Annual Review 1996
Ismail Zakaria
Distinguished Members of Pakistan Sugar Mills Association:

It gives me great pleasure to welcome you to the 31st Annual General Meeting of PSMA which, as you are aware, is being held at the most critical juncture and challenging atmosphere through which the sugar industry is passing. The factual position and the problems of the industry will be first focused, followed by suggestions, both long-term and short-term.

As is known to you, the year 1995-96 under review was in sharp contrast to the previous two years, 1993-94 and 1994-95, during which sugar production was close to 3 million tonnes, resulting in export of 122,000 tonnes and 316,000 tonnes respectively. During the outgoing year, the production dropped by hefty 20 percent from 3.0 Million to 2.4 million tonnes, thereby necessitating imports of 0.4/0.5 million tonnes from India and other countries involving substantial foreign exchange outlay.

There is a wide range of factors responsible for the hiccup, some of which could have been averted. The year initiated with two untoward measures namely FIA action against sugar mills and credit squeeze which sent wrong signals to sugarcane farmers. Anticipating crisis in sugar industry, the farmers switched to cotton, paying better return to them for which strenuous efforts were made at different levels to augment its production, more particularly through "open" Cotton Policy. The area as well as production of sugarcane shrank by 5% and 4% respectively to 963,000 hectares and 45.2 million tonnes during the year over the previous year. More significantly, sugarcane crushing fell sharply by 18 percent to 28.2 million tonnes.

Sugarcane crushing on Pakistan basis dropped by 17.7% at 28.152 million tonnes as against 34.193 million tonnes during the preceding season 1994-95. Total sugar production decreased by 17.9% to 2.450 million tonnes in 1995-96 as compared to preceding year's production of 2.988 million tonnes.

Sugarcane crushing in Punjab came down by 19.6% to 16.883 million tonnes from 20.993 million tonnes in the previous year 1995-96. Sucrose percentage also dropped from 8.49% to 8.12%, cumulative result being decline in sugar production by 22.3% to 1.376 million tonnes against 1.772 million tonnes produced in 1994-95 season. Pakistan Sugar Mills Association

In Sindh sugarcane crushing fell down from 12.038 million tonnes in preceding year to 10.341 million tonnes in 1995-96. However, there was some improvement in recovery from 9.2% to 9.75%. The production declined to 1.008 million tonnes sugar as against 1.108 million tonnes in 1994-95.

NWFP suffered serious set-back as its production fell down by 63% to 65, 682 tonnes as against preceding year's sugar production of 104, 136 tonnes.

The fall in sugar production sent alarm signal for the economy. On the one hand, the industry's capacity has reached a level of over 5 million tonnes or double the current level of sugar output. This obviously had an implication for the under-utilization of the existing capacity which pushes up the per unit cost of production. On the other hand, Government, becoming alarmed by rising sugar price, started arrangement for sale through Utility Stores Corporation for which the industry offered 200,000 tonnes on below cost basis as under:

Ramzan Supplies 30,000 tonnes
After Ramzan 170,000 tonnes
Supplies Total 200,000 tonnes

Subsequently the heavy rush at the Utility Stores, resulting in long queues and running out of stock, purchase of goods worth Rs. 100 to be eligible to buy sugar and lately introduction of Price Club Card, all cumulatively, failed to achieve the desired result of providing relief to low-income consumers.

Sugar industry is beset with escalating cost of production. The Government enhanced sugarcane supply price for 1995-96 by Rs. 1 to Rs. 21.75 per 40 Kgs for Sindh Zone and Rs. 21.50 for Punjab and NWFP Zones. During the year under review, sugarcane suppliers started demanding price of sugarcane much higher than the support price. To pressurize mills, sugarcane supplies were either completely stopped to curtailed to a large extent. This situation further aggravated mills' position as they were not in a position to recovery even the season's variable cost. Eventually, the mills had no choice but to yield to the pressure of the growers and had to pay substantially additional price of sugarcane over and above the price fixed by the Government. Low volume of production, coupled with increased price of sugarcane, made the situation worse for the industry. Yet another hefty support price increase by Rs. 2.75 per 40 Kgs was announced early in August 1996 for the current season. This 13 percent hike has pushed the support price to Rs. 24.50 for Sindh and 24.25 for Punjab and NWFP Zones. The purchase price will be higher if quality premium is included. The rise in electricity and fuel charges and mark-up rates, coupled with creeping devaluation of Rupee, has further compounded the problem. The general price rise as well as wage spiral will naturally result in higher production cost of sugar. It must be pointed out here that in spite of higher production cost, prices of sugar have risen at a slower rate than those of other consumer goods. a fact which is often overlooked.

