Sugarcane shortage was foreseen last year in this meeting which was estimated to about 9.0 million tonne lower than 2003-04 crop, a fall of almost 20%. Beside the shortage of the crop the sugar industry faced the pressure for the early start of crushing. The Mills in Sindh zone were being forced to start as early as the 1st week of Oct’04, while the sugarcane supply was no where in sight. Twice negotiated, the crushing date was finally set for the 1st of November’04. Ironically only few mills in Sindh zone could hardly continue beyond end February even with the intermittent stoppages, crushing almost 5.0 million tonne less sugarcane than the year 2003-04 i.e. 40% lower.

The anticipated shortfall in the sugarcane supply encouraged the sugarcane growers to demand higher price for their product. This trend immediately started to reflect in the price of sugar in the market.

The retail price of sugar had hardly moved out of its lowest ebb of three years in a row of depressed prices, when Government expressed its concern and in an effort to arrest the upward move announced import of Raw as well as the Refined Sugar. Simultaneous to this the International Sugar Prices started escalating due to a major crop failure in India for the

second year in a row. This encouraged the millers to procure sugarcane at almost double the sugarcane price to break the cartel formed by the sugarcane growers.

With the situation still slipping out of hand, Government allowed duty free import of refined and raw sugar. At the first announcement the import of raw sugar, which was blocked by few importers, was now released to the millers. This was done too late resulting in the most sugar mills who wanted to refine raw sugar decided not to import raw sugar as the crushing season was coming to an end.

To bring the sugar prices to a desirable level the ECC in its subsequent meetings took further steps including steady release of sugar from TCP stocks through Utility Stores and doing away with the withholding tax on the import of sugar. Further to the imports by traders TCP was directed to call for international tender and procure additional 200,000 tonne sugar to supplement the sugar already floated in the market by the importers. In an effort to attempt importing cheaper sugar the sugar import ban imposed on the Indian sugar was also relaxed despite PSMA’s advise regarding its high sulphur content which could be hazardous for health.

Till the preparation of this report import of 622,040 tonne of refined sugar and (partly utilized) 282,200 tonne of raw sugar has taken place. Sugar retail price upward surge has subsided as shown in the following table.

Unmoved by the rising sugarcane prices and sensitive to the rising sugar prices, the attitude of the Government representatives was aggressive and scornful towards the sugar industry. Ignoring the ground realities it was rather easy to blame the sugar industry for the price hike and the short production.

Ignoring the past data, the crop condition, the lack of research and development work and the seasonal effects on the crop, the Government officials stuck to their assumed high yields and the desired results. Even after the early end of the crushing the sugarcane production, estimates were inflated by the Agriculture Ministry and during meetings with PSMA the industry was blamed by design for the following deeds.

1. Sugar mills utilized a low percentage of sugarcane.
2. Sugar mills must have crushed more sugarcane, which is not on record.
3. Sugar prices were increased through cartel.

On the basis of the above assumptions the image of the sugar industry was regularly tarnished through media campaign, uncalled for threats were given through the media and cases were initiated against sugar mills. While reviewing 2004-05 we shall also discuss the facts on the above-mentioned accusations.

The year under review 2004-05:

As forecasted last year, the sugarcane & sugar production ended well below the projected domestic consumption and the milling capacity. As per data provided by the MINFAL sugarcane plantation Area was reduced to 966.6 Ha in 2004-05 against
1074.0 Ha. for 2003-04 crop.

Low Crop Yield & Causes

Beside a noticeable reduction of 10% in the crop area, weather conditions i.e. winter and monsoon rains, irrigation water supply, both have been below normal due to which a lower yield was expected. Though reports from the MINFAL claim the sugarcane yield for 2004-05 crop as high as 49.0 tonne / Ha, PSMA crop estimate does not indicate yield exceeding 45.0 tonne per ha. The exaggerated sugarcane production adjusted upwards after the crushing campaign caused a lot of controversies and misleading basis for the sugar production
2004-05.

Seasonal changes always had dynamic effects particularly on the sugarcane crop that has been observed in the past. On the contrary insufficient rains and low water supply had severe adverse effects on the crop. 1995-96, 1996-97, 1999-00, 2000-01 & 2004-05 fell under the low cycle of unfavourable weather conditions, which can be matched with the meteorological reports.

