Distinguished Members.

It is my honour and pleasure to welcome you here at the 44th Annual General Meeting of Pakistan Sugar Mills Association and present you the annual review for the year 2008-2009. We have been holding our General Meetings regularly at the end of September each year as required by the law that co-relates with the end of the sugar year. This year, the sugar industry faced numerous actions due to uncalled for reasons, the industry remained under crises and so were the Central Executive Committee members. The details of the proceedings during the past few months will be explained and discussed at length at the end of this review and comments of the members will be invited.

The Sugar Industry has already commenced the 2009-2010 crushing campaign which is marked as another deficit year in the wake of global short supply and record high prices. So, the blame game on the Sugar Association will continue and for the time being to ensure extremely high returns to few large farmers, silence is being observed till the crushing season comes to a complete halt. Therefore, there is a strong need of explaining through media the facts about the working of sugar mills and the reason for increased production cost built up.

PRODUCTION 2008-2009

During 2008-2009, the year under review, as forecasted, the sugarcane and sugar production ended far below the projected estimate for annual consumption. According to MINFAL’s data, plantation area under sugarcane was reduced to 1,029,400 Ha in 2008-2009, against 1,241,000 Ha for 2007-2008 which was a record bumper crop year that established a bench mark production of sugar at 4.741 million tonne. The sugar prices remained depressed for the past three years due to high production and low global prices. Lack of policies of the government, converted the huge harvest of 2007-2008 to economic disaster and did not bring any jubilation to the growers of sugarcane and the millers, that resulted in 17% reduction in the plantation area depicting preference to the other cash crops.

The low capacity utilization of the mills affected the production cost of sugar, the overall capacity utilization of the mills was 39.40% as compared to last year’s 64%. The production during 2008-2009 ended at 3.19 million tonne i.e. 1.55 million tonne short compared to previous year’s production i.e., 32.7 %. While the crop itself was lower by about 14 million tonnes, the crop utilization by the mills was further reduced because of commercial manufacturing of Gur which has become a lucrative business in the Peshawar-Mardan Valley of Pakistan and being exported tax-free to Afghanistan and onward to Central Asian Republics. Despite the sugar shortage in the country, exports of gur was allowed in violation to the commitment made by GOP in the Supreme Court that there would be a complete ban on its exports.

The low production, deficit of consumption was foreseen by PSMA and the Government of Pakistan was in-time informed to import raw sugar to supplement the production to a comfortable level to avert any crises at the end of the year while the international prices had started picking up, unfortunately, our advise was ignored.

The expected rise of sugar price after two years long depressed prices at the occasion of Ramzan disturbed the distribution chain and the consumers faced high prices and non availability of sugar for months.

PROSPECTS 2009-2010:
            Due to the delay in presenting last year’s report, the industry has landed in 2009-10 with the crushing season already taken off. The plantation area has reduced to 951,500 Ha, a reductions of further 7.5 % over the area we had under cultivation last year.

            The present crop estimated at 48 million tonne may provide at least 70% of the crop for utilization by the sugar mills, subject to strict control is brought over the production of Gur, otherwise, the mills may crush 34 million tonne of cane that could yield at least 3.06 million tonne sugar during 2009-2010 that will leave a gap of 1.30 million tonne to be filled by the import of white sugar. Once again, the demand of raw sugar to supplement the production was rejected for not being supported by MINFAL, who have preferred the shortfall in the sugar production to ensure hefty returns to big landlords of sugarcane at the cost of consumers across the country. Indeed, they have succeeded, as the sugarcane prices have soured to 80-100% above the support price and has resulted in manifold increase in the sugar price. No miller has so far been able to estimate production cost as the uncertain situation prevails which will reflect in the price of sugar in the coming months.

Sugarcane Plantation Area                                     951,000          Ha
Estimated Yield                                                        51.10              /Ha
Sugarcane                                                      +          48.62              M. Tonnes
Cane Utilization 70%                                  +          34.00              “
Sugar Production @ 9 %                             +            3.06              “
Carry Over Stock                                                       0.86              “
Availability                                                                 3.92              “
Estimated Consumption     
@ 350,000 Per Month to 30 Sept’10                      4.20              “
Estimated Short fall                                                   0.28              “
Stock Required for Consumption
(Oct 10 to Dec 10) 3 Months @ 350,000                1.05             “
Overall Deficit                                                             1.33             “
Say                                                                                 1.30             Million Tonne

SUGAR PRICE DILEMMA
Beside the impact of global sugar deficit on the import price of sugar, the domestic sugar and Gur price is always dependent to the sugarcane price that constitutes 80% of the cost price.

Past experience indicates that the sugar price in the domestic production has been fluctuating in inverse proportion to the quantum of the sugarcane crop in each year. Hence the price of sugar is totally dependent on the quantum of sugarcane i.e. the size of the crop. The yearly fluctuation in the sugarcane plantation area is due to the absence of prudent Sugar Policy, changing climate, switching over to the other cash crops and defective policy of fixing agriculture produce support price. The recent year’s support price of wheat had its pressure over the other cash crops, despite high support price wheat crop failed because of the very low rainfall during past few months and hence it is not the high support price that brings a desirable harvest. Therefore, unless a long term scientific approach is adopted to increase the yield and recovery in all crops, specially sugarcane, the present fluctuations will continue, short term measures do not resolve, instead they aggravate the situation.

