses went up for reasons being
a) sugar inventories in hand,
b) higher costs of production and other operating expenses and
c) funds flow disruption by abolition of CEO and 15% tax credit, etc.
All these factors were instrumental to higher cost of sugar production
and sales during 1989-90.
Another disruptive factor was liberalized sugar imports. Private sector
has been allowed to import sugar without a quantitative restriction and
sugar imports rendered free of the custom duty, surcharges, etc. During
the fiscal year ending June 30, 1990,210,954 metric tons of sugar at a
cost of Rs.1,920 million was imported. It represented five-fold increase
in sugar import volume of 43,380 metric tons during 1988-89.
The flurry of sugar imports continued during the current fiscal year
1990-91, as can be gauged from imports during the first four months, July
thru October 1990 being 208,335 metric tons, almost equivalent to annual
imports of the preceding year. Import bill on this amount stood equivalent
to .Rs. 1814 'million, substantial indeed by any yardstick. This liberalized
sugar imports is bound to have a backlash on the performance of the national
Coming at a time when the sugar industry was holding stocks at 162,158
metric tons (as at September 30, 1990) and new sugar manufacturing season
was already on, the PSMA represented against the liberalized sugar imports
and urged the Federal Government to re-impose ban on sugar imports to
protect the national sugar industry from perils. As of October 18, 1990,
the Federal Government re-imposed 10% import surcharge and 5% Iqra surcharge
on import of sugar "in order to safeguard the interest of local sugar
industry in face of fall in international prices of sugar." The exemption
of custom duty of sugar imports persists. The PSMA does not consider it
an adequate protection and wants ban on sugar imports. Sugar imports must
be for a minimum quantity of deficit and not to be liberalized to make
a glut of it as obtained this year.
The spirit of deregulated market system for sugar is not being meticulously
observed to find an equilibrium by inter-action of relevant forces. Cost
of sugar production is being rigidly administered up while end-price of
sugar is being deliberately influenced down through liberalized sugar
imports. This cannot impart desirable strength to the sugar industry.
All this has been adversely influencing the sugar industry's economies.
|In the midst of peak sugar manufacturing period, i.e. in early February
1990 out of no where and no reason, the sugar industry was subjected to
strict credit curbs. In doing so, the basic norm of the sanctioned credit
limits by the banks was overlooked. Hence, credits availed by individual
units of the sugar industry as of February 8, 1990, were treated as ceiling.
If the step was corollary to any unexpected burst of the credit limits,
the sugar industry was not at fault. The PSMA has taken up this most disturbing
issue with the Federal Finance Ministry, the Ministry of Industries, the
State Bank of Pakistan, the Pakistan Banking Council, etc. The sugar industry,
being an agro-based, food-related and catalyst of rural de¬velopment
deserves a better deal.
|In the wake of unfavourable fiscal measures taken in the Budget 1989-90,
the PSMA prepared a comprehensive pre-budget 1990-91 memorandum. It gives
a detailed account of the characteristic of the sugar industry's operations,
its significance in the country's economy, problems associated with it,
the structure it holds and unfolds strategy suitable for well sustained
growth. The memorandum bears importance for the future as well. Hence it
is being attached as an annexure to this Report.
The budget 1990-91 did
not bring happy tidings for the manufacturing sector. Proposals of the
sugar industry received some recognition. The incentive of central excise
duty exemption on additional production has been partly restored. It is
made available at 50% to the production in excess of the preceding year's
output. Nothing more material accrued to the sugar industry and for that
matter to none of the other industries either.
It would be in concert to observe that profits from exports have been
allowed income tax exemptions up to 75%; the import substitution is being
discriminated from similar treatment. Saving of foreign exchange is equally,
if not exceedingly, important in improving the balance of payment position,
a need of the country.
The sugar industry is being ignored from income tax relief on more than
one account. Its key role in import substitution is being consistently
ignored. Its crucial role as catalyst of the rural development is not
being recognized. Even its molasses production which is predominantly
an export item does not meet an appropriate fiscal treat. Of the molasses
production now about one million tons, over 80% is surplus for exports.
Domestic utilization is estimated at about 200 thousand tons a year. Molasses
exports are in the most price conscious industrialized economies of Europe.
