Distinguished Members.

It is an honor for me to present you the Annual Review 2009-10 and welcome you at the 45th Annual General Meeting. The timings of the
Annual General Meeting generally coincide with the end of sugar year as well as the time to move to the new elected management of the Association. Pakistan Sugar Mills Association has been regularly holding its elections since its establishment with the exception of last year when the Association was facing legal   proceedings in the Lahore High Court, the Supreme Court of Pakistan, Competition Commission of Pakistan and The Security & Exchange Commission of Pakistan, due to this the AGM and the elections could not be held in-time.

          This year, again a delay occurred due to the preparation of Consolidated Financial Statement of the Association required as per Accounting and Financial Reporting for the Medium Sized Entities. The Auditors have also advised that a uniform accounting policy for PSMA Centre and Zones
be adopted to avoid time consuming efforts in the completion of the
consolidated statement. Auditors have recently amended and completed the Consolidated Financial Reports of the Association for the year 2008, 2009 and 2010 per observations made in the 44th Annual General Meeting, already approved by the CEC, is being presented to you.

          Zonal Elections were held in the last week of September. The names of the newly elected CEC Members and the formation of the new management 2010-11, have already taken place and the new Chairman Mr. Javed A. Kayani, has taken charge of the affairs effectively. The names of the members of new Central Executive Committee have been circulated to all concern.

PRODUCTION 2009-2010

The gap between the consumption and production further widened in 2009-10 after the sugar economy moved globally to the deficit in 2008-09, and Pakistan was no exception to it.        

          The sugar production 2009-10 was slightly better than what was projected in our last report. Sugarcane production was 49.4 million tonnes from the plantation area of 942.87 Ha and thus 35.0 million tonnes of sugarcane was utilized by the mills producing 3,170,124 tonnes of sugar.
         
With the addition of the carryover stock of 0.86 million tones the availability for the year’s consumption stood at 4.03 million tones, clearly indicating a deficit of 1.2 million tonnes after including 3 months buffer stock for consumption during the period post 30th September 2010, and before arrival of the fresh sugar stock in the open market.

Sugarcane prices (minimum support price) were fixed with the increase of 25% inspired by the consideration of providing an incentive to the growers and making the sugar plantation more attractive, but as usual the growers were not satisfied with the increase and the sugarcane prices in all provinces have increased
to more than twice the announced support price, pushing the production cost of sugar with the same proportion. Short supply of sugarcane has always adversely affected the efficiency of the Mills and the price structure of the sugar, which was observed in the coming months.

The sugar supply and its price was discussed several times with the top echelons of the Government throughout the year that remained inconclusive, as a result to bridge the production  gap through the import of Raw Sugar could not take place.

          Supplementing the production to meet the domestic consumption, PSMA had in-time demanded permission to import raw sugar for the past two consecutive years, but despite appreciating the deficit of sugarcane crop, Government authorities opposed our proposal, and to ensure that cheap raw sugar is not imported levy of 25% regulatory duty was not withdrawn, this gave way for the import of expensive white sugar through TCP to the tune of 1.2 million tonnes.

Ministry of Food and Agriculture and other concerns to ensure extremely high price to the sugarcane growers have always rejected the import of raw sugar. These tactics ensured extremely high sugarcane price resulting in high sugar price to the consumers.

At one stage the Government of Pakistan was trying to buy
1.0 million tonnes sugar from the sugar mills stocks to keep the supply and price at an affordable level for the Utility Stores consumers. The proposal failed as the millers who were short of stock, knew that domestic stock shifting could not meet the country’s deficit, as the only option available was timely import.

Importing such a quantity and its marketing including the subsidized supply to Utility Corporation, CSD and provinces has been a headache to TCP and Government of Pakistan.TCP started import of sugar in December 2009 and has completed its import of 1,104,600 tonnes recently. The import price fluctuated between US$ 550/- to US$ 780/- per tonne. The total cost of imported sugar was around US$ 716 million.

TCP import process was very slow in implementing the ECC decisions due to which TCP faced several reprimands mainly because of the procedural delays and shortage of funds. TCP was still going through its tendering process when the domestic sugar prices and its low availability caused a major sugar crisis. The stocks with sugar mills were almost consumed while TCP was still holding around 370,000 tonnes and the domestic sugar market retail price touched an unrealistic high mark of Rs.106/ per kg in the 2nd week of November 2010 that hardly prevailed for less than a week.

Government realizing the slow pace of the supply, diverted sugar distribution system to provinces instead of long and slow tendering procedure. Soon the domestic prices were down and hopes were more brightened with the start of new crushing season.

