Annual Review 1997
Senator Abbas Sarfaraz Khan
Dear Members:
I welcome our distinguished members at the 32nd Annual General Meeting being held here at Lahore and am pleased to present you on behalf of the Central Executive Committee the review for 1996-97. During this year the Association had to deal with a multitude of problems, some which have had far reaching effects on our industry.

1996-97, the year under review was no better than 1995-96 and during both these years sugar production remained around under 2.4 million tonnes after a record production of about 3.0 million tonnes in two consecutive years i.e. 1993-94 and 1994-95. This was due to shrinkage in the sugarcane plantation acreage as well as a severe and protracted frost that further affected both recovery and crop yields. Consequently, the production of sugar cane remained as low as 42 million tonnes which was 10.6% lower than 1994-95 and 6.7% lower than 1995-96. out of this the industry crushed nearly 27.15 million tonnes which is about 64.64% of the total crop.

During 1996-97 Sugar Industry received unprecedented set backs which have had far reaching consequences. Three main areas of concern for us have been:
a) the effects of the import of sugar
b) the sale tax liability on bagasse for the year 1995-96
c) the reduction in storage time to 6 months for excise duty payments
d) cost of sugarcane


The continuing short all in sugar demand-supply from the 1995-96 season resulted in the Government encouraging the import of sugar from the start of the 1996-97 crushing season. Political over economic consideration led to glut of sugar being imported over the year and as a result the sugar price was driven sharply downwards. This, coupled with slow factory sales due to cheap imports has led a disastrous financial situation for the industry. Mill sales fell to 50% of the normal sale as the glut continued, resulting in the failure of mills to clear farmers dues and bank loans at high markup rates.

With production at about 2.4 million tonnes, the federal government should have planned to limit imports up to 350,000 tonnes for the whole year. However, inspite of explanation and repeated assurances given by the PSMA to the concerned ministries the flow of sugar remained unchecked. This was a typical iknee-jerki reaction to the wheat shortage that had already occurred on behalf of the Government and the root of the current problem.

After continued efforts by PSMA and some of our members on a personal level, regulatory duty at 10% was levied on all sugar imports, but this was a case of itoo-little -too late. At the moment we have 400,000 tonnes of stock lying unsold with the mills and imported sugar still being quoted in the market. The glut will last until after the crushing season has started. This along with surplus estimates of the coming 1997-98 season see a grim situation being faced by the industry.

Sugar prices during the 1996-97 period have remained at production cost or below thus adding to the bad performance of the economy as a whole. An increase in prices is not being predicted in the near future.


The Federal Budget 1997-98 announced on 13th June 1997 restored the exemption on sale tax on bagasse when used as an in house fuel. However, the exemption did not cover the 1996-97 season and ever though the Association has made representation to the Government has not been considerate. With revenue generation being a Government priority the Association will have a stiff time fighting out this problem and might have to consider legal recourse.


This issue has hit the mills in the worst manner this season due to the large scale stocks being held by the mills. With huge imports in the country the mills have been forced out of the sale market and have to now contend with the Central Excise demand for duties on sugar that has been kept in storage for more than 6 months. As much as the association disapproves of profiteering and hoarding during periods of sugar shortages, this law needs to be reviewed in period of glut when the mills have no option other than to store sugar. Rules should not be so one-sided and the government must also see the proposals as put forward by the industry. All we ask is for a level playing field rather than being squeezed by the Government.

I would like to talk about the future and the challenges that awaits the industry. If the current estimates for sugar production hold true, the industry should produce about 3.2 million tonnes of the sugar in the coming season. With crop estimates up in all the three province a bumper crop should be expected. Taking into consideration the carry over stock and the level of imports in the country the Association estimates surplus of nearly 700,000 tonnes of sugar. Consequently, the PSMA has proposed to the Government to allow export of at least 20% of sugar production at the start of the season to ease the current glut situation and to allow mills to generate funds to clear dues with farmers and banks. At the same time a ban on sugar import has also been discussed and will be imposed by the Government. Export prospects were discussed recently with the Minister of Commerce and Food and we are hopeful. The problem has been further hampered by the rising sugar cane prices making Pakistani sugar uncompetitive in the world market. Local production cost at present are at least Rs.5/- per kilo gram higher than the international market due to sugarcane price and the government is in no mood to offer subsidies. Some solutions were discussed among the members to fund the exporters for the shortfall of the export price difference, with no final conclusion. I would like the Annual General Meeting to form a consensus viewpoint which we can place before the commerce Ministry. In case we fail to do so the industry out of compulsion will have to try to restrict its production to domestic demand by leaving surplus sugar cane in the field, an option that will be unpalatable to us as well as the Government and farmers. The other option is to let the price of sugar fall to Rs. 15/- per Kg which would herald the end of the sugar industry. The delicacy of the situation is known to you all and we have a firm decision on this matter that everybody will honour.

During 1994-95 en the export of sugar was permitted, the then Government made a deal with PSMA to supply certain percentage of export quantity to Utility Store Corporation on concessionary rates on cash payment. Most members honoured the agreement, but it has been a matter of concern to rate that some of the sugar mills have yet to clear to withheld quantity of sugar. According to Utility Stores Corporation letter of 18th September, 1997 the cost of held up sugar amounting Rs. 120 million has now grown up to Rs. 154 million due to markups. Since most of the mills are related to Punjab Zone I request the chairman Punjab Zone to kindly look into the matter and resolve the issue at his earliest.

Director Trade Organization had issued certain amendments in past, which were not agreed by FPCCI. The Latest orders of 24th April 1997 are as agreed by the FPCCI for incorporation in the Memorandum and Article of Association of all chambers and Associations. The copy of this order is provided to you in the folder. Basically the New orders restricts all Zonal & Central elections to end before 30th Sept. and New office bearers to take over on 1st of October. The order also demands the Association to restrict the financial year to 30th June, and at the same time they want renewal of membership to complete before 30th September each year. Other clauses provided in the order deals with regulation of Election. We will seek approval of its incorporation as we reach Agenda item 6, and later amendments in the Article of Association will be made by our secretariat accordingly.

At the end of my address I would like to register my appreciation and thanks to Central Executive Committee, the Zonal Executive Committees, the Central and Zonal secretariats and above all our members who have graced this occasion and will be giving us their valuable views. A special mention must be given to our Secretary Mr. K. Ali Qazilbash for his untiring efforts and dedication to our Association as well as his patience and tolerance in dealing with the Central Executive Committee chairman.

Thank you
Oct 06, 1997 Senator Abbas Sarfaraz Khan
Chairman PSMA