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Annual Review 1993 |
Altaf M Saleem |
(Chairman) |
Dear Members: |
The Sugar Industry of Pakistan consisted of merely 2 Sugar Mills in
1947-48 with a production capacity of 10,000 Metric Tons of sugar. In
the first twenty years the number of Mills increased to 17 and sugar production
to 232,000 Metric Tons. By 1988 we had 44 Mills and sugar production jumped
to 1.78 million tons. During the last 5 years the Sugar Industry has seen
a period of phenomenal but unplanned growth. During 1992-93 season 61
Mills were operational with capability to produce 4 million tons of sugar.
Due to unplanned growth, availability of raw material did not keep up
with the requirement and the Industry went into a phase of under utilization
of capacity.
It has been observed that area under sugarcane does not increase in
direct proportion to the installation of new capacity. However with increase
in capacity, utilization of sugarcane by the Mills increased from 38.46
percent in 1982-83 to 71.67 percent in 1992-93. . |
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Table 1
Area, Production, Yield and Utilization
of Sugarcane by Sugar Industry |
|
Area
Hectares |
Production
Tones |
Yield
Per
Hectare |
Utilization
Percent By
Sugar Mills |
1982-83 |
911,700 |
32,533,500 |
35.68 |
38.46 |
1983-84 |
896,500 |
32,487,300 |
38.25 |
41.52 |
1984-85 |
903,600 |
32,139,600 |
35.57 |
45.71 |
1985-86 |
779,800 |
27,856,300 |
35.72 |
43.30 |
1986-87 |
762,000 |
29,925,800 |
39.27 |
48.40 |
1987-88 |
841,600 |
33,028,800 |
39.25 |
61.47 |
1988-89 |
876,900 |
36,975,700 |
42.17 |
58.71 |
1989-90 |
854,300 |
35,493,600 |
41.55 |
57.76 |
1990-91 |
883,800 |
35,988,700 |
40.72 |
62.80 |
1991-92 |
879,800 |
34,204,000 |
38.90 |
72.49 |
1992-93 |
884,600 |
38,058,900 |
43.02 |
71.67 |
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Some portion of sugarcane is used for Gur and Khandsari as these commodities
have their own place in our rural culture. This requirement will always
be there and it is wrong to expect that with increase in production capacity
of white sugar, we will succeed in diverting 100 percent sugarcane to the
Mills. It is, therefore, counter productive to increase sugar production
capacity any further unless there is a break through in per hectare yield
of sugarcane. Sugarcane yield has unfortunately remained static between
35
Metric Tons and 43 Metric Tons per hectare during last ten years.
Sugar Production Capacity and Consumption
With 61 Mills operating in 1992-93, the total installed capacity of sugar
production is 4 million tons. Capacity expansion is underway by expansion
of some old Mills and installation of 5 new Mill_ expected to come on
stream in 1993-94. Next year we are looking at a production capacity of
4.4 million tons.
The consumption of main sweeteners (Sugar and Gur) in Pakistan has remained
between 26-34 kgs with an average of 30 kgs per capita per year. The share
of Gur in sweeteners consumption per capita has been falling. It fell
from 60 percent in 1982-83 to 31 percent in 1987-88. The future forecast
of sugar demand on the basis of substitution of Gur with refined sugar
is given in Table 2. |
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Table 2 |
1993 |
1998 |
1. Per capita demand of sweeteners (kg) |
29 |
30 |
2. Population (million) |
122.8 |
143.1 |
3. Total demand of sweeteners ('000 tons) |
3561 |
4293 |
4. Proportion of Refined Sugar |
75% |
80% |
5. Demand of Refined Sugar |
2671 |
3434 |
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It can be seen that against a projected consumption of 3.4 million tons
of refined sugar in 1998, we will have a production capacity of 4.4 million
tons in 1994.
National Loss
Unplanned and haphazard growth of Sugar Industry during last 5 years
has cost the nation heavily. This policy has permanently damaged the Sugar
Industry and the country lost great opportunities for all time to come.
