Annual Review 2001
Ashraf W. Tabani
Distinguished members of Pakistan Sugar Mills Association,
I feel privileged in presenting the annual report of PSMA Centre, at the 36th Annual General Meeting for the season ending 2000-01, and welcome all members attending this meeting. The concluding year was a very active year on many fronts. For two successive years, the country faced a short fall in sugarcane production after two high production years. Unaware of the severe effects of the drought the sugar industry was optimistic for production 1999-2000, based on officially confirmed plantation area of just over 1.0 million hectares. Later the damages due to the drought resulted in a colossal loss, and even sugarcane production officially estimated at 46.3 million proved higher than the actual crop production of about 40.0 million tonnes.

As soon as the fall in the yield was evident, interruption in sugarcane supplies became a regular phenomenon by the farmers in an effort to increase the sugarcane prices and inspite of all the stoppages, the crushing season was very short. Unfortunately, MINFAL still maintains the sugarcane production figures as 46.3 million tonnes, yet to confuse the future statistics.

As the production for 1999-2000 was known, sugar imports started to meet the short fall. The market average retail prices remained stable as long as the mills held stocks. PSMA is still being branded for the price havoc towards the end of year 2000, where as the mills hardly had anything to sell as shown in the table below. A total of 420,600 tonnes of sugar was imported, supplemented by 371,400 tonnes of carried over stocks of 1998-99.

Sugar Stocks and Retail Prices
During the Price Hike Period Aug - Dec 2000
Month Ending Stocks at Mills Av. Retail Price During the month
31 Jul'00 217,717 25.93
30 Aug'00 88,478 28.05
30 Sep'00 27,274 27.81
31 Oct' 00 NIL 29.19
30 Nov' 00 133,258 30.24
31 Dec' 00 456,986 26.68

Production 2000-2001

The year 1999-2000 having ended with crises, the prospects for the year 2000-2001 also did not look any better. With practically no carry forward stocks and sugarcane plantation area further reduced by 5 % to 960,000 hectares, sugarcane production estimates were as low as 43.0 million tonnes. Water supply in the rivers remained extremely low, while the drought continued more severely in its second consecutive year.

No sooner the estimates for 2000-2001 were evident PSMA started its efforts to curb the sugar imports which was hampering the sale of the domestic production. Though domestic retail price dropped to just above RS 26/- per kg. Government remained jittery on the price issue and would not listen mainly because of its own faulty statistics and estimates. At early stages the decision on further imports and enhancement in import duty fell victim to PSMA production figure of 2.4 and Government's stand on 2.1 million tonnes.

Foreseeing the production short fall 2000-2001, Government earlier discussed and approved duty free import of 600,000 tonnes of raw sugar for refining by the sugar mills. Since this was the first occasion to import such a quantity of raw sugar for refining, objections rose from with in the ranks of PSMA on the credibility of such a venture. It was assumed that it could effect the interest of the sugarcane growers, though time has proven that it has had a positive effect on the plantation area 2001-02.

With the production estimates at 2.4 million tonnes, supplemented by 0.55 million tonnes of refined sugar from raw, and 378.000 tonnes already imported, Government was twice approached in Feb' 2001 and apprised of the availability, now having reached to 3.33 million tonnes. Therefore no further import of refined sugar would be required and hence be stopped. In this connection a press conference was also held at the end of the 1st Extra Ordinary General Meeting on 28th Feb' 2001, at Islamabad.

Our plea did not satisfy the Government and import of refined sugar continued with the excuse of controlling the retail prices, while during the same season sales tax was increased by 1.5%. After convincing the commerce Minister a ban was imposed on the import of sugar from India which was being dumped at a subsidized price. Before the ban was imposed 413,000 tonnes of sugar was already imported, and 206,000 tonnes more got through after the ban. This resulted in one of the highest carry forward stock of over 620,000 tonnes at end Sept, (see graph over leaf) ever recorded, inspite of the warnings to curb the import and avoid 1996- 97 like situations. High stocks shown below against the years 1997-98 and 1998-99 are from the high production, exporting years


The year 2000-2001 ended up with an availability of 3.70 million tonnes with a consumption of about 3.06 million tonnes. Catering, for the month of October, a surplus of over 350,000 tonnes is foreseen in November. This will also effect the trader’s stocks of around 300,000 tonnes held in the market that needs shedding in the month of Oct - Nov.

With such a carry forward stock, prices are likely to slip further in the coming months with fresh buying in very limited quantities, as the harvest approaches. So the damage already done to the sugar industry at the cost of over spending foreign exchange worth minimum US $ 80 million, can not be denied. Efforts are still on for the imposition of 30% import duty on sugar, to provide protection to the sugar industry, though the suggestion has been dropped few times at ECC. The policy negates the much spoken free market economy, when 85% inputs of sugar manufacturing are dictated, and the sale price is controlled by import threats with low tariff. In its meeting of 17th Sept.’2001, the ECC withdrew the concession of 10% duty on sugar and brought it to 20% ad val. Its effectiveness will be observed in the coming months.

