'Sugarcane crop consumes water equivalent to Mangla storage annually' an interview with Dr Shahid Afghan, Sugarcane Research & Development Board (Punjab)

Dr Shahid Afghan is CEO Sugarcane Research & Development Board (SRDB)

Govt. of Punjab. He has over thirty years of Research, Development & Innovation experience in sugarcane crop production. In the past, he has also served as the project head of provincial organic production initiative and played the key role in patenting of six new sugarcane varieties.

Dr Afghan has completed five internationally funded research projects and is a member of International Society of Sugarcane Technologists (ISSCT) and ten other international scientific societies. He has been part of 25 crop related international events across the world in countries such as USA, Brazil, South Africa, Mauritius, Sri Lanka, Thailand, China, Japan, and Argentina. Locally, he has received four gold medals on best research work from Pakistan Society of Sugar Technologists (PSST).

He is also a visiting professor at several local universities. As an HEC approved PhD supervisor, he has supervised research work of five PhD and 25 MSc/MPhil. Scholars. In addition, he serves as the editor-in-chief of Pakistan Sugar Journal and has over 125 research publications to his name.

With the onset of sugarcane crushing season, BR Research sat down with Dr Afghan to discuss sectoral problems from the lens of a scientist with an extensive background working in public sector. Below are the edited excerpts:

BR Research (BRR): Correlation between reduction in area under cotton and increase in sugarcane cultivation in southern Punjab region during last 10 years is well-established. However, it is said that the agro-climatic profile of the region is more suited for cotton. Is this correct?

Dr. Shahid Afghan (SA): Agro-climatic profile of area surrounding Rahim Yar Khan is equally suited for cane cultivation, but additional factors have contributed to its mushroom growth. For example, in the past decade, cane has offered better return compared to substitutes such as cotton, which has suffered from price fluctuation in international commodity market.

But more importantly, the widespread licensing of additional crushing capacity in the region has pushed growers to cane. Domestic annual sugar production capacity stands at 10 million tons today against demand of just 5.2 million tons. Of this, 33 percent installed capacity is located in divisions of Multan, Bahawalpur, and DG Khan. Higher demand for cane by these mills has thus played an equally crucial role. Moreover, farmers of southern Punjab have a greater tendency to invest in crop productivity less common among growers from other regions, contributing to higher ROI.

BRR: Last year, relocation of mills from central to southern region was declared in contravention of the law. Would you agree that the proposed relocation would have encouraged competition between mills in south, resulting in higher profit to farmers?

SA: Absolutely! Additional capacity would have led to higher return to growers. Putting up a new mill requires an investment of Rs10-15 billion; the relocation cost is close to Rs500 million per unit. Note that the units in question were operating at a loss in their original location. The proposed shift was made to benefit from higher yield and sucrose recovery from cane in southern Punjab. The decision is thus to the financial detriment of both parties, mills as well as the growers.

BRR: The distance between southern Punjab region sugar milling cluster and urban consumption centres such as Lahore and Karachi is 600 kilometres on average. Yet, the region's share in national installed capacity is close to one-third. Given the high freight cost, does it make sense for mills to be located in the southern Punjab region? Or, is the output largely consumed locally and in regions nearby?

SA: The most important determinant of mill's geographic location is recoverable sugar in the home region. Sucrose recovery levels in central Punjab have remained below 9.5 percent on average, compared to recovery levels as high as 11.5 percent in Rahim Yar Khan region.

The rule of thumb in the industry is that a 50bps change in recovery level has an impact of Rs500 million on mill's profitability. Compared to that, cost of sugar transportation to urban centres barely makes a dent.

BRR: What is the sectoral distribution of sugar consumption pie?

SA: I do not have statistics based on any census; but by and large, it's a 30-70 distribution between household and commercial users. The latter includes both manufacturers on industrial scale such as bottlers and frozen dessert FMCGs, and small- and medium segment such as bakeries, sweet meat (mithai) and confectionary makers.

BRR: Is there a standard value chain followed by the industry? Do mills sell directly to B2B buyers in the manufacturing segment?

SA: Most mills sell the bulk of their output to wholesalers/distributors who supply onwards to retailers, commercial users (such as confectionary & bakery), and manufacturers.

BRR: The industry has witnessed significant vertical integration. Several business groups have diversified into carbonated beverage bottling and confectionary production. How much share of mills' output is consumed internally (or by intergroup companies)?

SA: By my estimate, any inter-company sales to B2B users, whether for confectionary or carbonated beverage production, can be no more than Rs500million per annum. This is not a significant share of revenue for milling units whose annual turnover ranges between Rs2-10 billion on average in value. Note that beverage industry consumes no more than five percent of total annual domestic production.