Sugarcane requires a huge quantity of water for its survival. It is cultivated on irrigated land and requires 60-80 acre-inches of water from plantation to maturity. Water shortage severely affects the quality of sugarcane crop. According to statistics provided by IRSA (Indus River Authority) the canal head withdrawals were decreased by 10.3% for Kharif and 26.7% for Rabi 2004-05. The short supply in the irrigation system shows acute shortage in Punjab and Sindh provinces. (Economic Survey of Pakistan 2004-05)

Pakistan has a well-known irrigation system that provides security to the cropping intensity and diversity. The system is dependent on rainfall, snow and reservoirs etc. Our monsoon and winter rains supplement the irrigation system and it contributes directly and indirectly by about 15 MAF annually. The sugarcane crop in Pakistan alone draws almost 10 million-acre foot of water, which is about 10% of the total water requirement for different crops in the country.

Sugarcane crop 2004-05 faced shortage of the irrigation water as well as the low rainfall. Based on the last 25 years data, the rainfall in winter and monsoon is established as Normal when the rainfall measures 70 mm in winter and 137 mm in monsoon as a benchmark.

Keeping this in mind let me inform you that the rains feeding 2004-05 sugarcane crop were as low as 42mm in the winter and 86mm in the monsoon season, this makes the total rainfall 38.5% lower than normal.

The sugarcane production, yield & percentage of utilization by the mills during the above mentioned years are tabulated hereunder for a quick glance.

You will also observe that during the low sugarcane production years the percentage (%) of other utilizations of sugarcane i.e. (seed, fodder, gur etc) remained high. The diversion towards Gur production has always been more attractive during the short supply of sugarcane. High prices of Gur with no sale tax have encouraged the production of Gur. Surprisingly the market Gur price remained 30% higher than the refined sugar.

Sugar Production:( 2004-05)

Sugarcane plantation area decrease together with the low yield caused 25% reduction in sugar production in comparison to 2003-04, which was a record production of 4.0 million tonne.

Pakistan ranks 5th in the sugarcane plantation acreage and has 15th position in the sugar production because of the low yield and recovery percentage. The statistic reveal that after high production years a low production year is always bound to follow with a severe blow in the absence of a significant improvement activities in the irrigation system and research and development work. During this year 32.10 million tonne of sugarcane was utilized by the mills to produce 2.92 million tonne of cane sugar at the recovery rate of 9.10 % Beet sugar production was also down by 50% with a production of only 11,400 tonne.
A limited quantity of raw sugar was utilized by the mills to supplement the sugar production by 182,300 tonne. Thus the total production stood at 3.12 million tonne, the availability of sugar raised to 4.55 million tonne with the inclusion of carryover stock and import of 622,000 tonnes of refined sugar resulting in a carryover stock of 577,650 Tonne.

The sugarcane supply to the mills in Punjab was down by about 6.0 million tonne resulting in 21.28 % less sugar than 2003-04. Sugar Mills in Sindh faced the severe impact of the sugarcane shortage inspite of record utilization of crop to 84.6%. the sugarcane utilization was down by 5.0 million tonne in comparison to 2003-04 and thus sugar production from cane was 38.2% lower than the previous year.

NWFP mills faced the traditional diversion to gur making. Though the cultivation area and the sugarcane production indicated minor improvement, the utilization by mills remained under 30%. The production of sugar was down by 31.33%. The overall
zone-wise scenario is presented hereunder for a quick assessment.

Domestic consumption as well as the per capita consumption has been on the rise during the past three years. Consumption that was once 10.70 KG per capita in 1987-88 has alarmingly increased to over 25kg per capita. Past two years consumption shows that at least 200,000 tonne of extra market supply was made over and above the projected estimates, part of it was accredited to the Afghan Refugees returning home. Based on the available supply / sale data, the domestic consumption for the year 2005-06 would not be any less than 4.0 million tonne.

Ministry of Industries and Production on the directive of the President and the Prime Minister of Pakistan initiated to formulate policies to add value to the sugarcane by-products such as bagasse and molasses. PSMA was actively represented and presented the initial project summaries in the two separate committees constituted to prepare a project study for: -

1. Formulation of National Policy on Indigenous Fuel Ethanol / Gasohol production & use programme in Pakistan.
2. National Policy for Power co-generation by the sugar industry.