Campaign 2001-2002: -

As reported and discussed in the 3rd Extra Ordinary General Meeting the prospects for sugarcane production are bright for the season 2001-02. Plantation area has surprisingly improved over the last two years, while Government target estimates were lower by 20%. Plantation area now improved to 1,032,000 hectares with an expected improved yield could give a production of over 48.0 million tonnes. The major supply of around 33.0 million tonnes is expected from Punjab. Though plantation area in Sindh has slightly improved, signs of water stress are still there on sugarcane in certain areas.

At this situation the sugar production is estimated around or over
3.1 million tonnes, with carry forward stock of 620,000 tonnes at end Sept. Thus availability for the year 2001-02 would be around 3.70 million tonnes and therefore Government was advised that further import of raw sugar would not be required.

Government’s proposal for import of raw sugar for re- export of refined sugar was studied and it was conveyed back that at present such a venture is economically not viable, due to furnace oil prices.

The main feature for the year 2001-02 would still be the tariff rate on import. In case the present import duty enhanced on 17th Sept.’2001, is insufficient and is ineffective to curb the unwanted imports, further efforts will be made for its enhancement. The present rate of duty will provide some protection to the sugar industry for the time being. However the international market which is under pressure, is to be watched vigilantly. In case there is further fall, Government is to be approached to act swiftly to avert crises in domestic industry. The industry’s concern has already been communicated to the Federal Government.

Domestic consumption

Various estimates have been in use in the past to ascertain and forecast domestic consumption. Thumb rule formula based on population and per capita consumption is the one most commonly used, which is a wild guess, as the population and per capita consumption have both been growing simultaneously with no reliable data available. The available data at PSMA Centre shows that based on survey conducted for four years, during 1987-88, per capita consumption of refined sugar for 1987-88 was estimated at 10.7 kg with an increase of 4.72 % per year. Thus per capita consumption for 1990-91 was projected at 12.29, but actual increase was much higher, because of the increasing demand in the manufacture of soft drinks, confectioneries and bakery products. Large availability factor and urbanization has also contributed to the increase in demand of refined sugar in comparison to the use of gur.
At present 21- 22 kg is being used as per capita consumption, but the second and major factor of population remains uncertain to arrive at a consumption figure. Such estimates have been creating growing controversies in planning imports and exports.
In a recent study, by adding up the monthly sales and imports, including unrecorded imports of raw sugar, annual consumption and availability for ten years has been worked out precisely. This data, when projected gives a pretty close consumption forecast as tabulated and drawn below for the sugar years (Oct- Sept).

The projected graph indicates 2.90 % annual increase in the past ten years. The total consumption records around 80,000 tonnes increase per year on average in the recent past, that would need regular monitoring for alteration to provide a fair indicator.

The data also proves that the estimated per month consumption given to the Government for 2000-01 as 260,000 tonnes was on target. The actual supply
Oct-Sept. ended with an average of 254,000 tonnes due to low lifting and excessive supply.




Global Sugar Scenario: -

World sugar production initially indicated a small deficit in the year
2001-02, but not enough to have any significant effect on the world sugar prices. Current reports suggests world sugar production as balanced with the consumption, due to positive boost to next year’s crop in many countries. Balance of end stock of 30.0 million tonnes will continue to dominate the depressed prices.

The key to 2001-02 production will be the extent to which Brazil's production had recovered after last year's drought. They went through largest sugar crisis three years back due to excess supply. At totally deregulated market and abandonment by the Government it faced losses of over U.S. $ 3.0 billion. As a result producers reduced plantation area, deactivated uneconomical areas, reduced investments, promoted discounts etc. The crisis became worst when the International sugar price fell below U.S. $ 150/- in 1999. Even with such an abased price, Brazil exported its 11.0 million tonnes in 1999. Their crisis brought hard and bitter lessons to Brazil and other sugar producing countries. Brazil produces the cheapest sugarcane, sugar and alcohol in the world. The domestic economic situation in Brazil, with continued devaluation is playing a great part on the International sugar prices, effecting directly the countries like ours with high production cost. Even U.S. sugar industry fears destruction by Brazilian imports if restrictions were removed. Now it accuses Brazil for, right from subsidies to the use of child labour etc.

India’s sugar production 2001-02 is likely to be the same as in the current year i.e. about 18.3 million tonnes, while the country already has a surplus stock of 11.0 -12.0 million tonnes. Unable to export its desired surplus quantity, it now aims to raise the ban, to produce and export raw sugar in future. At present producing mostly low grade 150 ICUMSA white sugar, several Mills aim to diversify their sugar product to 45 ICUMSA refined sugar and raw sugar for export purpose. It could export more of its refined sugar into International markets only, if the prices were US$ 250 /- and above to match its production cost.

European Union pessimistic reports for the forthcoming harvest sugar production is estimated at 15.1 million tonnes, down from 16.7 million tonnes. European Union panel for sugar management very carefully ascertains the production and monitors export quota with heavy export refunds for its surplus production. In July last the subsidy recorded was as high as 386/- Euros per tonne. A maximum export rebate of Euros 455/- is forecast for October export tenders.

