Annual Review 1998
Senator Abbas Sarfaraz Khan
Distinguished members of Pakistan Sugar Mills Association
I have great pleasure to welcome you on behalf of myself and the Central Executive Committee at the 33rd Annual General Meeting here today.

Greeting new members of the year use to be a tradition at this forum, but today we are given the feeling that even renewal of memberships since last A.G.M have been continuously ignored which shows member’s lack of interest towards the Association. We hope that the new Management will attend to this basic principle which is an instrument of cohesion and unity of the members that contributes to planning joint strategies and honouring it to achieve success.

Unfortunately there is also a gap in the Government ranks. It has not yet realized the necessity of planning strategy on sugarcane plantation, its quality and yield, establishment of new mills, a perpetual sugar policy, and sugar export policy. So far decisions are made on ad hoc basis on request resulting in delay and causing ineffectiveness.

Under such circumstances there is a greater need and chance for the Association to play its roll for the benefit and future of the Industry. Association’s roll is at present limited to keep on fighting for permission of export of surplus production and its applicable rebates, keep advising Government to stop excessive imports, making presentation against untimely levy of Taxes etc.

There is an urgent need to regularize association affairs, bring necessary discipline, and determine roll of the association, formation of special committee for specific planning and guidance of all members. Very soon we will be faced with large sugar surplus and low demand in the International market, which need a very special attention in advance.

Production 1997-98

Against two years low production of about 2.4 million tonnes production 97-98 set a new record of 3.55 million tonnes of sugar. This was due to increase in the plantation area of sugarcane by about 15 % with a favorable weather condition. We wish the increase in sugarcane production were due to higher yield and not at the expense of some other crop. Yield of the crop remained under 47 tonnes per hectare on average and a supply of 41.0 million tonnes was milled as compared to 27.36 million tonnes in 1996-97. The increase in the supply of sugarcane was almost 49 % higher than 1996-97 supply and so was the %age increase in the production, and more significant increase was in Punjab i.e. 55 %. Out of 76 Mills 71 operated during the year.

Production cost

Sugarcane being the only major raw material for manufacture of sugar has the major share in production cost. Unprecedented increase in the sugarcane support price by about 47 % increased the sugar production cost to Rs. 19/- per Kg. The following table shows the direct share of sugarcane in the production cost.

Sugar Production (Cane) 1997-98 = 3,548,960 tonnes
Sugarcane purchased 1997-98 = 41,062,268 tones
Minimum support price for
40 Kg of Sugarcane = Rs. 35/- Punjab
= Rs. 36/- Sindh
Average price paid inclusive, premium
and other levies = Rs. 40/- per 40 Kg
Average cost / tonne of sugarcane = Rs. 1000/-
Total cost of sugarcane 1997-98 = 41.06 Billion

(Cane) sugar production 1997-98 = 3,548,960 tonnes

Cost of sugarcane per Kg of sugar = 11/57

fixed cost of sugarcane in production cost remained about 62%

Effects of Sugarcane Price

Growers encouraged by the economy of sugarcane crop 1996-97 expanded the plantation of sugarcane crop with a result of producing almost 50 million tonnes of sugarcane. Since minimum support price was enhanced by the government sugar mills could not maneouver the price when supply was in abundance.

With huge surplus foreseen at the time when international prices were at the verge of slipping downward sugar Mills unwantedly crushed and produced 0.7 million tonnes of surplus (All of this was predicted at our last A.G.M) beside creating a surplus, mills had to pay around Rs. 11.0 billion extra over what we think could have been the price of sugarcane if the unwarranted increase in the support price was not made by the Government.

Sugar Marketing

During short production in 1996-97 season Government hurriedly started importing sugar prematurely while stocks at mills were still enough for five months resulting in a glut. Due to sale of imported sugar the sale of domestic sugar drastically fell and at the same time to compete the imported low duty sugar domestic sugar prices slid down to a stage of Rs. 4 /- below production cost. Excessive quantity of imported sugar also resulted in a huge carryover stock of over 400,000 tonnes. The industry during shortage of cane had to pay high price and ended up with a loss Rs. 8.0 billion because the cost of production could not be recovered.

Having received a major blow in 96-97 another setback of unprecedented increase in sugarcane minimum Support prices with a bumper crop further crippled the industry. High production plus carryover stock continued the severe effect of glut as nearly 4.0 million tonnes of sugar was available for 97-98 season . With local price depressed to its 10-year low international prices were also on slide due to surplus. Ministry of commerce has been fixing / adjusting the minimum export prices in accordance to the international trend in consultation with PSMA. Following were the minimum export price fixed by the commerce Ministry at different occasion.