Trend world over is in favour of vertical expansion of the Sugar Industry,
to achieve economies of scale. Compared to a standard capacity of 4,000
tons in Pakistan the world sugar industry is moving towards 10,000 to
20,000 tons capacity by vertical expansion. Long term damage inflicted
on the Sugar Industry as a result of defective Government policy during
the last 5 years is summarized below:
1) Instead of vertical expansion, sugar production capacity has been
increased mainly through 3000 TCD to 4000 TCD mills. These new Mills are
uneconomical as these have been established against the principle of economies
of scale. Scope of expansion of established Sugar Mills has been permanently
blocked. We have landed in a situation where production capacity is 4.4
million tons, present domestic demand is 2.67 million tons and majority
of Mills are 3000 TCD to 4000 TCD.
2) All new Mills installed during last 5 years were set up in undue haste
and without looking into the latest technology options available worldwide.
All new Mil1s have traditional low pressure boilers. By ii1stalling high
pressure boilers, these Mills could supply 300 MW electricity to the National
grid without using extra fuel.
3) Sugar Industry has been pushed in toe regime of under utilization
of capacity because of rapid expansion of industry without corresponding
increase in raw material. We need to increase sugarcane output by 4-5
percent against actual growth rate of 2 percent for last 10 year.
Importance of Sugar Industry for National Economy
Sugar Industry is vital for national economy. It utilizes sugarcane which
is a major cash crop grown in Pakistan. Sugar and sugar based products
are essential ingredient of common man's food. Sugar is the cheapest source
of energy in our diet. Pakistan Sugar Industry has done well by increasing
domestic sugar production of 10,000 tons at the time of partition to 2.4
million tons in 1992-93. With this level of sugar production we have not
only achieved self sufficiency in sugar but are now in a position to export.
Sugar Industry acts as an effective catalyst of rural uplift by providing
a ready market for the produce of farmers in these areas.
Sugar Industry along with the farmers contributes funds for provision
of basic infrastructure like roads in rural areas. The industry contributed
Rs.200 million under this head in 1992-93 alone. Our contribution to national
exchequer in shape of Excise Duty and other state levies is even higher.
Sugar Industry contributed Rs.5.1 billion towards Central Excise Duty
in 1992-93. This constituted 14.1 percent of total Central Excise Duty
collected by the Government. |
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Table 3
Central Excise Duty Contribution by Sugar Industry |
Fiscal Year
July-June
|
Total CED
Collection
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CED From
Sugar Industry
|
Rs. in million
Sugar Industry’s
Contribution % |
1981-82 |
12,400 |
1530 |
12.34 |
1982-83 |
13,373 |
1850 |
13.83 |
1983-84 |
16,333 |
2400 |
14.69 |
1984-85 |
15,705 |
2480 |
15.79 |
1985-86 |
15,700 |
2300 |
14.65 |
1986-87 |
15,200 |
1800 |
11.84 |
1987-88 |
17,382 |
2700 |
15.53 |
1988-89 |
20,100 |
3000 |
14.93 |
1989-90 |
21,500 |
3209 |
14.93 |
1990-91 |
26,500 |
3650 |
14.00 |
1991-92 |
32,015 |
4540 |
14.18 |
1992-93 |
36,021 |
5100 |
14.16 |
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Option for the Sugar Industry
Defective sugar policy during the last 5 years has landed the Sugar Industry
virtually in an impossible situation.
- Over capacity of 1. 7 million tons, on the basis of domestic demand
of 2.7 million tons in 1993-94, has been created.
- Shortage of raw material both in quantity and quality.
- Scope for vertical expansion has been permanently blocked due to installation
of several small Sugar Mills.
- Option of power generation lost due to installation of low pressure
boilers in all new Sugar Mills installed during 1988-93.
The Industry has to make the best out of this difficult situation. We
can not sit back and see this vital Industry perish.
Government needs to understand the gravity of the situation. Quick corrective
action is required to salvage the situation. Pakistan Sugar Mils Association
has always drawn the attention of the Government and Government owned
financial institutions towards the ill affects of defective policy. I
wish to report with some satisfaction that, lately there has been some
realization at Government level and corrective action is underway. Following
urgent steps are required to save the situation from getting worse:
- Complete ban on any new Mills till the present capacity is fully utilized.