During the crises a particular point was worth noticing that the sale of fine grain imported quality of sugar remained unimpressive, as the consumers were avoiding the quality that was sold for Rs.70/- per kg with preference to the domestic coarse grain sugar fetching higher margin. During the Ministerial Meeting on sugar in November 2010, beside other decisions it was decided that 700,000 tonnes of sugar stock would be maintained by the Government as strategic stock.

 We could clearly foresee that sooner or later the Government has to withdraw its activity from the sugar sale and purchase business.

Sugar prices domestic as well as International fluctuated throughout the season responding to the International sugar trade market trend. The sugarcane prices also escalated in the domestic market and thus sugar production cost was pushed to its peak as reflected in the following table. The prices always fluctuate along with other items in line with the World trend.

Close to the end of a deficit year expectations for 2010-11 crops seemed rather hopeful with the increase in the sugarcane plantation area by about 15%. A better monsoon was expected to further brighten the prospects per expected weather cycle.

The monsoon starting in July, prolonged for months, brought unexpected super floods in the country devastating the basic infra structure, crops, homes livestock, poultry and all other means to the millions of people. Besides damaging other crops sugarcane also sustained 15% loss to the standing crop area. Fluctuating crop area always plays the major roll in the sugar economy and fortune of the Industry.

The sugarcane crop damaged in vast areas of Sindh, Punjab and PakhtunKhwa is estimated primarily to 154,838 Ha showing a loss of about 8.5 million tones of sugarcane. The rest of the crop over 1.003 million Ha was satisfactory. No pest insect attack was reported and it was expected that a super bumper sugarcane crop might yield sugar higher than the earlier estimated sugar production of 3.10 million tonnes based on simple arithmetic of the basic plantation area and yield.

Many growers and millers optimistically estimated higher production because the leftover crop showed impressive improvement towards a super bumper crop as a result of heavy rains and prolonged humid climate that have lead to sugar production over 3.7 million tones i.e. at least 5-700,000 tonnes higher than the earlier estimate of 3.1 million tones. Exact estimate of the nature’s compensation cannot be ascertained at present.

It was therefore suggested to the Government to revisit its plan for sugar import in March once the sugar production has shown signs of total picture and final deficit for the year is clear. Sugar import started in 2010, is to complete to provide a big carryover stock for the season 2010-11.

          The sugar industry has been demanding for the past consecutive three years for the import of raw sugar to supplement the production and improve sugar mills capacity utilization. The demand was always limited to within
500,000 – 700,000 tonnes. PSMA never supported its unlimited import as it could push the International export price and at the same time higher import could easily disturb the domestic market leading to a glut like situation. The Industry always proposed the raw sugar import for use at the start of the crushing season when the supply of sugarcane is not regular resulting in intermittent closure
of the Mills. 

In September 2010, PSMA appreciated the removal of 25% custom duty on the import of raw sugar but objected its unlimited import and recommended the import by the sugar mills only. By the 1st week of October 2010, the raw sugar prices in the International market were driven up by the speculative activity.

International Scenario 2010-11

Due to the dry weather in Brazil the sugarcane crop is likely to decrease during 2010-11 season. UNICA has revised 2010-11 estimates to 33.7 million tonnes previously estimated at 34.1.

Indian sugar production prospects are promising. The Sugar Association expects the output in 2010-11 reach 25.5 million tonnes as against last year’s18.9 million tones. The heavy monsoon has brightened the hopes to 27-28 million tonnes. Obviously India will be back among main exporters of the world and could affect the economy of the sugar in its domestic as well as International market.

          Production prospects of sugar beet in Europe, Belgium, France, Germany, Italy and Netherland are not high. They estimate their crop below 2009 production. Russian sugar production is also expected low, because of the unfavorable weather it has been through recently.

China is likely to face a short fall of over 2.0 million tonnes that would be third straight deficit year that consumption outpaces production. The World’s third largest consumer is facing declining state of stock reserves which could prompt China to refill its stock by import. China’s consumption is likely to improve to 14.62 million tonnes against the output estimated at 11.0 million tonnes.

The World sugar Production / Consumption balance as estimated by ISO is as under:-

The first sugar production forecast for 2010-11 has put sugar production higher than the consumption by 3.72 million tones. Low levels of stocks are likely to mitigate the bearish trend expected by the surplus. Therefore any downward correction in the sugar price is hardly expected if the crop projections estimates are validated.
The trade supplies may rather stay tight. Export availability is practically equal to the demand and any unforeseen reduction or higher demand, the market may face physical supply deficit. Hence the sugar economics during the year may continue to stay unchanged.
At the end of this report I am thankful to the co-operation extended by the Zonal Chairmen, all CEC members who jointly faced the legal proceedings against PSMA last year. We hope that we will all also stand together in future in facing all odds in our struggle for the right cause.