| I am pleased to present you the annual review of the Pakistan Sugar Mills
Association for the year ending 30th Sept’2006. This AGM coincides
with the conclusion of the two-year term of the Chairman and the Central
Executive Committee of the management at the Centre as well as at the Zonal
level for the session 2004-2006. As a result of elections Chairmen and the
Management Committees for the Centre and Zones are received, which will
be announced at the end of this meeting for the term 2006-2008.
2005-06 The Year Under Review
Unaware of the severe effects of the frost in the coming months, PSMA
was optimistic in forecasting sugar production of just over 3.0 million
tonnes against the domestic consumption estimated of 3.9 million tonnes.
Continuation of the last year’s short production, the frost attack
further deteriorated the situation. As usual, the sugarcane price immediately
sparked the situation, with the result that sugar market started reflecting
the production cost, which had always been a sensitive issue for the Government.
Right in this meeting last year, a million tonne shortage of sugar was
forecasted based on the official information for production of sugarcane
crop. The need for the import of raw sugar was also ascertained to supplement
the production. The severe frost attack on sugarcane crop in Northern
Punjab and NWFP further disturbed the supply of quality sugarcane. Beside
the above loss the lucrative business of Gur making flourished as the
demand was high at home and Afghanistan seriously hurting the milling
Overall situation remained below average as 30.00 million tonnes of sugarcane
was utilized by the mills to produce 2.58 million tonne of sugar, supplemented
by 372,500 tonnes refined from raw sugar and a marginal addition of only
8,700 tonnes from beet. Thus the total production was registered at 2.964
million tonnes, apparently below 50% of the production capacity of the
mills, thus Pakistan experienced second crop disaster in a row.
Sugar Price Structure & Crises
The Government of Pakistan supports the cane production by setting a
market support price announced before or after planting. The local demand
is always above the minimum price fixed as a result mills renegotiate
the procurement price. Provincial Governments in 2005/2006 increased the
official cane purchase price for 40 kilograms to Rs 45/- for Punjab &
NWFP and Rs. 48/- for Sindh. Sindh Government later revised this price
to Rs. 60/-. However, during the entire season the price fixation remained
a volatile issue between the growers and the millers. The growers refused
to sell the cane at the official price and millers in some areas of Punjab
and Sindh were forced to delay the start of crushing season.
The milling sector ended up bearing the bulk of the risk when the circumstances
changed. While the support price varies significantly when there is shortfall
during a particular harvest, there is no similar level of adjustment when
the harvest is good and cane is in abundant supply.
With intermittent stoppages the season’s cane price averaged to
Rs. 80/- in Punjab and up to Rs. 95/- in Sindh province resulting in a
significant rise in the production cost to above Rs. 32/- to 34/- per
kg without addition of 15% sale tax which was immediately reflected in
the market sentiments and retail sugar market shot up to Rs. 38/- to Rs.
The unprecedented increase in the minimum support price in the province
of Sindh triggered the situation in the whole country. Increase of sugarcane
price twice in the same crushing season by about 50% encouraged the growers
to further dictate cane prices and cartel supplies.
As a result of the situation the sugar market immediately started reflecting
the trend in sugar prices, the sugar production was also termed as deficit
by about a million tonne.
The disturbance in the sugar market was immediately noticed by the Government
concerned authorities who labeled the millers as profiteers involved in
cartel under declaring the sugarcane procurement and production of sugar.
The Government was candidly informed of the situation and the deficit
of sugar for the season to arrange import of the required quantity of
the sugar, who beside allowing duty free import of raw and refined sugar
approved import of about 850,000 tonnes of sugar by TCP for sale and distribution
through Government managed outlets, with an obvious objective of subsidizing
the sale to bring the market prices down.
The unlimited import of refined sugar to the tune of 1.5 million tonne
along 0.5 million tonnes of raw sugar already refined has now converted
the 1.0 million tonnes deficit year into a million tonne surplus year.
The situation thus developed hampered the economy of all concerned and
the over sensitiveness has resulted the year ending with large stocks
held by TCP, Mills and by the traders who imported sugar at high price.
Ironically the international prices started subsiding as soon as Pakistan
had enough of self-dumped sugar.
The sugar crises during the year caused the industry face the blame game
with all Government agencies actively involved. In this connection few
actions are being mentioned without going in to details.
- Monopoly Control Authority charged the sugar mills for cartel of
sugar and registered cases against mills for their sale being below
the desired assumed percentage by the MCA.
- National Accountability Bureau was asked to investigate corrupt practices
leading to the sugar crises in the country. The investigation was later
- CBR appointed custom-armed staff at the mill’s gates to supervise
and monitor procurement of sugarcane and the sale of sugar looking for
tax evasion and sale to unregistered buyers. The monitoring was withdrawn
with the end of crushing.
- State bank of Pakistan imposed 50% margin restrictions for financing
against the security of sugar stock and instructed for immediate adjustment
of all advances against the security of sugar stock. The final date
for adjustment was later extended from 31st July to 31st Oct’2006.
After the hectic meetings at PSMA and with the concerned Government
officials some of the restrictions have eased down.
Government intervention through bringing down the import duties, subsidizing
the supplies through its outlets and blaming the industry hardly matters
without taking necessary measures to support production of a better crop
in a competitive environment.
Past experience and record shows that the sugar price has been moving
up and down inversely proportional to the quantum of the sugarcane and
same was the affect on the price of Gur where no factories are involved,
contains impurities and remains tax free.
The graph hereunder clearly indicates that the factor controlling the
sugar price is the quantum of sugarcane, the main raw material. Sugar
production totally dependent on the sugarcane production has always reflected
the weak link in the overall value chain.