- Research on sugarcane to improve its quality and quantity.
- Government support for exporting surplus sugar in the world market.
- Stable domestic market allowing the local industry to recover its reasonable
profit cost plus
Capacity Utilization
It will be a deadly option for the Sugar Industry to operate at a low
level of capacity utilization. As surplus capacity has been installed,
it has to be utilized in the best national interest. Sooner or later raw
material availability will also improve. However, the key factor will
still be disposal of surplus sugar in the international market. Pakistan
Sugar Mills Association is projecting a sugar production of 3 million
tons for 1993-94. This will position the industry to enter the export
market with 500,000 tons of refined sugar after leaving a substantial
buffer stock for domestic market. A brief comment about the sugar scenario
in Pakistan is reproduced below from F.O.Licht's International Sugar and
Sweetener Report:
Another country that could become a burden for the world market is Pakistan.
That country has apparently embarked on an uncontrolled expansion process
which could soon lead to unmanageable surpluses of mill sugar. To eliminate
imports quite a number of new sugar mills have been put into operation
in the past few years and the country's 54th sugar mill commenced grinding
in 1992/93. However this is not the end of the expansion process and about
15 new mills in the Punjab and 9 in Sindh may be put into operation within
the next few years. According to informed sources this could lead to the
accumulation of surpluses and eventually to a collapse of the industry
and already in 1992/93 the country will have a surplus even though no
sugar will be officially exported. But unofficial exports to neighboring
countries such as Afghanistan and Iran are estimated to reach more than
100; ()()() tons each year. If production does develop as expected official
exports can be foreseen especially if the country continues to import
sugar for internal political reasons. But as in the case of India this
could require export subsidies which could prove to .be a burden for the
milling industry.
Production and Consumption,
Million metric Ions, raw value
World Sugar Scenario
World sugar production in 1993-94 is forecast as 112.7 million tons, up
1.3 percent from 1992-93. Consumption is forecast to increase only 0.4
percent to 112.9 million tons, less than population increase, despite
continued strong consumption growth in Asia. The free market trade will
be 15 percent of sugar production assuming the free trade at 17 million
tons.
Stocks are forecast to decline 1.1 million tons to the new 'stocks to
consumption ratio' of 19.9 percent, down from 21 percent in 1992-93 and
21.9 percent in the year before.
Stocks will be large enough to keep the world sugar price suppressed.
Data for world sugar production, supply and distribution for four years
is summarized in Table-4. |
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Option for the Sugar Industry
Defective sugar policy during the last 5 years has landed the Sugar Industry
virtually in an impossible situation.
• Over capacity of 1. 7 million tons, on the basis of domestic
demand of 2.7 million tons in 1993-94, has been created.
• Shortage of raw material both in quantity and quality.
• Scope for vertical expansion has been permanently blocked due
to installation of several small Sugar Mills.
• Option of power generation lost due to installation of low pressure
boilers in all new Sugar Mills installed during 1988-93.
The Industry has to make the best out of this difficult situation. We
can not sit back and see this vital Industry perish.
Government needs to understand the gravity of the situation. Quick corrective
action is required to salvage the situation. Pakistan Sugar Mils Association
has always drawn the attention of the Government and Government owned
financial institutions towards the ill affects of defective policy. I
wish to report with some satisfaction that, lately there has been some
realization at Government level and corrective action is underway. Following
urgent steps are required to save the situation from getting worse:
- Complete ban on any new Mills till the present capacity is fully utilized.
- Research on sugarcane to improve its quality and quantity.
- Government support for exporting surplus sugar in the world market.
- Stable domestic market allowing the local industry to recover its reasonable
profit cost plus Capacity Utilization
It will be a deadly option for the Sugar Industry to operate at a low
level of capacity utilization. As surplus capacity has been installed,
it has to be utilized in the best national interest. Sooner or later raw
material availability will also improve. However, the key factor will
still be disposal of surplus sugar in the international market. Pakistan
Sugar Mills Association is projecting a sugar production of 3 million
tons for 1993-94. This will position the industry to enter the export
market with 500,000 tons of refined sugar after leaving a substantial
buffer stock for domestic market. A brief comment about the sugar scenario
in Pakistan is reproduced below from F.O.Licht's International Sugar and
Sweetener Report:
Another country that could become a burden for the world market is Pakistan.
