I, now present you with the annual review and the general outlook of the industry.

2003-04: The year under review.

Nature has been very kind to Pakistan during the year, bestowed it with abundance availability of water at the right timings, with its major reservoirs at a satisfactory level even at the end of winter, ensuring a regular supply of water through our irrigation system. In addition, the periodic rains at desired timings had a favourable effect on the crops particularly the sugarcane, the most water-demanding crop.

As forecasted in our last year’s report the sugarcane crop was extraordinary, and despite the minor reduction in the plantation area the cane crop was recorded at 53.8 million tonne. Sugarcane utilization by the mills was 81% as 43.6 million tonne of sugarcane was crushed and about 4.0 million tonne of sugar was produced with a record average recovery of 9.15 %, higher by 0.4 % compared to the recent past and second to 9.25 %, only once recorded in1991-92. This phenomenal performance is credited to Punjab that achieved 9.09 % recovery improving all their previous records. Similarly, in sugar production, Punjab has laid a new benchmark by producing 2.60 million tonne i.e. 65% of Pakistan’s production, improving its own record by a quarter million tonne.

The production at this level confirm the following, claimed by the industry.

• Sugar producing capacity in Pakistan stands over 5.5 million tonne and 4.0 million tonne was produced easily in a comparatively shorter season.
• We had extra ordinary rains and irrigation water supply favouring abundance of sugarcane. Our estimates were very close and on conservative side speak its credibility as shown below.
  

Domestic sugar price was already on the downward slide in continuation of the past two years, whereby only half a million tonne surplus caused 20% crash in the domestic price. The negative prospect with over a million tonne surplus was clearly foreseen as predicted.

Before the delayed commencement of crushing season 2003-04, the ECC held on 12th Nov’2003 decided to purchase 200,000 tonnes of sugar through TCP in two tranche as a strategic stock, in exportable specification and packing, replaceable with fresh sugar at the beginning of the new crushing season.

Acknowledging a bigger harvest PSMA continued with a series of meetings with the concerned Ministries, and finally had to communicate the situation to the
Hon. Prime Minister in mid Feb’04. Government by now had realized that the surplus was beyond the holding capacity of the mills and were convinced that the accumulation of loses is now causing concern to the growers as well. In the middle of March’ 04 an inter-ministerial meeting was held and finally another summery recommendation was approved by the ECC in its meeting of 20th May’2004 to purchase another 300,000 tonnes sugar through TCP to enhance the strategic stock. The approval was conditional to the commitment provided by the PSMA that the outstanding payments to the growers would be cleared by 15th June 2004, and that the new crushing season to start by 1st November 2004. Though the financial approval and finalization of payments by TCP was delayed till 15th June, while the mills were struggling hard to clear grower’s dues.

PSMA was put in a very difficult situation and had to offer the desired commitment after few days for the obvious reasons. Growers arrear has always been a matter of concern to the Government as well the industry. Government’s pressure to start early crushing goes to favour few farmers is worth re-consideration. Production 2003-04 is credited to multiple positive growths in the sugarcane crop and delayed commencement of crushing season that resulted in recovery improvement by 0.41%, which enhanced the production; otherwise this would have been partially wasted.

Early start of the crushing is always forced at the cost of recovery loses to vacate a small portion of land for the late wheat sowing. This year again Sindh Government through a notification has directed the mills to start as early as 1st week of October based on the

shortage of water supply and to add the land for the wheat sowing. The real impact of such forcible actions needs to be evaluated for a balanced decision.

As per decision of the Government, 465,095 tonnes was procured by the TCP through tenders exclusively from PSMA members and to be stocked at the mills godowns. Another 20,000 tonnes was lifted to complete the procurement made last year for 100,000 tonne export.

• During the inter-ministerial meetings further recommendations were made to establish the industry’s viability by taking the following mid and long-term measures: -
  • Sugar Factories Control Act 1950
  • Sustained and functional sugar policy
  • Establishment of Export Development Fund
  • Linkage of sugarcane prices with present low sugar prices until a totally free market policy is adopted.
  • Encouragement and incentives for the industry’s efficiency, expansion and diversification including production of electricity and ethanol etc.
  • Improvement in sugarcane quality.

