| I feel great pleasure to welcome you on behalf of the Central Executive
Committee and myself here at 34th Annual General Meeting today. Our
Annual General Meeting is a regular phenomenon held each year, and in
here, beside carrying out regular business required by the Article of
Association, current problems on production, marketing, taxation and export
etc are also discussed. This occasion besides providing a get-together
of all zones provides an opportunity of reaching a joint strategy and
decisions to bring positive effects on the sugar industry, growers &
others. It is therefore always desirable that maximum participation is
made and decisions made at PSMA level are fully implemented and honoured
by all members. To ensure joint decisions and benefits it is also requested
that all non-members be persuaded to become regular members of PSMA. It
is noted that the Center and Zonal Offices are regularly providing service
to non-members for quite some time, which can not be continued longer.
At the end of this meeting's agenda I would like to have your views regarding
non-responsive members and non-members too.
Production 1998-99
For two successive years, the industry has achieved sugar production
of over 3.5 million tonnes. Increase in availability of sugarcane in these
two years after a short fall in successive past two years, a remarkable
effect on production side is noted. This was mainly due to increase in
the sugarcane plantation area,
unfortunately at the cost of further decline in the yield and sugar content
of the crop.
Because of 47% increase in the sugarcane price since 1997-98 the production
cost of sugar also jumped proportionately. With the short fall of 250,000
tonnes, a huge quantity of sugar was imported in 1996-97 and a portion
of it in 1997-98 totaling import of 790,420 tonnes. Domestic markets were
flooded with sugar and even during shortfall year, the industry faced
a sugar glut. This was followed by 1997-98 production of over 0.5 million
tonnes of surplus, with repeated performance in 1998-99.
So practically, a surplus of over 1.30 million tonnes was handled during
these 2 years with the result that the industry again reached at the verge
of collapse. Unfortunately it was during this period that the international
prices declined from US$ 420/- to US$ 200/- per tonnes due to global surplus.
Main buyers were forced to reduce consumption due to economic reasons
and general recession.
During 32nd AGM in Oct 97 at Lahore on the floor of this house situation
was well appreciated and foreseen by the members. They were informed that
Government was in no mood of providing any subsidies for export, which
was considered as vital for survival of the industry.
With dull export prospects members were generally in favour of creating
an export fund supporting the exporting mills to compensate losses. A
long pre-lunch and post lunch sittings did not bring any positive solution
and it was decided that zonal level meetings be held to decide modalities
of contribution towards export funds, which again did not bring any fruit
and finally Government help was sought.
Sugar Export:-
You will all recollect that PSMA approached Government for export permission
and sought financial help, to be able to match the falling international
prices. In the beginning permission for export of 100,000 tonnes, and
later enhanced to 300,000 tonnes was made before the start of crushing
season 1997-98 with no financial support. With our continuous efforts
and as a result of no export activity Government realizing the setback
caused to the industry, initially agreed payment of rebate of RS.1/50
per kilo of export, but export activity remained low.
With further efforts and meetings, the Government finally agreed for a
rebate of RS 4/50 per kilo of export of sugar through MOU signed on 29th
May 1998 for an export of 400,000 tonnes. Prior to signing this MOU 167,958
tonnes of sugar was already exported under the previous arrangement.
The rebate paid on sugar export was hardly enough to meet the production
cost of sugar for the exported quantity only, with the domestic prices
still depressed.
With heavy stocks in hand prior to the crushing season 1998-99, the year
under review, hectic efforts resulted in approval for continuation of
further export of 500,000 tonnes, with the same rebate facility.
Government having instructed PSMA for an equitable export quota on
pro-rata basis, noted with concern the lack of interest shown by certain
mills.
Since the export of sugar was no more viable, and even the rebate was
not fully compensating the price, it was directed by the Government that
export of 25% of
the production be made mandatory by all mills. Failing this condition,
mills were to pay, an additional amount of C.E.D. to the tune of RS 4.40
per kilo against the
un exported quantity.