That country has apparently embarked on an uncontrolled expansion process
which could soon lead to unmanageable surpluses of mill sugar. To eliminate
imports quite a number of new sugar mills have been put into operation
in the past few years and the country's 54th sugar mill commenced grinding
in 1992/93. However this is not the end of the expansion process and about
15 new mills in the Punjab and 9 in Sindh may be put into operation within
the next few years. According to informed sources this could lead to the
accumulation of surpluses and eventually to a collapse of the industry
and already in 1992/93 the country will have a surplus even though no
sugar will be officially exported. But unofficial exports to neighboring
countries such as Afghanistan and Iran are estimated to reach more than
100; ()()() tons each year. If production does develop as expected official
exports can be foreseen especially if the country continues to import
sugar for internal political reasons. But as in the case of India this
could require export subsidies which could prove to .be a burden for the
milling industry.
Production and Consumption,
Million metric Ions, raw value
World Sugar Scenario
World sugar production in 1993-94 is forecast as 112.7 million tons, up
1.3 percent from 1992-93. Consumption is forecast to increase only 0.4
percent to 112.9 million tons, less than population increase, despite
continued strong consumption growth in Asia. The free market trade will
be 15 percent of sugar production assuming the free trade at 17 million
tons.
Stocks are forecast to decline 1.1 million tons to the new 'stocks to
consumption ratio' of 19.9 percent, down from 21 percent in 1992-93 and
21.9 percent in the year before.
Stocks will be large enough to keep the world sugar price suppressed.
Data for world sugar production, supply and distribution for four years
is summarized in Table-4. |
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Table 4
World Production, Supply and Distribution
Centrifugal Sugar
(l,000) Metric Tons, Raw Value)
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Marketing
Year |
Beginning
Stocks |
Total
Sugar
Production |
Total
Imports |
Total
Supply |
Total
Exports |
Total
Domestic
Consumption |
Ending
Stocks |
1990/91 |
19,454 |
113,577 |
30,482 |
163,513 |
31,932 |
109,674 |
21,907 |
1991/92 |
21,907 |
115,913 |
28,386 |
166,206 |
30,422 |
111,344 |
24,440 |
1992/93 |
24,440 |
111,301 |
27,551 |
163,292 |
27,309 |
112;405 |
23,578 |
1993/94 |
23,578 |
112,702 |
26,371 |
162,651 |
27,318 |
112,879 |
22,454 |
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Domestic Production Versus Imports
It is often said that domestic cost of production is higher than the world
sugar price and as such Pakistan is an inefficient sugar producer. It is
further argued that local production of sugar is a burden on the national
economy and there is no justification of having a domestic Sugar Industry
in Pakistan. It is said that the country would be better off by importing
its total requirement of sugar.
We can not draw any hasty conclusion from these arguments without looking
at the bigger picture.
- Sugarcane is grown on approximately 900,000 hectares in the country
and is a major cash crop for thousands of farming families.
- Sugar Industry has a tremendous impact on the development and uplift
of the area around the Sugar Mills.
- We can not draw any long term conclusion regarding sugar being cheaper
in world market. The price is very sensitive to world stocks to consumption
ratio. Free trade in the world market is limited to about 15 percent
of world production.
It can be seen from Table-5 that world sugar price was as high as 42.30
cents per pound in October 1980. The price dipped to a low 5.90 cents
per pound 5 years later in 1985. It has been fluctuating between 11.60
cents and 13.39 cents per pound during 1993. It is obvious that sugar
price can not be guaranteed at 13 cents per pound for the next few years.
In other words, world sugar price was US$932 in 1980 and came down to
US$130 per ton in 1985. It is now being traded at US$300 per metric ton. |
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World Sugar Price and Domestic Cost of Production
World sugar price is not the world cost of production. Only 15 percent of
sugar production is traded in the free world market. All major sugar producing
countries in world are protected by subsidy, import quotas, tariff protection
or a combination of these measures. The USA and BC countries are major examples
of this. Protectionism in one form or the other is rampant and surplus or
over flow sugars find their way on the free world market which in effect
is a 'dumping market' with the price that is very low and has no relation
to the production cost. .
