Changing sugarcane crushing cycle

Appeals for timely start of sugarcane crushing have become the clarion call of grower associations for the past several years. Readers, casual and concerned alike, have become acutely aware of millers’ delaying crushing, with newspapers running dramatic pictures of long queues of cane carrying Lorries, waiting outside mill gates.

One explanation offered for this delay is that millers – fed up with high sugarcane procurement cost and depressed price of sugar in retail market (in previous years) – delay purchase to force farmers’ hand, who must eventually lower asking price to avoid letting crop go to waste altogether.

But why do growers and millers engage in a game of ‘who blinks first’ at all. More appropriately, which party gets to define “delay” and why?

Turns out, the sugarcane crushing cycle is a legal anachronism from The Sugar Factories Control Rules, 1950, which define beginning of crushing season from the month of October. The marketing year followed by sugar mills is also defined as such, beginning in October and ending in September.

Sugar millers contend that the definition of crushing season is dated as cropping cycles have since evolved, and it is best to begin crushing circa December-January, to maximize sucrose recovery. Moreover, it is thought that since sugarcane procurement price is set by weight, harvest/selling early into the season unduly benefits the grower, as cane is heavier in weight due to higher moisture content. As harvest/crushing is delayed, the moisture content dries up without affecting the sucrose content of the crop.

That conflicting interest of two parties should result in an annual outcry appears logical. But another explanation of the same phenomenon lies in the growth trajectory of the industry over the last two decades.

First, some clarifications. As data of month by month sugarcane purchase contracts between growers and millers is obviously not available, monthly sugar production volume is used as proxy to tease out trend in sugarcane crushing – the assumption being that sugarcane is crushed immediately following purchase.

Second, so far as historical data is available (up to MY04); no crushing is recorded in the month of October. Prima facie, this corroborates millers’ claim that cropping patterns are changing, and with them the optimal sugarcane harvest period.

However, it is notable that until mid-2000s, the first quarter (Oct-Dec), contributed as much as one-third of annual volume of sugar produced, with most of it concentrated in December. After a progressive downward trend stretched over a decade, Q1 share in annual production during ongoing has declined to just 10 percent. This is almost equal to average share of Q3, during which most milling units begin to wound up operations.

It follows logically that bulk of sugar production now takes place during Q2, averaging at three-fourths of total production in the last five years. And this is where the alternate explanation begins to make sense.

The sector has seen tremendous growth in capacity over the last decade across all major production regions such as Faisalabad, Rahim Yar Khan, Ghotki and Badin. This has resulted in pushing out of small- to mid-sized units. This is evident from that the fact that average capacity per unit in Punjab and Sindh has almost doubled between MY02 and MY18, even as ever greater numbers of units remain non-operational with every subsequent season.

To avoid costly overheads, larger units prefer to operate the plant for fewest possible numbers of days, which results in most of the production becoming concentrated in the 90-day stretch between January to March.

As total domestic production of cane-based sugar has been on an upward trajectory, the net effect on of milling becoming concentrated in fewer months (on domestic output) is not negative. However, mills operating for a shorter period (averaging at less than 100 days versus rated mill capacities of 150 days) have implications that go beyond grower-miller business relationship, with credit off take tenor and shorter employment period being just few examples.

Notes: For period 2011, SBP monthly statistical bulletins used; post-2011 to date, PBS monthly LSM data used for monthly/quarterly production sugar production volume. Q1: Oct-Dec; Q2: Jan-Mar; Q3: Apr-Jun; Q4: Jul-Sep. Q4 excluded from illustration as historically has no production except for some activity during MY12. No. of mills as per PSMA data; MY02 capacity as per IUF-Asia Pacific; MY08 as per ICMAP & PSMA; MY18: BR Research in-house estimates