These recommendations were well received and hopefully are being processed by the Ministry of Industries and Production.

• In December 2003 a senate committee was established to consider WTO challenges. PSMA lodged its complaint against the lavish multi-billion Euro subsidies that has distorted the international sugar prices. Later, a copy of the report prepared by the legal advisor of Punjab Zone was also forwarded to the committee.
• As a result of SAARC conferences (SAFTA) South Asian Free Trade Area, a regional trade agreement was established. PSMA appreciated the move and in

response to the Ministry of Commerce call for items on sensitive list, PSMA responded with a request to include “Sugar” on the list of sensitive items.

At the end of July 04, based on the biased media reporting, the Government announced the sale of sugar from the TCP’s reserve stock to control the so called rise in the sugar retail price, whereas, in reality, the retail market price during the months of June and July did not show any alarming fluctuation. Government must consider that the industry has been through a long period of crises, and minor fluctuation in the market prices does not require decisions having long-term adverse implications.

Recently the ECC in its decision of 21st September 04, directed TCP to release 200,000 tonnes of sugar from the buffer stock to stabilize sugar prices during the Holy month of Ramzan. While take up the decision PSMA was not consulted, and did not account for the stock availability with the mills and in the market. The retail market price of Rs. 20/62 per kg was recorded in August 04 that did not require the GOP to release the TCP’s buffer stock. This move has depressed the ongoing sale from the mills, especially at the time when mills are making preparation to commence the upcoming crushing season.
We do appreciate the Prime Minister Mr. Shaukat Aziz decision of 27th September 04 that the sale price for the first tranche of 50,000 tonnes TCP’s stock would have a fixed price of Rs.19/- inclusive of Sales Tax, whereas, the ECC constituted committee remained indecisive on the sale price.

Outlook 2004-05

Preliminary report from MINFAL indicates that sugarcane for the year 2004-2005 is cultivated on 949,700 hectares, which is 11.63% lower compared to the last year’s area under sugarcane plantation. In 1998-99, the sugarcane plantation area was 1,155,200 hectares at maximum. Apparently, the sugarcane production has decreased as the water

supply has not been as good as that of last year, as the winter rains have been below average and monsoon’s arrival was late. Last year, the yield had improved to over 50.0 tonnes per hectare, which is now estimated at 47.5 tonnes per hectare, that may yield
45.0 million tones of sugarcane and hence the short supply may trigger cane price war, against which members are advised to refrain. The sugar production may range around 3.1 million tonne at an optimum recovery rate of 8.75%, in case we manage to procure at-least 80% of the crop.

The carry over stock at the mills along with the TCP’s owned stock would make availability to around 4.0 million tonne against estimated consumption of 3.6 million tonne. Hence enough stocks are ensured for the year 2004-05, and therefore any significant price hike is not foreseen.
The growers have not been very happy in the recent past, and have been protesting at every forum for the price increase. We do understand and can see now the impact of negative increment on the sugarcane prices when cost of inputs is on the rise. The industry could not afford any price increase due to the continued price crash and widening gap between the sugar and sugarcane prices as shown below.

Our policy makers are advised to realize that the millers and the growers both need to have positive incentives, as very soon, the consumption in Pakistan will catch up with the production in the country. In the near future the period of distorted international prices will also be over in stages. Once the international sugar prices are free of subsidies and other barriers, the import business is going to be very costly and soon our economists will harp the viability of our sugar industry, who have been advising otherwise negatively

The present over sensitiveness on the slight increase in the sugar prices is harming the industry and the growers both and it is not doing any good to the priority stakeholder i.e. the consumer whose total sugar consumption expense in the house hold budget is maximum up to 2.0 % in the lower middle class, and is further reduced in the upper class.