Table-6 gives average world retail sugar price in selected capitals
for 1984-1992. A look at the figure for 1992 shows that retail sugar price
is atleast 3 times higher than the world sugar price in the free market.
It is very clear from this data that Pakistan is not an inefficient sugar
producer and it is not fair to expect that the cost of production can
be brought down to the level of world free market sugar price. It is not
the case for any sugar producing country and can not be true for Pakistan
either. |
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Sugar Export Vital But Not Possible Without Government Support With
sugar production capacity being much in excess of our domestic requirement,
surplus sugar will have to be exported. If we are unable to achieve this
objective, huge stocks will pile up. Financial position of the industry
will be adversely affected. Farmers will not be paid in time and we will
get into a vicious cycle of fluctuations in sugarcane crop and under utilized
capacity.
As explained earlier in this review, sugar export is not possible without
GovemJ11ent support. World free sugar trade at 17 million tons is very
small. It will not be easy to get a share of 500,000 tons to start with.
As all major sugar producing countries in the world are protected by subsidy,
import quotas and tariff protection, Pakistan can not be an exception.
Protected domestic market is essential to compensate for the loss on
exports. Sugar exports can help us improve our trade balance. We can earn
up US$125 million by exporting 500,000 tons of sugar in 1993-94. Foreign
exchange earnings will increase in future years. The Government can support
export efforts by taking following steps:
1) A one year commitment to maintain the regulatory duty at 25 percent
on imported sugar to ensure a stable domestic market. This will enable
the sugar producers to recover a part of loss on export from the domestic
market.
2) A twenty-jive percent export duty levied on export of Molasses may
be withdrawn. Sugar Mills will be compensated to some extent by way of
higher molasses price. However some of the molasses is being converted
to value added products like Industrial Alcohol. If the export duty is
removed from molasses, the Alcohol Industry will suffer and there will
be a need for an equivalent rebate to protect this value added product.
3) A fifty percent subsidy on freight may be considered. We understand
that similar subsidy on export of agricultural products like flowers and
vegetables are given.
It has been observed that the Government is very sensitive to retail
price of sugar. Frequent hasty decisions are taken to adjust import duty
on sugar. This makes imported sugar economical in the domestic market.
Sugar Industry is made to subsidize the consumer. PSMA has time and again
pointed out to the Government that domestic industry pays a fixed Central
Excise Duty of Rs.2150 per metric ton. Import duty on sugar must be kept
at a level which allows the industry to recover its cost of production
and a reasonable profit. Sensitivity to domestic sugar price is not justified.
Increase of Rs.1 per kg of sugar results in increase of Rs.1O0 per annum
for a house hold of 5 persons. Moreover increase in sugar price compared
to other food items has been on the lower side during the last 10 years.
It is an established fact that no industry can survive by selling its
production below the cost of production.
Indian Sugar Industry has gone through a similar situation recently. There
has been tremendous build up of sugar stocks during the last three years.
Production has increased 22 percent while off take has gone up by only
10 percent. Deteriorating financial position of Mills has resulted in
delayed payments to the farmers. A brief note on the Indian Sugar Industry
published in November 1992 and June 1993 issues of World Sugar Situation
and Outlook is reproduced.
Oversupply in the Indian Sugar Industry:
The sugar industry in India today faces a tremendous problem of oversupply.
Administered cane prices have encouraged farmers to grow more cane than
the country's consumers can utilize. Mills hope that the government will
assist them this year by agreeing to the establishment of a "buffer
stock" which would relieve them of a portion of the cost of holding
nearly 5 million tons of ]991/92 sugar which will carry over into ]992/93.
If world white sugar prices move higher than $300 or $325 per ton, it
may be possible to work down stocks in a profitable manner. Otherwise,
the government will soon have to make a choice between measures to restrain
the area planted to sugarcane and a comprehensive export subsidy program.