Rigorous PSMA inputs and discussions were made during the separate meetings called for the above projects by the Ministry of Industries & Production during the past seven months.

Sugar industry was always blamed in the past for the lack of initiative on the use of the by-products as been practiced in the rest of the World. The industry having initiated nearly ten ethanol-manufacturing projects with huge investment was glad to see Government support on the use of ethanol. During several meetings on the formulation of blending ethanol with petrol and the required legislation for this affect, the sugar industry observed a very tough resistance from the oil companies whose vested interests were involved.

They took a strong plea on the basis of already surplus petrol available in the country. To derail the formulation of policy they went to the extent of a special presentation to the Prime Minister in the absence of the representatives of Ethanol Manufacturers. Efforts are now being made by the PSMA to put the project back on track.

In the mean-time due to high production and export of Ethanol from Pakistan, the European Union has levied high import duties and is considering Anti-Dumping Measures as well, against which the Government of Pakistan has been approached for prompt action.

Similarly a number of meetings took place at the Ministry of Industries for the formulation of National Policy for power co-generation by the sugar Industry. In this case representatives of WAPDA, NEPRA, Sui Northern and Sui Southern participated. For a regular supply of Electricity the basic requisite of Power Co-generation by sugar mills was the supply of gas during the period when the mills are non-operative. The representatives of the gas companies came-up with their own problems of shortage of gas. After detailed deliberations during the meetings chaired by the Minister for Industries certain condition and criterion were laid out for the initial start of the setup for power co-generation by the mills. The basic criteria for consideration included the crushing capacity, self-sufficiency in bagasse, the financial performance of the mill and the most important, the location of the mills in relation to the access distance from the main gas supply line.

The recommendations were to be forwarded to the Inter-ministerial Committee for evaluation purposes.

During March’2005 PSMA delegation held meetings with the Chairman CBR and discussed the various issues of sales tax, further sales tax, audit procedures and other problems in documentation. CBR also explained the general complains they had regarding the low sales tax collection in 2003-04 which was due to the low sugar prices and elimination of additional sales tax. The chairman CBR was informed that low collection of sales tax was not due to tax evasion as been stated in the print media referring to the CBR reports.

Production 2005-06

Initial reports indicate a further decrease in the plantation area for the sugarcane. Against 967,000 Ha last year the plantation is reduced by 7% to 900,000 Ha. PSMA estimates slightly higher cultivation as the farmers are being encouraged by the high price of the sugarcane. Water supply has been in abundance and is likely to continue during the maturity season of sugarcane. High winter rains snow and moderate monsoon has assured an above normal irrigation supply for the rest of the year which may result a higher yield of 50-51 tonne per Hectare.

Sugar production 2005-06 is not foreseen any better than the last year though diversion for fodder consumption may be at its lowest. Sugar production is foreseen at 3.0 million tonne, against the estimated consumption of 4.0 million tonne. Carry forward stocks at mills including TCP’s reserved stock stands at 577,650 tonne while the import is still in progress for utilization in the month of October and November.

With the balance stock of 577,650 tonne on 30th Sept’05, the estimated production 2005-06, the availability of sugar would be around 3.6 million tonne, which needs to be supplemented with the in-time import and refining of raw sugar to a considerable quantity.

Research and Development

The soaring sugar prices in the domestic and global market with expanding demand is a wakeup call for the industry and the Government. There is fresh warning and demand for research, development and innovation today more than ever, unless the country is let to future consumer market. It is high time to develop and extend the applied research services to the growers and the mills for the enhancement of sustainable production of sugarcane and its products.

Comprehensive and extensively involved sugarcane varietal research with specific targets are urgently required with special emphasis on the sugarcane varieties of less water dependency.

To increase the per acre yield there is also need to adopt new means and methods for water conservancy and controlled irrigation system like drip and sprinkle irrigation. The proposal for implementation and extensive use of drip irrigation system was put up in the meetings with the Ministry of Food in the presence of scientists & irrigation experts called in on the occasion.

