TEXT: Sugar industry is the 2nd largest agro-based industry in Pakistan after textiles. Pakistan is an important sugar producing country and is ranked 6th in the world. The share of the sugar industry in value addition of agriculture and GDP is 3.7% and 0.8%, respectively. It provides employment to millions of people (directly 1.5m and indirectly 9.0m) while generating direct and indirect business activity of Rs.800 to 1000 billion in agriculture, transport, allied industry, wholesale and retail markets. It pays around Rs.125 billion in direct and indirect taxes to Federal, Provincial and Local Governments and provides 5 billion US Dollar worth of import substitution to our national economy. Some of the many challenges currently being faced by Sugar Industry are hereunder:-
Sugar Industry in spite of being the most compliant, documented and regulated rather over regulated industry of Pakistan is subjected to harsh and stringent laws, against the principles of free market economy and rights enshrined in the Constitution of Pakistan. Sugar Laws were designed as per needs of the era when the Government used to ensure adequate production through supply of sugarcane to the mills from a designated area & buy all produced sugar for sale through ration depots. Weekly payments to mills by the government were made to ensure instant payments to sugarcane growers. Both of these fundamental considerations have been done away with. Archaic sugar laws in support of the original scheme have lost their relevance in this world of market economy & international trade.
Competition Commission of Pakistan in its policy note to the Government on 08-04-2021 recommended deregulation of the sugar sector for free interplay of market forces. The recommended policy change was discussed and agreed upon by the Federal Government in a number of high level meetings. However regulation of sugar sector (70% of its production utilized by completely unregulated commercial and industrial sectors) is continuing to date including inter alia, fixation of minimum purchase price of sugar cane and ex-mill price of sugar by the Provincial Governments and Federal Government respectively, determining time periods for payments, controlling supplies and prescribing penalties etc.
Due to the peculiar dynamics of the sugar industry, 100% of the raw material procurement and production is done in a short period of 3 to 4 months while due to our local consumption requirement and demand spread over a whole year, the entire production of sugar is not sold during this limited time period. Therefore, while cash flows of a sugar mill are spread out over the entire year, the outflow on account of procurement cost of sugar cane is disproportionately concentrated in this 90-120 days period. The gravity of this mismatch in revenue and expenditure is further evident when one considers that the cost of sugar cane constitutes 80 % of sugar production cost. All sugar mills obtain working capital loans from banks at high rates of mark-up of 25% or higher against pledge of sugar stocks. As and when these stocks of sugar are sold the sales proceeds are utilized for payments to growers, payments of government dues and taxes, payments to banks and incurring other fixed and variable costs.
Sugar industry has been under severe crisis for the past many years due to incorrect and flawed policies of both the Federal and Provincial Governments. Sugar manufacturers are constantly compelled to conduct business in an environment where the minimum fixed price (floor price) of sugar cane is determined by the Provincial Government, but it is left to market forces to determine maximum purchase price of this major input notwithstanding that the mills are forced to sell the product (refined sugar) below production costs at a maximum ex-mill price (ceiling price) fixed by the Federal Government without any minimum. Free market prices as available to sugar cane suppliers are required to be allowed to sugar mills as well. Government may keep 0.5MMT of sugar through TCP or USCP to create a strategic reserve to be released in the market whenever needed to stabilize prices or to ensure better supplies.
Export out of Pakistan of refined sugar manufactured by the sugar mills is also strictly regulated and controlled by the Federal Government on an arbitrary basis in order to further depress the sugar prices below its cost of production while charging the industry an 18% sales tax, one of the highest in the world. Delayed decision making on exportable surplus arising out of 2021-22 and 2023-24 crushing seasons resulting in huge loss of much needed foreign exchange earnings to national exchequer is a case study for our policy makers. Due to a huge difference in local/international sugar prices and our government’s intransigence on the export of surplus sugar, an opportunity for unscrupulous elements was created and the void was filled by the smugglers for their personal gains.
Notwithstanding the above the governmental authorities take coercive measures with reinvigorated administrative zeal every time an issue arises and mostly without establishing its real causes or establishing malice of sugar mills by treating business communities as criminals. Such indiscriminate use of authority has discouraged future domestic investments in the sugar sector.
It has been time and again assured by the Government of Pakistan that the Sugar Sector will be deregulated but it is yet to be implemented however the Federal Government up till now has not been able to find a mechanism to deregulate it. Two very important agro based sectors i.e. Rice and Cotton are deregulated sectors. There is no restriction on import and export of Rice as well as Cotton in Pakistan. Both sectors work on the principles of free economy and are working well. Rice and Cotton growers get International prices which has encouraged investments in Research and Development activities resulting in better yield. Scanty efforts have been made in Pakistan to develop new varieties of sugarcane for improving yield and sucrose recovery. Our sugarcane research institutions are inadequately equipped while the world is much ahead. It needs to be understood that sugarcane is not a water intensive crop as its water intake has to be calculated on an annualized basis having almost one year duration as compared to other main crops having 3 to 4 month duration. Sugarcane is a very strong crop having capacity to withstand floods, diseases and other natural calamities.
The Sugar Industry has great potential for exports and the Sugar industry of Pakistan can achieve annual sugar production of 12.00MMT without any further investment or capacity enhancement or involvement of foreign exchange expenditure. It can create 6.00MMT exportable surplus each year and we can yearly earn USD 4.5 Billion through consistent sugar exports with an additional 1.00 Billion through Ethanol exports. Sugar industry utilizes its indigenous energy by using bagasse thereby disposing of its waste material as well. Through our excess energy production an allied steel industry has been established and this excess power generation can further be utilized for other industrial uses.
Whereas continuous record sugar production every year is a blessing for the country there is an urgent need to arrange for its disposal to enable sugar mills to pay off sugarcane growers. Total available sugar in the last Crushing Season was 7.5MMT against an annual consumption demand of 6.00MMT having a surplus of 1.5MMT. It is in our national interest to urgently export a minimum 1.00 MMT of sugar in two tranches of 0.5 Million MT each. It will immediately add much needed foreign exchange to the tune of USD 0.7 Billion for our national reserves.
Government should adopt a permanent & comprehensive policy on export of surplus sugar so that it keeps contributing foreign exchange to our national economy. Afghanistan and Central Asian Countries are big markets and are importing expensive sugar from India while Pakistan has a competitive advantage due to low freight. A golden opportunity of sugar exports is currently available to Pakistan due to currency depreciation and Indian ban on sugar exports.
Copyright Business Recorder, 2024
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