Farmers and Millers of the developed countries already had the leading advantage of the subsidies for many years, while the developing countries curbed the subsidies with loyalty and inhibited the domestic industry to invest in research and development for achieving scientific growth by the growers. Immediate attention is desired for a countrywide campaign towards meaningful research and development on the cane varietal improvement and productivity of the mills to meet the future challenges.

International Scenario

Various international agencies have been giving different production and consumption estimates for the year 2003-04 ranging from 145.0 to 140.0 million tonne on production side and 145.0 to 139.0 million tonne on consumption, more or less a balance year. With the support of heavy carry over stocks, the prices remained fluctuating within a low range of anxiety. The nervousness of the world market at the year’s end was obvious as it approaches the end of long series of surplus years and the deficit widely predicted for the coming crop cycle at the global level.

World production and consumption for the year 2004-05 has been generally forecasted as minor deficit by the most global agencies.

India faced a severe short fall but prices remained stable due to of huge carry over stock of 13.5 million tonnes. Drought conditions are improved due to recent rains and with the support of adequate carry over stock India may not be active in the international market.

China is impressively improving on the consumption side by control on saccharin by the food industry. To meet the demand Government is releasing sugar from the state reserves.

In Russia, imports are controlled by a combination of lower import duty in (May-July) fixed at US$ 206/- per tonne and US$ 235/- in April. The prevailing wholesale prices have recently reached US$ 560/- per tonne. For large size imports the country may reappear in the market.

Brazil’s production is expected on further rise by 11% from the previous crop estimated at 27.0 million tonne. With strong oil and gasoline prices ethanol demand is on rise. The output in Brazil however can easily adjust minor world sugar deficit.

However, taking into account the gradual return to the normal stock position globally, the outlook seems positive. The tight production and supply worldwide indicates higher prices next year.

WTO is already examining the claim forwarded by Australia, Brazil and Thailand against the European Union that brought the international sugar market down by illegal subsidies. The distorted prices have adversely affected the developing countries like Pakistan who could not afford to export its surplus production. Due to the special and differential treatment the safeguard measures did not work in favour of the developing countries.

On 1st & 2nd August’2004 after a marathon negotiation in Geneva, the key WTO members agreed and struck a crucial deal to slash the multi-billion- dollar farm subsidies and open industrial market to boost global trade. The accord could lift poverty and trigger growth in many poor and developing countries. The decision includes sweeping changes to the long standing heavily subsidized production and marketing system, which distorted the global sugar prices.

The hard won deal was welcomed through out the world and we too see better prospects for the growers and for the industry when the accord is fully implemented. Pakistan has to be careful regarding other technical barriers and environmental restrictions for global competitiveness.

Conclusion

• 2003-04 has been overall high productivity year. Sugar mills inability to hold large size surplus stocks continued to keep the sugar market depressed.
• With inclusion of last season, Government of Pakistan procured a total of 564,000 tonnes, which included export of 100,000 tonnes through TCP. Further export of over 100,000 tonnes has taken place from mills through export process and local sale to Afghanistan.
• Recent Government decision to release 200,000 tonnes of TCP sugar stock and pressurizing the mills for the early start is seen as bad omen for the production year 2004-05 and future sugarcane price structure.
• Procurement of sugarcane was on higher side and therefore, production of Gur was on decrease.
• 3% additional Sales Tax payable by the mills was finally withdrawn in the budget 2004-05 by the Government of Pakistan.
• 2004-05 is seen as deficit year, but the reserve stocks held by TCP will keep the supply in balance, hence the domestic prices may show minor upward movement.
• Shortage of sugarcane may result in inter-mill price competition. Zonal committees are advised to resist undue increase in cane price.
• International scenario may soon bring hope to the developing nations as soon as the subsidized regime is slashed in stages.
• Overall PSMA has been successful in steering the sugar industry out of crises during the year.

In the end of the annual review I wish to register my thanks to all our Zonal Chairmen, members of our Central and Zonal Committees and specially to the Secretary General Mr. Qazilbash with whose co-operation and team work spirit we were able to convince Government of Pakistan to provide a short term relief. We hope to continue with the same co-operation as the new management takes charge.