Annual Review 2007
Distinguished Members:
I am pleased to present you the annual review of the Pakistan Sugar Mills Association for the year ending 30th Sept’2007.

As you know, a new Trade Organization Ordinance is promulgated by the Government of Pakistan known as ordinance No. XLIII of 2006, followed by the new Trade Organization Rules 2007 through a notification, which was well contested and advised by the FPCCI and other organizations, for confirmation an ordinance is still to be issued. The Ordinance and the Rules repealed the existing Ordinance and rules including the Association’s License, Memorandum and Article of Association. Organizations were asked to apply for new license renewable every three years and submit draft Memorandum and Article of Association under the frame work of the new Trade Organization Ordinance and Rules 2007.

All desired submissions have been made, pending the approval and grant of the new license, we are proceeding with this AGM under the old regulations in a normal way as allowed by the authorities. The same directive includes instructions for holding 2007-08 elections in the period Oct-Dec’ 2007 so that the new elected office bearers can assume charge w.e.f. 1st Jan’2008, whose tenure shall be 9 months i.e. up to 30-09-2008.

For details reference be made to the Ministry of Commerce’s instructions contained in their letter of 4th July’2007 and
19th Sept’2007. Under the Trade Organization Rules 2007, provision exists in sub rule (15) of the clause (23) the eligibility of existing office bearers for re-election. (One time only)

2006-07 The Year Under Review

Production: -

Blessed with the favourable weather conditions, availability of irrigation water and 14 percent increase in the plantation area of sugarcane, the sugarcane production showed considerable positive affects. Out of 54.9 million tonnes of sugarcane, supply to the mills was limited to 40.47 million tonnes, i.e. 73.75%.

The production of cane sugar as forecasted, ended at 3.52 million tonnes, nearly 1.0 million tonnes in excess to the production 2005-06 the deficit year. The carryover stock of 1.3 million tonnes, stored mainly at the TCP reserve stock and mill godowns made the total availability to 4.93 million tonnes with the inclusion of about 100,000 tonnes of imported sugar as against 1.6 million tonnes of sugar imported last year. Production estimates and availability against the domestic consumption remained exactly within the forecasted figures of PSMA discussed at this meeting last year.

Though sugarcane crop promised better prospects, the recovery was marginally higher than the last year’s as 8.70 % against 8.60%. It could not achieve the sort of recovery of 9.15% and 9.10 % as in 2003-04 and 2004-05 that could make a significant affect on production.

Unfortunately the sugar recovery, the most important factor has been ignored by the Government concerned Ministries particularly at the time of forcing the early start of crushing campaign each year. Length of the crushing season is misquoted from an obsolete document the “Sugar Factory Control Act” ignoring the maturity of the crop. Due to the pressure from the Government and the growers, recovery losses in the month of October – November could be as much as 2% followed by the height of a miserable joke, that at the period of achievement of high recovery the sugarcane crop is exhausted due to early start and thus a minimum of 250,000 tonnes of sugar is lost.

Based on the fortnightly production reports of PSMA for the last five years, the recovery percentage in Punjab though accumulated, shows a vast variation that confirms the magnitude of the loss in production.

Periodic Recovery of Sugar Mills in Punjab (Accumulated)
Years Start Crushing Nov’ 15th Dec’ 15th Jan’ 15th Feb’ 15th March’ 15th April 15th End Crushing
2002-03 15-25 Nov - 6.97 7.71 8.06 8.29 8.47 15-25 Apr.
2003-04 15-30 Nov. - 7.50 8.37 8.72 8.94 9.09 05-25 Apr.
2004-05 1st. Nov. 6.88 7.87 8.41 8.67 8.91 8.96 15-30 March
2005-06 15-20 Nov - 6.85 7.45 7.71 7.83 8.05 15-30 March.
2006-07 25-30 Nov - 7.32 7.84 8.08 8.24 8.50 10-15 Apr.
Although the domestic market was fully supplied with the commodity, small quantity import, leakages of sugar import through Afghan Transit Trade and its reported unauthorized sale within the territory of Pakistan, kept destabilizing the domestic market prices already under pressure.

Sugar & Sugarcane Price Situation (2006-07)

Before the start of the sugar year 2006-07 Prime Minister was apprised with the sugar crises and the reasons for the fluctuating price situation, who constituted Secretaries Committee to look into the affairs of the industry with an effort to bring an amicable and workable policy. The committee in its meeting held on 3rd & 4th Oct’2006 agreed on the following few points for the crop year 2006-07.