Thanks to the rapid output growth of the last four years, both the public
and private sugar milling sectors are experiencing considerable financial
stress on the eve of the 1992/93 crushing season. The situation is particularly
acute in North India, where state governments have regularly ignored the
calculus by which the central government sets a national minimum purchase
for sugarcane. At the end of the crushing season in mid-July, sugar mills
in Utta Pradesh owed farmers 3.25 billion rupees ($114 million) for cane
delivered but not paid for. Such arrearages are not unusual in the Indian
sugar business, but this was two and a half times what the mills owed
farmers at the same time last year. Arrearage problems, although on a
more limited scale, also have occured in most other states. It has been
expected that state governments would provide debt relief for those public
sector (cooperative and government-owned) mills which were in the red
at the end of each production year. Last year the bill came to about one
billion rupees ($40 million), but this year it could come to 2.5 billion
rupees, at a time when state resources are tight and the central government
is pushing the states to cut back their annual budget deficits.
Exports are a possible solution to the current domestic oversupply problem.
Unfortunately, export prices have remained far enough below domestic prices
that it has been difficult to keep exports fl9wing. By statute, exports
are handled by the Indian Sugar and General Industry Export Import Corporation
(ISGIEIC), a trading body linked to the national sugar mill associations.
Losses on exports are offset by profits on small quotas for
sugar sales to the United States and the European Community, and by assessments
on mills in proportion to their output. Although there has been talk of
exports as high as 1 million tons in recent years, the subsidy which would
have been required has been more than the industry was willing to bear.
In 1991/92, 631,000 metric tons of sugar were exported.
A stronger world market could turn around the oversupply problem fairly
quickly,' so would a weather-induced decline in sugarcane production.
However, neither is expected within the coming year. The Government may
agree with an industry suggestion to use part of the Sugar Development
Fund (underwritten by the industry) to finance a sugar buffer stock. Nearly
everyone acknowledges that this move can be little more than a palliative.
Over the coming year, some means must be found of reducing the stocks
to a more manageable level.
A number of economists from Indian research institutions and multilateral
lending agencies have been raising questions about the wisdom. of encouraging
further growth in the sugar sector when the end-product is in surplus,
when exports are possible only with subsidies, and when the country appears
to be slipping into a deficit position in food grain production.
Industry Financial Problems:
There has been a tremendous build-up in Indian sugar inventories over
the last three years. Production has risen 22 percent and off take has
increased only 10 percent. As a result sugar stocks now stand at over
5 million tons. The government has allowed sugar to pile up a the mills,
knowing that releasing stocks too rapidly would cause a collapse in open
market prices, pushing weaker mills even closer to bankruptcy.
The government of India announced a number of sugar policy changes on
February16, 1993, designed to provide financial relief to the sugar milling
industry and announced on April 29 its intention to decontrol molasses
trade. The sugar milling industry has been squeezed for the last few years
between central government policies designed to hold down consumer prices
for sugar and state government policies designed to maximize income for
sugar cane farmers as policies which maintain molasses prices well-below
world market prices. Recent policy changes should provide a measure of
relief to the Indian sugar industry.
Late Payments and Declining Cane Supplies:
Hard-pressed mills have delayed and, in a few cases, never fully compensated
farmers for their cane. Renovation of obsolete mills and construction
of new mills has fallen far behind projected levels because public financial
institutions (virtually the sole source of credit for sugar mill construction
and renovation) are turning down most projects because projected cash
flows will not service new loans.
With the country suffering from a substantial oversupply of sugar, and
water scarce in several of the states where. mills are planned, it could
be argued that more mills are not needed. However, the construction of
new sugar mills enjoys enormous political support. Farmers like cane,
especially at current prices, because it is easy to grow and provides
relatively dependable cash income. Local politicians see mills both as
engines of rural growth and, it is alleged, as excellent sources of campaign
finance as well.