Next year Thai crop is predicated to be higher by 10 percent promising a production of about 5.50 million tonnes.

China is expecting a sugar production of 7.2 - 7.5 million tonnes, considerably higher from the current year’s 6.20 million tonnes. The production is still insufficient to meet its domestic needs. With surprisingly low per capita consumption of 8 Kg, a sizeable part is consumed by the soft drink industry. Chinese have been switching their sweetener choice from granulated sugar to artificial sugar. Accepting the use of illegal artificial sweetener could harm Chinese Government's standing with respect to WTO accession, which as expected may increase its per capita consumption higher.

During the last four seasons International prices shown hereunder remained depressed due to high stocks. Many of the large importers had imposed protective barriers in order to shield their own producers from extreme low market prices. Un stable price attitude is observed due to the stock build- ups.




Effects of WTO regime and Globalization: -

In the past couple of years anti globalization protestors have not missed any venue for a major economic meet. The flaw is severely felt by the bulk of the third world. Developed countries are pursuing reprehensive trade practices in a manner where on the one hand, they are establishing their regional free market zones, and on the other hand asking comparatively weaker developing countries to open their gates without any restriction for imports and services from the developed countries. This could end up with developing countries being treated as main suppliers of the cheap raw material and importer of manufactured goods.

Recent news that SAARC will take a joint stand on the Ministerial level, and the fact that Government of Pakistan, has set up nine committees to study WTO regime, to identify adversely effected items in the new trade order, is received with appreciation by this Association. We hope the sensitivity of the sugar industry is well under-stood by the Government and it is included in the items that need protection. Our industry being agro-based industry is the most vulnerable even now.

Events of the Year : -

• As the situation demanded three Extra Ordinary General Meetings were held.

• As many as thirteen meetings were held during the year with the Government of Pakistan at Federal Minister's level to apprise them of sugar situation and problems faced by the sugar industry.

• During March 2000, on Minister for Industry's call a meeting was held at SMEDA Lahore, where after discussing problems of the sugar industry a proposal was moved by Mr. Razzak Dawood of the long awaited demand of PSMA for "Long Term Vision" based on the mechanism for improvement in yield and recovery, as sugar "Productivity Enhancement Programme". PSMA submitted its proposal to the Expert Advisory Cell appointed by the Ministry of Industry.

Subsequent meetings were held in this connection and the draft proposal was discussed. Special on site meetings, of the Minister for Industry and Minister for Food and Agriculture were arranged in Sindh and Punjab Zones, in an effort to introduce and discuss the programme with growers.

Pivotal point of the proposal was to establish "development zones" with the sugar mills as model farming areas with incentives to the farmers and the millers. The workability of the proposal is still not finalized and after the last meeting in May' 2001, further progress is not known.

• In May 2000 and later in June 2000 a strong move was made, by the MINFAL with an expression that the sugarcane act needs be fully revised, as the Act in its present form is obsolete. Millers and growers were called to these meetings, but after active and objective discussions the move fizzled out without any result and future reference.

• MINFAL after having run a trial farm of sugar beet in Sindh tried to propagate for sugar beet plantation to replace sugarcane on the basis of its low irrigation water demand. While such trials are to be carried for atleast three years, the Millers were not taken into confidence for conversion and additional equipment to handle beet slicing. Moreover it was known that in NWFP the beet slicing starts at the end of sugarcane crushing, whereas its maturity in Sindh would be over lapping the cane crushing. PSMA did not attend the presentation at MINFAL.

• After approval of the Central Executive Committee, the case for increase in the rate of annual subscription and sharing of PSMA Centre with Zones, was put up to the General Body at the 3rd Extra Ordinary General Meeting held at Lahore on 11th August 2001 and was approved unanimously. Thus item 5(a) & 5(b) of the Article of Association stand amended.

• Hon. Minister for Commerce and Industry joined us at the 3rd Extra Ordinary General Meeting in Lahore, where beside discussions on different aspects of the sugar industry, Mr. Razzak Dawood asked for PSMA's comments on the Support Price for sugarcane. He informed the members that proposal for enhancement of sugarcane support price is on the anvil, while a general support exists for the free market mechanism. He also informed the members that instead of support price a system of " Indicative price" is also under consideration. He asked the members to convey to him their comments after detail discussion at zonal level. Later ECC in its meeting held on 17th Sept. enhanced the sugarcane price to Rs. 42 / 43 as indicative price.

The sugar industry is faced with the persistent attitude that lacks objective approach on sensitive matters. Factual figures are ignored during policy making where a consistent laid down sugar policy workable during the years of short fall and abundance is needed. We are optimistic that better and proper attention will be given to the sugar industry based on its merits.

To conclude, I would like to thank the Zonal Chairmen, Central and Zonal Executives Committees, all members of PSMA and the secretariat of PSMA offices for their co-operation and support.

22nd October, 2001 Thank you, Ashraf W. Tabani