  • · All sugar mills in Sindh province will start crushing in the 1st week of Nov.’2006, while Punjab & NWFP will start the crushing campaign after mid Nov.’2006
  • · The minimum indicative price of sugarcane were approved as following
    § Sindh Rs. 67/40kg
    § Punjab Rs. 60/40kg
    § NWFP Rs. 65/40kg
  • Government of Pakistan will issue directive to the State Bank of Pakistan to ensure that the banks provide financing to the sugar mills without undue and additional security margin conditions
  • While it was agreed that TCP will continue to play its interventionist role to guard against escalation of sugar prices in the domestic market, the Government of Pakistan will take necessary steps to clamp measures to control & guard against disruptive dumping of imported sugar in the domestic market.
  • Quality Premium applicable in Sindh was suspended for the season 2006-07. Further decision for its removal through the system of sugarcane payment on quality basis will be worked out for adoption throughout Pakistan.
  • Last but not the least, it was decided that all issues pertaining to the sugar industry will be resolved by the Government in consultation with PSMA, and the Industry to ensure that the retail price in domestic market remains stable.
  • Since the agreement the whole year was spent negotiating and requesting the implementation of the decisions. Several breaches were notified to the concerned Ministries such as: -
  • TCP was to intervene against the escalating prices, but it continued intervention during falling prices causing further decline in the domestic market.
  • Government of Pakistan did not take necessary measures to stop the import of sugar to the extent that Indian surplus sugar started pouring in Pakistan without consideration of quality control standards.
  • No Provincial Notification was issued for the suspension of the quality premium in Sindh Province. Sugarcane payment system based on quality is yet to come to replace the system.
Sugar Retail Market Average Price (2006-07)
Month Rs. / Kg
October 32.87
November 33.15
December 30.86
January 31.55
February 30.74
March 30.63
April 30.25
May 29.85
June 28.38
July 29.20
August 30.03
September 29.77
Average 30.61
Domestic sugar prices remained continuously under pressure due to over supply whereas Government of Pakistan did not make any effort to stabilize the situation, even through the above noted pre-agreed steps. The millers had to pay the notified sugarcane prices in-spite the fact that market sugar prices did not match the announced sugarcane prices. The retail price structure is given hereunder for record and reference.
With the gradual fall in the domestic market, the sugar price ended with a minimum loss of Rs. 4/- per kg against the price of Rs. 34/- per kg assumed as a base at the time of fixation of the sugarcane prices for the season, causing a minimum loss of
Rs. 12.0 billion to the mills and Rs. 4.0 billion to the ex-chequer through loss in Sale Tax.

Sugar & Sugarcane Price Situation (2007-08)

After continued negotiations, meetings were held at the Ministry of Industry & MINFAL and finally with the Secretaries Committee on 18th Sept’2007 with fresh decision and promises. The committee was informed by PSMA representatives candidly about the non compliance in implementation of the decisions made last year and the losses faced by the Industry as a result.

On presentation of a resume by the Secretary MINFAL the following was agreed upon as minuted by the Finance Division.

  • PSMA would ensure production of sugar by 1st week of November in Sindh and Punjab to raise the total availability of sugar to 0.7 to 0.8 million tonnes in the month of November 2007.
  • The provinces will be requested not to change minimum price of sugarcane from the last year level i.e. Rs. 65/- per 40 kg in NWFP, Rs. 60/- per 40 kg in Punjab and Rs. 67/- per 40 kg in Sindh. MINFAL will take action in this regard.
  • The Ministry of Commerce and MINFAL in consultation with PSQA and PSST will take steps that the quality and standard of sugar is checked.
  • TCP will continue to off- load the old imported stock of sugar, and will purchase fresh sugar from PSMA to replace the old one.
  • TCP will maintain strategic buffer stock of 400,000 tonnes. It will purchase 300,000 tonnes sugar from PSMA on open tender basis with a quantity of 25,000 tonnes each tender on weekly basis during the months of November, December 2007 and January 2008 by adding to the leftover strategic stock with TCP to make it total of 400,000 tonnes. The stock shall remain within the premises of sugar mills and will be replaced with fresh stock. These reserves will be increased to 500,000/ 550,000 tonnes, if needed, for which approval of the ECC will be sought.
  • Sindh Government will be requested to defer implementation of Quality Premium in Sindh till a consensus on uniform formula is developed. MINFAL will take action.
  • TCP will not import sugar if the price per Kg remains within Rs. 31/- per Kg in the market.
  • Class “B” sugar from the positive list is to be deleted.

PSMA in response reminded for an amendment in the minutes to add a point already agreed for recommendation i.e.

  • The recommendations must include exemption of sugar from the Special Excise duty of 1% levied vide Finance Act 2007, missing from the memorandum.
  • TCP was to maintain & improve its buffer stock at 550,000 tonnes regularly by purchase from sugar mills.
  • Contrary to the decisions Sindh Government has already issued the levy of quality premium like last year. Concerned authorities are informed of the action.

International Scenario: -

World production and consumption 2006-07 crop year was the year of recovery from long consecutive deficit to a surplus year, estimated up to 3.0 million tonne that ended with an average of 10.0 million tonne. The world market remained under bearish pressure due to the sizeable surplus. High production expectations for 2007-08 has further put the international market prices under pressure and is likely to continue for the year.