The objective and concern of the Government to check sugar price increase can be achieved through rise in sugarcane production. Its short supply increases production cost of each mill as low volume is not able to absorb high fixed cost and economies of scale. Rise in sugarcane availability, through increase in yield per hectare [presently 47 tonnes] and sucrose recovery [presently 8.7%], remains crucial to the existence of sugar industry. This will result not only in higher income to growers but also in enhanced cane availability to the industry, greater sugar production, lower cost of production per unit as well as higher revenues to the Government. It should be noted here that yield as well as sucrose recovery are lower in our Sindh and Punjab compared to neighbouring provinces of Gujrat and Punjab in India, respectively, by a sizeable margin, although climatic and other features remain the same.

Aside from enormous challenges, the outgoing year also provided an opportunity to have a deeper insight into the twin problems of low sugarcane yield and sucrose recovery. As a result, Resource Group and Task Force were formed which have submitted their recommendations. These have addressed to the relevant issues and suggested remedies to augment low yield and recovery. The importance of Research and Development has been highlighted for evolving new and improved varieties of sugarcane in order to raise the yield and recovery. PSMA has succeeded through its communications with the relevant Government agencies in convincing them for the urgent need of R & D in sugarcane cultivation. In this connection, various meetings have been held between PSMA and relevant authorities. You will be happy to know that measures for implementation of the recommendations are underway and it is hoped that this year will witness concrete steps initiated in this direction. The initiative taken by policy-makers in realizing the urgency and importance of raising sugarcane production is worth appreciating. The industry will lend full support and cooperation in the gigantic task in all possible ways.

A comparative analysis of sugarcane yield and recovery between India and Pakistan reveals that we are lagging behind in both. The following table shows a comparison of yield and recovery of Indian Punjab with Pakistani Punjab and Indian Gujrat with Sindh:-

Comparison of Yield and Recovery in India and Pakistan
  Indian Punjab Pakistani Punjab Indian Gujrat Sindh
Yield per hectare (Tones) 63.5 43.0 89.6 57.3
Recovery (%) 9.39 8.44 11.34 9.rn
The above table demonstrates larger yield and recovery in Indian Punjab and Gujrat, as compared to neighbouring Pakistani Punjab and Sindh provinces, respectively. Indian Punjab leads Pakistani Punjab by 48 percent in yield and 11 percent in recovery whereas Gujrat leads Sindh by 56 percent in yield and 26 percent in recovery a fact which gives food for thought to our policy-makers as, given the same climatic and other conditions, why we lag behind the neighbouring areas by such a wide margin. This is a challenge for our scientists and experts to find out the causes for lower yield and recovery so that these could be removed as soon as possible.

Prospects for this year are not better than the last year because the actions being taken with regard to improving the yield and recovery will take some time, say couple of years, before the full impact is realized. During the current year, indications are that cotton production may be around 11 million bales which may have adverse implications for sugarcane production. It is therefore, recommended that, in the short run, the measures to meet the sugar deficit should be taken in concert with PSMA, taking into account the interests of both the consumers and the industry, as any unilateral action is likely to be harmful.

Let me also reiterate that the import of sugar is no panacea to the present crisis. The only solution is to augment sugarcane yield and recovery which will result in higher cane production, greater sugar production, more revenues to the Government, stable prices for the consumers and larger profit to the shareholders of the industry. If we produce more than 2.7 million tonnes, as during 1994-95, we would be able to export and earn substantial foreign exchange which is the need of the hour. Our policy-makers realize the significance and, therefore, the prescriptions offered by the Resource Group and the Task Force are in right direction. There is no reason why we cannot catch up with our neighbour, given appropriate policy measures. In this direction, no effort should be considered too great.

I mentioned before that under-utilization of the capacity has pushed the production cost up. Here again I may repeat that despite continuous advice of PSMA for the last six years, the establishment of new sugar mills has been on increase. From a total No. of 52 mills in 1991-92, the coming season is going to see 74 sugar mills in the country, besides the capacity increases made through BMRs.

Without any proportionate increase in the production of sugarcane, such an increase in the number of sugar mills, in such an unplanned manner, can be called sheer act of negligence and waste of most needed inputs. However, we welcome new sugar mills and wish them all the best.

The growing trend of "Gur-making" and smuggling to Afghanistan and onwards is another factor for shortage of sugar. Gur-making, which used to remain within 20% of the production of sugar a few years back, is now doubled because Government has not taken any serious view of this situation. On one side the sugar industry is facing loads of threats and taxes and, on the other side, Gur-making is progressing without paying any taxes and hence consuming more sugarcane to the detriment of sugar industry.

As if it was not enough, recently a couple of SROs affected the industry adversely by limiting the storage period of sugar to six months and canceling two SROs by virtue of which self-consumed bagasse, etc., which enjoyed exemption from Sales Tax, seem to have been withdrawn. PSMA has been in close contact with CBR and others concerned whose confirmation of rescinding these orders is still awaited.

I want to register my appreciation and words of thanks to the Central Executive Committee session 1994-96 who worked along with me and I enjoyed their fullest co­operation. I also acknowledge the support and guidance provided to me by Zonal Executive Committees.

I would also like to place on record my appreciation for the staff of PSMA Secretariat at Islam bad as well as the staff at our Zonal Offices.

Oct. 31, 1996 ISMAIL ZAKARIA