As of latest status sugar prices at London Stock Market are reading even lower than these prices, but no change has been proposed.

Out of over 400,000 tonnes major share of exports were made to India. I understand there is still room for further export to India, but unfortunately it is dependent on trade through Wahga by railways.

Suspicion on capability and limitation of the trade through Wahga always existed and expressed. For a short period the performance remained remarkable, but steadily transfer of trains slowed down with a result that about 2000 sugar loaded wagons are stranded and certain platforms and godown are full with the commodity in Lahore area.

Pakistani Sugar is favourite and cheaper in India but Indian sugar Mills Association is quite influential in protecting its market interest by reluctantly receiving Pakistan Sugar. When Pakistan was short we were receiving two trains daily . Now hardly 4 trains of 70 wagons each is crossing weekly causing huge backlog. As a result of slow down on receiving end sugar exporters are facing heavy losses and at the same time it is causing huge losses to Pakistan Railways. Further movement through this cause has nearly stopped.

Subsidies to boost exports were appreciable received in two installments, Due to delay in timing, approval and payments system the expected results could not be met. These subsidies were to balance cost of production on exported quantity. The remaining quantity sold domestically caused a minimum loss of Rs. 12 billion, which totals to about Rs. 20 billion when added to last years losses, which is colossal to any standard and to any industry at a time.


Pakistan Production for 1998-99 season is forecasted to be around 3.9 million tonnes and net available could be around 4.3 million tonnes. With a domestic consumption of 2.9 million tonnes we could be facing a huge surplus of 1.4 million tonnes. India is not forecasted to face shortage as far as the crop reports are concerned. So they will not be our main buyers. With large global surplus the price will remain depressed and buyers will be reluctant. The following 5 years data leads to fair estimation of the domestic consumption and worst effects of heavy carryover during on year of shortage and dependence on import of sugar. It also shows that we could hardly manage to export a quantity equivalent to year’s beginning stocks and leaving a similar quantity as carryover. Due to cheaper price domestic buying had been heavy which indicates storage trend.

International Scenario

World output is expected to rise to 128/129 million tonnes raw value in the coming season 1998-99, which will be three to four million tonnes above global demand. A bumper crop is forecasted for Brazil European Union, India, China and Pakistan . Thailand is also aiming on boosting its sugarcane output. On the other side due to mounting economic and political problem in Russia and Far Eastern countries there is lack of buying.

Fears exist that Russians might have to knock down on consumption and a similar effect in some other countries would make the situation worst. Internationally prospects for world sugar market remains bleak and its recovery may be delayed until 1999 / 2000 crop cycle as indicated by the international experts.

Out of three to four million tonnes world surplus if we are to contribute 25% then we should be ready to share the economic punishment as well. The intensity of which shall depend on how we play our cards this time.


There is still time, and chances are positive if corrective measures are adopted for the revival of the Industry by the Government as well as by the Millers. In our report we have pointed out towards the serious blow we have received due to unjust decisions. If we take inventory of total year’s performance of the industry we gather that the industry put its hard work just to get rid of its carryover stocks at a cheaper rate than it was imported, pay heavy price of sugarcane and as a result of losses become defaulters at many fronts. Hereunder main features of faults and measures are laid down.

1. Free float the sugarcane prices, and let the grower’s economy survive and depend on international prices.

2. Improvement in yield and quality should be given top priority. Present system of high support price does not leave any room for any initiatives towards improvement of the crop.

3. We do not think that the industry can revive unless its economy is made viable matching free market system, and let the market not the stick determine its course. In case Government is reluctant to touch or abolish sugarcane support price system, at present all associated taxes on sugarcane be removed which includes cess funds, market committee fees etc.

4. Present markup rate of about 22% be reduced to 14% for the sugar industry till its revival till its revival.

5. Pending cases of the one like sales tax on bagasse Government has not been considerate though promised at each forum. Its exemption requested for 1996-97 is still pending.

As a result of inappropriate polices the sugar industry has suffered severe economic blows in a row. We demand a serious consideration by the government to formulate future policy after reviewing the total scenario.

At the end with my thanks to the Central Executive Committee, Zonal Committees, Staff of PSMA secretariats we reiterate the need of member’s unity for a joint cause and join hands to face all odds and evens together. Thanks you.

Pakistan Sugar Mills association
30th September’98