Its market is keenly competitive. All these factors governing the market
for molasses have been overlooked by the Federal Govern¬ment in imposing
sales tax at 121/2% on molasses. While the sugar industry has been agitating
since long against the excessive 25% ad-valorem export duty levied on
molasses, fresh impost of 121/2% sales tax becomes a bitter additional
burden. Complicated proce¬dure involved in claiming sales tax exemption
on exports, as most of the molasses happens to be, sales tax levied simply
tantamount to creating difficulties and extra paper work for the sugar
industry. It is bound to adversely affect revenues to the sugar industry
on sale of molasses. By logic and pursuing economic norms, need was to
remove the long persisting 25% ad valorem export duty rather than impose
an additional 12'/2% sales tax.
By imposing additional levy in the form of sales tax at 121/2%' favourable
conditions could not be created for a more meaningful and fairly diversified
value-added utilization of molasses within. If this has been an objective
it needed a better planning, associating the sugar industry in an appropriate
policy formulation for the purpose. Sales tax imposition at 121/2% seems
an attempt to fetch more revenues.
|Sugar Policy 1990-91
|Elements introduced in the sugar policy for 1990-91 can be listed as follows:
1) Sugarcane support price per 40 kgs. raised to :
a) Rs. 15.50 (13.75),
up 11.09% in the Punjab,
b) Rs.15.75 (14.00), up 11.25% in Sindh, and
c) Rs. 15.25 (13.50), up 11.30% in NWFP
2) Central excise duty exemption at 50% admissible to sugar production
in excess of 1989-90.
3) Sales tax at 121/2% chargeable on molasses.
4) Central excise duty exemption on sugar production by slicing of sugar-beet
5) Sugar imports to be 300,000 metric tons based on current sugar
consumption estimate at 2.3 million metric tons.
The sugarcane support prices relate to recovery benchmark of 8.5% for
the Punjab, 8.7% for Sindh and 8.3% for NWFP. Recovery higher than the
given benchmark is to attract quality premium at 19 paisas per 0.1% additional
Working of the sugar industry during the 1990-91 season has come under
rising costs pressure. This becomes evident by some of the reasons listed
1 ) Sugarcane support price raised by 11 .3% per 40 kgs.
2) Minimum wages increased to Rs. 1,100.00 per month.
3) Power tariffs already raised by 11 % and further likely increase in
4) Transport cost increased by 15% with 16% increase in petroleum price
made during April 1990 and likely further increase in it.
5) Sales tax levied at 121/2% on molasses to adversely affect revenues
sugar industry on its sales.
6) Inflation rate prevailing over 11 % in the economy.
A substantial surge in the cost of sugar production is to take place
by the above factors. On the other hand Government is found over-sensitive
to sugar prices and has been using imports as a lever to depress domestic
prices. Ironically, sugar prices are seen in isolation by the authorities,
taking a detached view from the general trend of prices of other commodities
in the country and more particularly increase in cost of sugar production
and reduction in revenues by various reasons. Production cost of sugar
during the year 1990¬91 will be considerably more for several reasons
responsible for it and none of them in the ambit of the sugar industry
General inflationary trend in the economy has a bearing on the cost of
inputs. While price increases of main food items such as wheat, rice,
maize, coarse grains, pulses, edible oil, tea, milk, go up usually without
much notice taken, though these bear heavily on the overall cost of living,
sugar price increase is being taken unduly a serious notice. This is not
valid, more so as socio-economic benefits of the sugar industry have been
immense and excellent. In fact, the sugar industry receives a peanut from
the total revenues it generates. It will be in fitness to see sugar prices
in context with cost of sugar production.
|Strategy of Growth
|During the year, the PSMA of its own and at times on being asked spelt
out a strategy which could ensure growth of the sugar industry on sound
track. The concept evolved by study of resource constraints and cost economies,
endorsed by experience gained over the years, emerges as pursuit for vertical
expansion to be the best course of action available dispensing with the
horizontal growth route.
Pakistan has now 48 factories in operation and
some more in the making. These hold potential of achieving sugar autarky,
sufficient supply of sugarcane was at hand. Most of the factories, by
official reckoning, have capacity of crushing 3,000 metric tons of sugarcane
a day. This scale of operations is fast becoming uneconomic due to capital
cost of Rs. 500 million now involved in installation of a new unit. The
viable capacity rates at 5,000 metric tons of sugarcane crushing a day
with inherent scope to gear it steadily up. By international reckoning,
a modern sugar manufacturing unit needs to possess sugarcane crushing
capacity of 10,000 metric tons and above. This prescription needs administration
in our milieu. Vertical expansion and not a horizontal growth is an answer
to the challenge relating to the sugar industry's progress on proper lines.
