A mapping exercise identifying largest kharif crop by region published in this space noted that the cane acres in Punjab overlap with southern Jech and Rechna doab regions, along the confluence of Chenab, Jhelum and Ravi rivers. The so-called sugarcane belt begins in district Sargodha in the north and goes on to capture all four districts of Faisalabad division in the central region.
While the crop has become increasingly popular in southern Punjab in recent years, these five contiguous districts represent a microcosm of sugarcane value chain, and all that is wrong with it. Despite contributing forty percent to provincial acreage, it barely adds up to one-third of total output, indicating below-average yield. In fact, at 58 tons per hectares, it is just two-thirds of target yield achieved in district Rajanpur in the south.
Still, more acreage means crushing units have mushroomed to ensure proximity to farmgate. Of the 20 mills in the region, five were established in 1960s, with rest put up between 1988 and 2011 following deregulation of the sector. Earlier, the law stipulated that no new mill could be established within 70-miles of an existing unit.
Thus, for a crop with limited value-add potential, the market is highly fragmented. Several medium-scale units compete for finite supply of raw material, often shutting down operations for entire season when asking price is too high. Despite highest-ever output in the region (and country’s) history achieved in MY17, three units decided against beginning crushing cycle due to high raw material prices.
Despite ostensible competition, firms in the region have made little investment in introduction of high-yielding varieties or agronomy techniques such as precision application of water and fertilizer. This is in sharp contrast to southern region in the province where additional crushing capacity has resulted in improved crop yield, as firms incentivize growers to plant latest varieties to maintain stable supply.
As a result, region’s sucrose yield – which measures conversion factor of sugarcane into white sugar – is not only below provincial average but is at least 2 percentage points below target rate recorded by few mills in Sindh.
Ownership of the twenty units operating in the region is marred in opacity, but it can be safely concluded that they belong to no more than 13 unique sponsor families, most of which own additional units beyond the region as well. Nine are in the ownership of politically connected families, including ones owned by families of incumbent federal minister for planning; of former three-time prime minister; and of a deceased ISI chief.
Only five firms are listed, four of which took to the trading board at the time of incorporation in 60s. Fifth belongs to a politically-connected family and has not announced its financials even after nine-months into close of marketing year.
What explains the lack of interest in R&D? It appears that most of these units were established to channel production of white sugar into manufacture of other value-added goods. For example, at least four out of twenty units are owned by separate and independent operators of Pepsi Cola bottling franchise for Lahore, Faisalabad, and Gujranwala regions, respectively.
Three others are owned by manufacturers of fruit juices and syrups. Owner of Punjab’s largest chain of confectionary, bakery & mithai items also owns one of these units. In addition, at least seven out of 18 ethanol manufacturing units in the country also belong to the thirteen unique sponsors.
The region is also home to three units with highest government subsidy dependence as percentage of total sales during last marketing year. Although, 55 firms from all over the country took advantage of government subsidy on export, the three units in question recorded export volume at 75 percent (or higher) of total annual production. The pattern has continued into the ongoing year, as firms from the region have been beneficiaries of up to fifty percent of total subsidy on exports.
The province may boast of a sugarcane belt, but it acts more like a noose. Little to no innovation has been witnessed in seed varieties, whereas growers from the region are also most vocal about delayed payments by mills.
Add to this the opacity surrounding allied-business operations and inter-segment/inter-group transfer pricing by private limited entities, allowing them to perpetually show sugar milling as a loss-making business even as they mint higher profits down the value chain.
In sharp contrast, milling units with large capacities installed in Rahim Yar Khan and adjoining districts during last decade or so have invested in modern farming practices such as laser-levelling of land and consolidation of acreage through contracting of private farms.
Not only has this guaranteed better financial return for growers, it has also helped them be introduced to higher quality inputs, bringing phased change in planting practices for other major crops as well.
Is it fair then to insist that cash crops be zoned according to their traditionally growing areas, without paying attention to absence of innovation and support infrastructure in these so-called belts? It would be wise for agenda-setters to review district level data before peddling innocent-sounding proposals that may cause more harm than good.
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