Outlook:
Higher sugar and molasses prices, a reduced sugar levy percentage, and
subsidies for some of the mills' stock-holding expenses will give the
mills a measure of financial relief. Although consumers will not be happy
with higher retail prices, the Food Ministry can persuasively argue that
had prices not been allowed to rise, the drop in cane area this year might
turn into a collapse next, followed by tight supplies, skyrocketing prices,
and emergency imports. The policy steps taken should allow for the continued
expansion of sugar output in India.
Sugar by-Products
It is generally believed in Pakistan that better utilization of the By-Products
can reduce the price of sugar drastically. It is also believed that lower
cost of production in other countries - is because of better utilization
of By-Products. Actually position is different. Although development of
By-Products Industry can help in reducing the cost of production to a
small extent but major reduction can only result from lower cost of raw
material and lesser State Levies.
Sugar Industry is fully aware of various possibilities of By-Products
that can be made, and we will do all that is possible for best utilization
of Sugar By-Products. Particle Board, Cattle Peed, Citric Acid, Acetic
Acid, Furfrol and Industrial Alcohol are a few to mention. Maximum utilization
of Bagasse is already being done by a number of Particle Board Plants
that have been set up. The Industrial Alcohol Industry in Pakistan is
quite mature and present installed capacity of Industrial Alcohol Plants
is enough to meet the domestic consumption. We are also exporting this
product.
The major problem for setting up Sugar By-Product industries is the
minimum economic size of the plant. Market for these By-Products is very
small at home and setting up of a plant with large capacity is not feasible
in absence of any export market. Production capacities of Citric Acid
and Furfrol in the world are more than the world consumption. Very few
Manufacturers monopolize both these products and make it impossible for
any new entrant to sell in the international market for this reason any
progress on production of Citric Acid and Furfrol in Pakistan does not
seem possible till such time that we have enough local market to justify
a plant of economical size. .
Extra power generation is another option. Unfortunately the new Sugar
Mills have lost the initiative by installing low pressure boilers. Two
sugar companies have signed Power Purchase Agreement with WAPDA for about
5 MW additional electricity. This is a small but encouraging beginning.
This option can be considered whenever existing Sugar Mills embark upon
a BMR programme.
Review of 1992-93 Season
The 1992-93 season was a 'Nightmare' season for the Sugar Industry in
general and the Mills located in Punjab in particular. This season will
go down in the annuals of the Sugar Industry as one of the most disastrous
on record following combined effects of devastating floods and coming
into operation of a record number of new Sugar Mills in any single year.
The cumulative affect of irrational Government policy started showing
during the year under review. The Sugar Industry was inflicted with multiple
injuries and rendered crippled.
- Production capacity increased to 4 million tons but raw material availability
restricted the sugar production to 2.39 million tons. This created a huge
idle capacity.
- Subsidized sugar imports were allowed at dumping prices resulting in
weak domestic market having 'no relationship to cost of production.
- Rampant inflation resulted in increase in transport cost, higher mark-up
on borrowings, increase in utility charges and increase in cost of spares
due to eroding value of Pak Rupee. .
A badly wounded Sugar Industry produced a record 2.35 million metric tons
of sugar from sugarcane at an average recovery of 8.58 percent on nationwide
basis. Highlights of last three seasons are reproduced in Table-7. |
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Duration of season ranged between a maximum of 226 days in case of Faran
Sugar Mills in Sindh and a minimum of 102 days in case of Premier 10 NWFP.
This was after excluding the new Mills in their first year of production
as Mirza Sugar Mills operated for only 11 days. Sindh had the highest share
of 49 percent in the country's sugar production followed by 46 percent in
Punjab. The balance was contributed by NWFP.
Activities of PSMA in 1992-93 Pakistan Sugar Mills Association started
the year with a long agenda. Several problems being faced by the industry
were to be taken up with the Government. Since November 1992 we have seen
4 Governments. Fifth Government took office on 19 October, 1993. We took
up the following major issues with 4 Governments in the last 12 months:-
1) Unplanned expansion of Sugar Industry
2) Subsidized sugar imports in the country
3) Rebate of Central Excise Duty
In addition to these issues Zonal arms of PSMA took up numerous issues
at provincial level.