As indicated earlier the per hectare sugar production in Pakistan is 4.5 tonne, where as in our neighbourhood India has achieved 50% higher production i.e. 6.5 tonne, Thailand at 6 tonne, Egypt at 12.5, Brazil at 10 and above all Australia at 14 tonne are the examples in front of us that we need to follow to achieve at-least self sufficiency based on the economic growth of the farmers and the millers both.

Continued depressed prices of sugarcane and sugar will never lead to any growth vital for an agro-based industry. Economic survival of the growers and the millers should never be forced to depend on the short supply of the commodities. Whenever interest of the growers and the miller is sacrificed to offer favour to the consumer the option is short lived and the commodity ultimately suffers.

International Scenario

Sugar production 2005-06 is indicated as deficit for over 2.0 million tonne. The world consumption is projected to 151.3 million tonne against the production estimated of 149.1 million tonne. Though various agencies have minor difference for the shortfall forecast has alerted the international market with visible activity.

The annual growth in consumption is catching up with the production and nearly half the deficit is due to low production forecast in Pakistan.

Brazil has another credit of reaching 63% of the light vehicles market share using flexi fuel and pure ethanol cars besides exporting ethanol to many countries. India alone buys around 1.0 billion liters of ethanol from Brazil.

China is expecting increase in the demand as per capita sugar consumption is moving to 8.0 kg from 7.0 kg few years back. With its sugar production expected to 9.6 million tonne China will be looking for import of over 1.0 million tonne.

Sugar reforms proposed to the European Union, which were formally presented by the European Commission in July, demands 39% cut over guaranteed sugar prices in two years. This could bring significant reduction in the domestic production and export availability of sugar.

• After three consecutive high sugarcane production years 2004-05 was a low production year with a shortfall of at-least 10.0 million tonne in comparison to 2003-04.
• Sugar production was low by 1.0 million tonne in comparison to 4.0 million tonne produced in 2003-04
• The shortfall was well with in the PSMA estimate discussed in this meeting last year. Reduction in sugarcane plantation and low yield due to the below normal rains & water supply resulted in high sugarcane prices, high sugar production cost and consequently a bullish trend in the sugar market beyond expectation further encouraged by the climbing international prices.
• Mishandling of the sugarcane crises by the Government triggered further rise in the sugar prices. By over stating the magnitude of the crises market players were taking advantage.
• As suggested by PSMA an import of 500,000 tonne of raw sugar should have been allowed to supplement the shortfall and at the same time keep the sugarcane prices down to an affordable limit.
• It is observed that misleading data, subsequent ECC decisions for unlimited imports and zero rated duty did not bring the desirable results as the reports on the increase in the sugarcane prices was totally neglected which was the major factors for the start of the sugar crises.
• The decisions at higher level are always made adversely to the data & advice conveyed by PSMA during the sugar crises, both, in the case of surplus and in shortfall. Instead of taking corrective measures the industry faces a punitive tune and threatening decisions.
• Due to shrinkage in the plantation area the 2005-06 crop is expected around 45.0 million tonne and the sugar production may also remain under 3.0 million tonne.
• The consumption of sugar has dramatically increased with in the last two years and thus the consumption in 2005-06 could be more or less 4.0 million tonne.
• To fill the gap, import of at-least 700,000 tonne raw sugar is unavoidable which should be made at the early stages to supplement the sugar demand and keep the sugarcane prices at a level to promote the sugarcane crop meet the future demand.
• In addition to the delay in the legislation for blending of ethanol in petrol the distilleries are faced with the loss of their preferential access to the European Union alcohol market. Import duty plus Anti-Dumping Measures by the European Union is seen as a serious threat to the ethanol manufacturers in Pakistan. The High P.O.L. prices can only be countered by introducing Alternate / Renewable source of energy.
• The Government of Pakistan should immediately announce its policy on co-generation using bagasse as fuel.
• Dedicated zones must be announced to give incentives to the sugar mills to develop good varieties of cane increasing the growers yield and the mills sugar recovery.
• The price of sugarcane must be linked with the quality of sugarcane by giving incentives to the growers to grow high yielding and high recovery cane. Similarly growers growing the low yielding and recovery cane must be penalized by the cane pricing system.
• Government should take up extensive research and development work with participation of PSMA to achieve higher yield, recovery and development of less water dependent varieties. All out efforts be made to make this valuable crop viable.