BRR: Ethanol export has become a very high value business segment in the past decade for sugar millers. What drives its demand given low local appetite and why have some large groups shied away from it despite high margin on export side?

SA: Pakistan has a total of 24 distilleries, with an installed capacity of three million litres per day; of this, one million litre is anhydrous/denatured ethanol which is used for industrial purposes or as fossil fuel substitute, almost all of which is exported. Other industrial uses include manufacturing of pharmaceuticals, varnishes, paint, cosmetics, explosives, among many others. Liquor producers in foreign markets procure ethanol from Pakistan at Rs70 per litre and dilute it twenty times - they can thus make twenty bottles retailing at no less than $5 per piece.

Nevertheless, the export market has been highly volatile recently, with per ton price falling as low as $400 before restoring to $700 levels. The absence of price stability coupled with large capital commitments may have kept some players at bay.

BRR: What explains the disparity between sucrose level recovery in Pakistan compared to other countries where recovery goes as high as 14 percent? Recovery levels achieved even at corporate farms domestically are only marginally better than the regional average of Rahim Yar Khan. Why is that?

SA: There are tropical cane-growing regions around the world that receive average annual rainfall of up to 8,000mm; compared to that, average annual rainfall in Pakistan ranges between 300mm to 700mm. Similarly, organic matter in domestic soil goes up to 0.4 percent, compared to up to 4 percent organic matter found in Brazilian farm soil. Scientifically speaking, yield levels are largely determined by presence of organic matter in the soil.

Sugarcane is best suited for tropical regions, as it is a water-thirsty crop. Water consumed annually by domestic sugarcane crop is equivalent to the storage capacity of Mangla dam.

BRR: Is that hyperbole or an actual estimate?

SA: Let's talk numbers. Sugarcane is planted over three million acres on average annually. The crop requires 16 irrigations of two-square inch each. Compare this to Mangla dam's capacity of 7.39 million-acre feet.

Sugarcane cultivation is not meant to be an export-oriented business, and most countries have designed the industry for indigenous consumption only. Only tropical countries such as Brazil and Thailand with high levels of precipitation can benefit by producing exportable surplus given higher yield resulting from ideal agro-climate.

BRR: Is sugarcane more water intensive than paddy?

SA: Both are at par in terms of delta of water. Yet, sugarcane continues to be preferred despite water stress due to its resilience to climate change and extreme events. Crops such as paddy and cotton are extremely susceptible to extreme weather events such as floods; whereas sugarcane can survive in standing water for up to two months due to plant height. Yield and recovery levels may suffer as a result, but the grower is not left at a total loss which may be the case with other crops.

BRR: What was then the effect of 2010-11 floods on cropping pattern?

SA: Sugarcane area in fact developed in the aftermath of those floods, because sugarcane's perception as a resilient crop permanently took hold in farming community's imagination.

In addition, farmers think of sugarcane ratoon as a 'free crop', as it is less cost intensive. Ratooning is the practice of harvesting a crop by cutting most of the above-ground portion but leaving the roots and the shoot intact allowing plants to recover and produce a fresh crop in the next season.

Because ratoon crop matures early (its root system is already well-developed), its recovery level is also higher than plant crop. Ratoon yield, however, may be lower because farmers don't invest in inputs as much.

BRR: What effect does delay in harvest have on crop quality?

SA: Biologically speaking, low temperatures encourage the glucose-to-sucrose-inversion process, which results in higher recovery levels. Mills delay procurement to achieve higher recovery, which in turn causes growers to delay harvest.

BRR: Is it correct that sugarcane is preferred by large landholders?

SA: Minimum sugarcane farm size in Brazil in 1,000hectare (hec); similarly, average farm size in Australia is close to 2,500 - 3,000 hec. In Pakistan, the situation is almost opposite.

Milling requirement of a single unit in Sindh is fulfilled by 1,500 - 2,000 growers. The number goes up to 5,000 - 7,000 growers for Punjab, and 8,000 to 10,000 growers for KP. That does not mean that the crop is more preferred by small- or large landholders but is simply a reflection of average landholding sizes in each region.

Since average landholding sizes in sugarcane belts of southern Punjab and Sindh are greater than national average (due to feudal holdings), the statistics reflect that average landholding size of sugarcane growers is larger than that of other cash crops such as cotton or rice.

BRR: Why is average sucrose recovery level in Sindh higher than that of Punjab, even though average sugarcane yield in Sindh has traditionally been lower?

SA: Yield in Sindh is lower due to volatility in water availability. Groundwater in Sindh is brackish, which means that sugarcane can mainly be grown in canal command area. Thus, yield often suffers in seasons of water-stress.