These directions through an SRO worked very well, and exporting mills
fearing further drop in the international price, completed the export
of approved quantity of 500,000 tonnes within a record time of five months
and we later had to seek approval for excess quantity of about 5000 tonnes.
Having completed the export operation, some mills were faced with penalties
and actions by C.B.R. for having failed the mandatory export of 25% in
total or in portion. PSMA delegations in successive meetings convinced
the Government and finally got the mandatory export amended down to 5%
and C.E.D. charge against defaulted quantity reduced to Rs. 1/85 per Kilo.
About 22 mills are faced with the penalty clause against quantities ranging
65 tonnes to 3,250 tonnes.
With all this exercise you will agree with me that the industry, with
the continuous effort credited to our members finally got rid of the glut
by exporting 1,073,566 tonnes. At present we are left with stocks, just
enough to carry us to the start of 1999-2000 crushing season.
During last three years due to depressed sugar prices, sugarcane cost
and, high mark ups by the Banks and DFI's sugar mills were forced with
desperate sale resulting in defaults to financial institutions and the
growers.
Distribution and monitoring of sugar export quota was entrusted to PSMA
Zones and Center offices. Our PSMA offices were to issue rebate certificates
and forward the exports documents to CBR, and follow up the certificates
till sent to concerned collectors for the payment of rebate to the mills.
PSMA offices in fact shared the workload of CBR and performed remarkably
well.
Similarly, export of molasses for check on quality of export was controlled
by PSMA office. Again it proved a successful operation; price of molasses
was stabilized.
Linkage of Sugarcane Price with the Quality
Inspite of being 10th biggest sugar producers in the world the industry
has not proven its viability and at the same time, there is dissatisfaction
among sugarcane farmers. With production capacity we hold today, and the
sugarcane plantation area in use, the country should have been able to
produce a minimum of 4.5 million tonnes of sugar at the same cost, and
should have caused a viability favourable to the industry and the farmers
both. On ground truth is in reverse, because we are producing the most
expensive sugarcane of the world. The yield per acre and the recovery
(sugar content) of sugarcane is perhaps the lowest in the world. The average
recovery in Pakistan is reduced to 8.19 % in the year 1998-99. Sugarcane
price is fixed by the Government and forms approximately 70% of the sale
price of sugar. This together with other regulated expenses, forms 87
to 90 % of the sale price of sugar leaving hardly 10 to 13 % revenues
in the industry’s control.
Since de-zoning, the incentive of the sugar mills, to direct resources
for development of good variety cane in its area has almost diminished
because the grower who has borrowed money from a sugar mill for development
is free to take
his sugarcane to any mill irrespective of which mill advanced the loan
for development. As a result, the sugarcane recoveries have gone down
consistently every year. Only the decline in the last two years has been
0.51 % in recovery which translates into a loss of Rupees 3.6 billion
to the industry. The situation is worst in Punjab because of the most
prevalent variety COJ 1148 (Indian Variety) which formed almost 70% of
all cane grown there. This variety has totally degenerated and was so
diseased that in some sugar mills of Punjab the average annual recovery
was down to 6.5% making the sugar mills totally sick.
The reason for continued deterioration is that there is no incentive
for the grower to improve the quality of his cane. The government fixes
a flat rate per 40 Kg. for the cane and the grower gets this guaranteed
price irrespective of the quality of cane. Thus, the grower supplying
cane with a recovery of 4% will get the same price as the grower supplying
cane with a recovery of 10%. Even the quality premium does not distinguish
between the producer of the bad and good quality growers of sugarcane
because it rewards the growers of the mill as whole including individuals
growing bad quality. Sugarcane is the only product for which the loss
of the bad variety is born by the buyer and not the seller. With the continuation
of this system, the recoveries of sugarcane will continue to fall and
force the shut down of the sugar industry. There has to be a reward and
penalty system for good and bad cane supplied to the mills on an individual
trolley basis.
Here under the data compiled, provides at a glance total scenario of
"sugarcane and sugar" reflecting lack of improvement in the
quality of sugarcane, inconsistency and downward trend in recovery as
well as domestic and international trade prices. |