The sugar glut in India is the main cause of the depressed sugar prices in the world. The production 2007-08 in India is likely to overtake Brazil as world top sugar producer. International Sugar Organization forecast India’s production as 33.0 million tonnes raw value against Brazil’s 29.20 million tonnes, both struggling hard to get rid of the surplus to the international market.

The world sugar is facing heavy surplus for the second consecutive year in 2007-08. The latest forecast of the world sugar suggests production at 163-173 million tonnes consumption at 157-160 million tonnes with the surplus forecast for over 10 million tonnes.

Thus the distinctive excess in the global production over consumption and the high export availability is expected to have direct impact on the sugar economy. Consumption and stock ratio is to grow considerably. Its affect on the domestic process would be significant and particularly in the case of the good harvest expected.

Outlook 2007-08 (Domestic)

For the second consecutive year the prospects for the sugarcane crop have been highly favourable as the weather conditions and availability of irrigation water remained optimum for the sugarcane crop. The plantation area of sugarcane crop has shown increase of 11 % to 1.147 million hectare. Province of Punjab and Sindh both, have shown equally the area increase.

With such an increase and the expected yield of 50.6 tonnes per hectare the production of sugarcane is expected in excess of
58.0 million tonnes, which itself would be a record production of the sugarcane in Pakistan.

Per statistics the sugarcane utilization by the mills remains on higher side to around 80% when the production is on higher side as the requirement for seed and fodder is low. In case the supplies to the sugar mills exceed 47.5 million tonne the sugar production is expected to reach around 4.2 million tonne with a recovery of 8.75 % i.e.

With a carryover stock of 1.0 million tonne the availability of sugar for the year 2007-08 would be around 5.2 million tonne or even higher. The consumption projected to 4.20 million tonne the end stock on 30th Sept’2008 could be repeatedly 1.0 million tonne or more enough for the desired buffer stock for the period prior to the start of the new crushing season 2008-09.

In short there would be no room for import of sugar throughout the season and the prices are to remain stable with a bearish trend due to global surplus, low prices and high availability in the neighboring India and internationally.

Diversification of by-Products remained untapped

1: Use of Ethanol Blended Petrol

Encouraged by the Government and the formulation of the policy on the use of ethanol being actively persuaded, the sugar industry promptly responded by establishing more ethanol refineries. At present the annual production capacity of ethanol at 21 refineries in Pakistan has reached 400,000 tonnes. With the advent of high crude oil prices in the global market, ethanol is increasingly seen as an alternative, renewable and environment friendly fuel of the future.

However, in the absence of a prompt legislation for the use of locally produced ethanol blended with petrol in Pakistan, ethanol producers had to face anti dumping measures by the European Union.

Pakistan State Oil and Hydro Carbon Institute of Pakistan on instruction from Government of Pakistan last year launched a pilot project to introduce and encourage the use of 10% ethanol blended petrol. PSO started the introduction in three of its petrol pumps, one each at Karachi, Lahore & Islamabad.

Instead of straightforward legislation for the use of 10% blended petrol, as is being done worldwide the initiative was handed to the oil lobby who succeeded in proving the experiment unsuccessful. As long as the policy for fuel ethanol is controlled by the oil sector the substitution process will remain slow.

Pakistan imported petroleum products worth US$ 3.10 billion in 2006-07 that constitutes major chunk of its deficits, likely to increase in the current situation, shift to use of ethanol blended fuel could save considerably keeping its environmental aspect of importance.

Despite the potential advantages, progress in promoting
bio-ethanol lacks policy impetus. The oil refining companies in collusion with the ministry of Petroleum have managed to keep a lid on private sector involvement. Rather than enjoying incentives, the private sector is burdened with domestic taxes on industrial alcohol sales. Such domestic policy biases have been compounded by import restrictions abroad, which have compromised the country’s export potential.

2. Re-consideration of Power co-generation by the Sugar Mills

Under the policy 2002 for independent Power Plants incentive were available for the power Co-generation units including the sugar mills and it was decided that the power generated by the sugar mills will be purchased by NTDC or DISCO concerned at agreed rates approved by NEPRA. The proposed project was delayed since the acquired gas was not available. Being a major shift the alternate fuel use was studied.

In recent meeting consideration was given to the Power Co-generation of sugar mills establishing independent power projects based on duel-fired system of bagasse and coal. PSMA urges the Government to decide an upfront tariff.

Hence the main potential in the diversification of the Pakistan’s sugar industry still remains untapped and needs to be promptly addressed to take advantage of the developments in the field where sugarcane is increasingly seen as an energy crop. Though the sugar industry in Pakistan has come of age, it faces formidable exciting challenges in the foreseeable future.

PSMA has always expressed hope that Government of Pakistan will start extensive research and development work on sugarcane crop and its optimum utilization.

At conclusion I am obliged to thank to the Zonal Chairmen and my other colleagues for their co-operation.

2nd Nov.’2007 Thanks Shunaid Qureshi Chairman