This strategy would minimize fresh fixed capital outlay and enable the
sugar industry re-establish its economic equilibrium from time to time
in environment fuelled with escalating cost structure. Vertical development
design could assert in augmenting Government revenues and saving scarce
'resources for application in other demanding areas. Horizontal expansion,
on the contrary, overcrowds and exacerbates disadvantages to the national
economy. It needs to empha¬size that the sugar industry is caught
in cobweb of rising costs and it has to cope with the vicious phenomenon.
Most of the units, having by now lived up to two decades, deserve administering
strong regular doses for balancing, modernization and replacement. In
addition to this, some of the units warrant switch-over to the new process
of inherent economies, Expansion has emerged as a compulsion in the obtaining
situation in order to protect viability. The factors listed in brief exert
so much of the force that undertaking expansion has become inevitable
by all plausible means. This being the economic compulsion, it makes the
vertical expansion a must. Towards this end, the PSMA has often drawn
attention of the relevant authorities. The matter now needs expeditious
policy decision for vigorous follow-up.
|The sugar industry has come of age by completing a quarter century of
its dynamic existence. Sugar production over the past 10 years fared well
above a million tons mark. Over the past two years, it vied for reaching
the coveted goal of two million tons. Had sugarcane supplies and recovery
features during 1989-90 been at par with the best attained in the past,
the two million mark of sugar production would have been happily surpassed.
At this juncture, it is time to look for more fruitful journey ahead,
towards a promising future. An assessment of the sugar industry's role
in countries where it is in the forefront of the industrial structure
and instrumental in growth dynamics of the economy, sugar industry's dynamism
has been demonstrated by embracing diversification to the extent that
sugar stands transformed into a byproduct. A suitable model from the world
sugar industry scene should be selected for adoption in Pakistan.
However, in pursuit for diversification, the most promotional role could
be played by improved sharing in revenues being generated by the sugar
industry through sales of sugar. In the milieu of Pakistan, a progressive
decline in the share of sugar industry from the overall revenue generation
has been noticed. Of the 21 % share in revenues the industry had in 1986,
it has been cascading over the recent past. Factors responsible for a
progressive decline could be identified as:
a) denial of CEO exemption on additional production,
b) increase in sugarcane support prices,
c) raises in wages, inputs costs, utilities tariffs, transport charges,
d) sales tax imposed at 121/2% on molasses,
e) general inflationary trend above 11 %, and
f) steps influencing bearish trend in sugar prices.
The prevalent situation demands a passionate re-evaluation of the sugar
industry's cost structure and measures for improving its share in the
revenues. A minimum return at 30% from revenues be assured for the sugar
industry so as to enable it an efficient performance, to embrace dynamism
of expansion and diversification and serve as a catalyst of rural socio-economic
prosperity and agent of infrastructural development in rural Pakistan.
|Pakistan Sugar Institute
The sugar industry in Pakistan is at a threshold of evolving an integrated
approach for a long term growth, to be planned on proper lines and sound
footing. All its operational segments demand a well-knit momentum. Enough
experience has already been gained over the 25 years working of the sugar
industry. That treasure needs to be refined, redefined so as to put it
to usage in enlightened order for up liftment of the sugar industry. In
order to translate concept into action, a strong, viable institutional
structure is pre-requisite.
The idea was deliberated often, at times actively at the meetings of
the PSMA. It would be in fitness to recall that the PSMA in its recent
meetings agreed in principle to set up Pakistan Sugar Institute. The mechanics
of converting the concept into a reality need to be evolved in earnest.
The PSMA members are requested to get ready for implementation of this
decision. The challenges emerging for the sugar industry can be appropriately
responded by creating and promptly activating the proposed Pakistan Sugar
|PSMA Office in Islamabad
|It gives me pleasure to inform the members that the PSMA has acquired
on rent premises in Islamabad to set up its central office. The premises
are located at Mezzanine Floor, Rashid Plaza, Quaid-e-Azam Avenue, Blue
Area, Islamabad, and spread over a space admeasuring 2340 sq. ft. The location
is suitable. The PSMA has taken a lead by being the first Association in
the country to set up its central office in Islamabad. It would facilitate
our contacts with the policy making Ministries at the Federal Government
level and help in resolving the problems of the sugar industry promptly.
I take this opportunity to express my sincere thanks to all the members
of the PSMA for extending their cooperation throughout the term and look
forward to their support in future. The Chairmen of the PSMA Punjab, Sindh
and NWFP Zones have helped me a lot during the year which has been eventful
and to them we owe our thanks.
Pakistan Sugar Mills Association