Unplanned Expansion of Sugar Industry
PSMA worked closely with the Government and Financial Institutions on
this matter. Prime Minister established a Technical Assistance, Evaluation
and Review Committee (T AERC) for study on Sugar Industry. This task was
assigned to Planning and Development Division and PSMA was represented.
Much progress could not be made in this because of frequent changes in
the Governments.
PSMA also drew attention of Financial Institutions regarding over expansion
and high cost of new sugar projects. National Development Finance Corporation
was the first to respond. NDFC organized a seminar in Karachi where all
aspects of Sugar Industry were discussed threadbare. As a result of the
efforts of your Association, DFIs quickly realized the gravity of the
situation and slowed down the process of providing financial assistance
to any new sugar projects. A standard cost of project was worked out -and
adopted by all DFIs to curb the incidence of over invoicing.
Subsidized Sugar Imports
Dumping of sugar in our domestic market has been encouraged by the Government
for political reasons. PSMA has always agitated against this policy. We
have been asking for a leveled playing field. Our contention has been
that we need to recover our cost of production plus a reasonable profit
to survive. Stock holders of sugar companies can not be asked to subsidize
the domestic consumer. We can not pay for the political expediency of
the Government.
I am happy to report that our point of view has been accepted after a
long struggle. A Committee has been set up in the Finance Division to
work out our cost of production. We hope that in future the cost of imported
sugar will have some relationship with domestic cost of production. .
Rebate on Central Excise Duty
In order to provide incentive to the Sugar Industry to increase sugar
production by transporting sugarcane from inaccessible areas a CED rebate
is given. Sugar production in excess of last years production is subjected
to 50 percent of normal CED. Recently some changes were made in this policy,
which are against the very spirit in which it was introduced in the first
place. PSMA has taken up this matter at the level of Finance Minister,
Chairman Central Board of Revenue and Member Excise. We are happy with
the progress so far are hopeful of a satisfactory outcome.
Other Activities
PSMA made further progress in its relationship with international agencies
like UNIDO of United Nations and USAID. .
UNIDO obtained an assistance of US$146,OOO towards providing technical
assistance to Pakistan Sugar Industry. A team of experts was sent in February
1993 with experts in the following areas:
- Sugar Industry
- Ethanol Manufacturing
- Sugar Economy
- Energy Management
- Environment
Ten member Mills participated in this programme. The experts visited
these Mills and later submitted a report to all participating Mills. A
comprehensive report on general aspects of Sugar Industry was also presented
with specific recommendations to the Government by PSMA.
PSMA arranged a Private. Power Study tour to Hawaii with the assistance
of USAID. Eight member Mills joined the delegation. Beside witnessing
the efficiency of the Sugar Mills in Hawaii with a very low labor force
the team observed the system and production of power and its utilization.
Though Sugar Mills in Hawaii have a major advantage of having a very
long crushing season as compared to Pakistan yet we can see that some
of our Mills having high crushing capacity have the potential of producing
noticeable surplus power and transferring it to national grid. By doing
so we can help the nation meet its power shortage and at the same time
help economy of the Sugar Industry, for which few Mills have already taken
the initial start of transferring 5 MW on trial basis.
Financial Position
Financial position of PSMA remains healthy. Your Executive Committee
took austerity measures to cut costs. We were able to reduce the expenditure
to Rs. in 1992-93 compared to Rs In 1991-92.
Acknowledgement
I would like to acknowledge the support and guidance provided to me during
the year by the members of Central as well as Zonal Executive Committees.
I would also like to place on record my appreciation for the staff at
the Central Secretariat in Islamabad and Zonal Offices in Karachi and
Lahore for their hard work and dedication.
Future Outlook
We are entering 1993-94 with new challenges and a totally new domestic
scenario for the Sugar Industry. We will be facing the problems of surplus
for a change. We will be looking for international markets in addition
to our traditional domestic market. PSMA will have new roles added to
its responsibilities. In addition to acting as representative of Sugar
Industry in our relationship with the Government. PSMA will handle distribution
of sugar export quotas to its members and issue sugar quality certificates.
I am confident that with your support we will face the new challenges
with confidence and to your satisfaction. |
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ALTAF M. SALEEM
Chairman
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October 20, 1993 |
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