Low Percentage of Sugarcane Utilization by the Mills
            PSMA has recorded the historical fact that during the low sugarcane production years the percentage of sugarcane supply to the mills drop drastically by as much as 20% and vice versa, during the high crop years supplies to the mills is in high proportion.
            This phenomenon always misleads the sugar production estimates, and so is the case with MINFAL’s estimate that are devoid of facts i.e., requirement of seed and fodder depends on a basic required quantity and not on a certain fixed percentage i.e. usually taken as 15% of the total crop. Such assumption does not work, as the 15% of the crop size 63 million tonne and of the crop size 42 million tonne brings a large difference. Hence assuming 80% utilization of sugarcane by mills is optimistic and is designed to blame mills showing low production.

The following tabulated data shows the historical trend of the low utilization of cane by the
mills during the low crop size years connected to un-favourable weather cycle.

On the contrary during the sugarcane high production years much higher percentage of the sugarcane is supplied to the sugar mills For instance:-

Similarly diversion toward Gur is more lucrative during the short size crop, a strong leverage used by the growers to push the sugarcane price up to maximize the benefits of the low production.

GLOBAL SCENARIO 2009-10
The estimates of global sugar production and consumption compiled by F.O.Licht & ISO this year shows a running deficit by about 7.0 million tonne with production estimates at 160 million tonne and the consumption estimated at 167 million tonne.

South American sugar production has risen to 45 million tonne in 2009-10 up from 42.5 million tonne last year mainly due to Brazil’s increased sugar production.

The Brazilian sugar output itself in 2009-2010 could be 37.0 million tonne, up from 34.8 million tonne last year.

Thailand sugar production in 2009-2010 has marginally increased to 0.5 million tonne at 8.0 million tonne.

In India, the acute shortage of sugarcane production during 2009-2010 has cut down the sugar production estimates by 15 million tones compared to 2008-2009, down by 42%. The country was forced to import large quantities of white and raw sugar from the world market last year. India is expected to marginally improve sugarcane crop this year, yet it has already supplemented 2009-10 production with 1.0 million tonne of white sugar at the beginning of the year starting October. The current situation has made India a largest consumer and leading importer as well.

The spike in sugar prices to its highest level in the last 30 years is likely to boost direction of more sugarcane towards production of sugar than ethanol.

While there will be plenty of capital available for investment, poor weather conditions would restrict potential rise in sugarcane produce of South Asia for a while. 

Following three years of surplus and heavy stocks, the global market has moved to deficit in 2008-09 because of sharp fall in the Asian production. However, the market absorbed the shock due to large stocks built up that has now depleted by the start of the New Year. Therefore the market is to remain tight depending on the domestic production and imports. The situation could remain extremely bullish.

PSMA’S ARTICLE OF ASSOCIATION

New Trade Organization Ordinance was promulgated by the Government of Pakistan known as Ordinance No. XLIII of 2006, followed by the new Trade Organization Ordinance No. XXXI of 2007 and Trade Organization Rules 2007. The Ordinance and the Rules repealed the existing Ordinance and rules including the Association’s License, Memorandum and Article of Association of  all Organizations were required to be amended to apply for a new license by submitting a draft Memorandum and Article of Association under the frame work of the new Trade Organization Ordinance and Rules 2007.

All desired submissions were made, pending the approval and grant of the new license, we proceeded with the 42nd AGM under the old regulations in a normal way as allowed by the authorities.

The Draft Article of Association submitted along with the application for registration was received back in Oct’ 2008 in an amended form. PSMA after CEC approval has lodged a petition against elimination of NWFP Zone to the Director General Trade Organization to review the amendment considering the close linkage of Sugar Factories with the Provincial Governments. Therefore till such time the Draft (New) Memorandum and Article of Association is being followed.

At present PSMA’s petition requesting the correction of amendment regarding the basic structure of our three zones and tenure of the Chairmen is pending for Trade Organization Advisory Board’s first meeting along with the applications of other Associations.

PSMA has attained Association’s fresh license from the Director General Trade Organization Ministry of Commerce, as required under the Ordinance No. XXXI of 2007. The Ordinance defines the purpose, role, responsibilities and operational framework including code of corporate governance for the trade organization, and the matters connected therewith or incidental to such acts. The new license issued to us on 17th May 2008, is renewable after three years, on presentation of the desired record and compliance of the regulations. 

During the efforts made for attaining the compliance report from SECP, The shifting of Association’s office from Al-Falah Building Lahore, to Islamabad in 1991 was registered on record. On fresh application and submission of concerned resolutions etc the Association was notified for being in default for the delay of 17 years. After imposing a penalty for the delay in informing the change of Head Office, your Association is now properly registered at SECP. Annual returns of the Association to SECP for the year 2000-2008, are in order now, but recently a show cause notice for its late filing has been received, which is being followed up.

To conclude the report, I would reiterate that the sugar industry is faced with the persistent attitude that lacks objective approach on sensitive matters. Factual figures and the in-time counsel are ignored during the policy making where a consistent laid down sugar policy workable during the years of short fall and abundance is needed. Despite the recent crisis, we are optimistic that better and proper attention will be given to the sugar industry based on its merits.