Recovery, on the other hand, is a function of several factors other than water availability. In Punjab, both frost and very high/desiccating temperature adversely affect recovery levels. Same is the case with KP. As temperature in Sindh remains comparably mild and humid, recovery level achieved is higher.

BRR: You mentioned low recovery levels in KP. Yet the province is home to Pakistan's gur-making industry. How is gur-making a profitable business despite low recovery?

SA: KP has different dynamics altogether. Most of high-sucrose ratoon crop in KP is consumed for gur-making, whereas mills are able to procure plant crop with lower sucrose content. Hence the disparity between mill recovery levels in KP and national average is very high.

BRR: What is the highest sucrose level achieved domestically under lab conditions? What are the impediments in spreading such varieties across the country?

SA: Recovery level as high as 14 percent have been achieved in controlled environments domestically. But that does not mean the variety can become common the next day. Even in Brazil, where sugarcane research is highly developed with strong governmental support, it takes over ten years for a fresh high yielding variety to be successfully marketed.

Sugarcane requires large quantities of seed: per acre seed cultivation requirement nearly costs hundred thousand rupees. Compare this to wheat, whose per acre plantation costs no more than ten thousand rupees. The higher upfront investment precludes newer varieties from becoming common immediately.

BRR: What is the relationship between sucrose recovery and yield?

SA: While this is commonly misunderstood, sucrose recovery and crop yield levels actually have a negative correlation. This is because the sooner a crop matures, its physical growth (height) stops. As soon as the sugarcane sprouts, due to physiological reasons, release of growth hormones is interrupted. The recovery level, however, remains intact. This ensures that the same volume of sugarcane crop (weight in tons) when crushed, would result in higher sucrose recovery leading to higher sugar output.

BRR: Is per acre fertilizer requirement of sugarcane lower compared to traditional crops?

SA: No, it is in fact higher. The problem in Pakistan is that fertilizer application suffers from imbalance. Amount of fertilizer applied in a given period is usually a function of prevailing cost of inputs and liquidity available with farmer; little attention is paid to soil mineral requirement or the type of fertilizer required.

However, it is correct that sugarcane is usually known to be a "rough and tough" crop. Meaning that even if little fertilizer is applied, the farmer may not face a total loss or crop failure. That is not the case with other crops such as cotton, whose yield can suffer greatly in absence of adequate fertilizer application.

BRR: Is it correct that prolonged cultivation of cane reduces land productivity and organic matter?

SA: This is incorrect. Cane in fact increases land productivity. Cane crop has root system of 2.5 tons per hectare on average, all of which turns into organic matter. Also taken into account the biomass produced.

BRR: If crop zoning were to be introduced, which regions of the country would be most suited for sugarcane cultivation?

SA: While sugarcane was traditionally grown in central Punjab, based on recovery levels, productivity, and agro-climate, the crop has yielded highest results in Sindh and southern Punjab.

While crop zoning is still common around the world, it is not possible in Pakistan because farming in the country is primarily subsistence-based. Growers plant all types of crop such as fodder, vegetables, pulses and even cash crops based on household needs and that of their livestock herd/poultry. Law of inheritance has further exacerbated land fragmentation. How can growers living on 1-2 acres of land be forced to cultivate crops such as cotton that fail to fulfill dietary needs of the family and its cattle, even if the region's agro-climate characteristics are most suited for cotton cultivation?

BRR: But southern Punjab has traditionally been synonymous with cotton belt. This in turn feeds into country's export chain.

SA: Cotton value chain in Pakistan is taking its last breaths. Flourishing of unregulated seed market has ensured that cotton yield has become extremely volatile, which is in addition to crop's high susceptibility to climate change and extreme weather events. Rahim Yar Khan alone has over two hundred seed marketing companies.

Moreover, because the crop price is linked to international market, farm economics has become very volatile. All those factors combined have rendered the crop unattractive to growers even in its traditional home of southern Punjab.

Farmer's cropping decision cannot be based on national interests such as cotton requirement of exporting segment. Those decisions are based on farm economics, which in the case of cotton have been extremely unfavourable over the past decade. Moreover, Bangladesh has become one of the biggest players in textile export with little own cotton cultivation. So, the argument does not really hold.

BRR: Should cane pricing be based on sucrose content instead of weight?

SA: The practice has already been adopted all over the world except in subcontinent. In order for farmers to invest in crop productivity, crop pricing needs to take into account quality premium. Right now, growers receive the minimum support price regardless of the sugar yield of their output.

BRR: Why is the protection of minimum support price not extended to other competing crops?

SA: Price of export-oriented commodities such as rice are linked with prices in international market to maintain competitiveness. While sugarcane is a cash crop, its production is encouraged only to the extent of meeting domestic requirements. Minimum support price was introduced in this context; as a deficit puts pressure on imports.

BRR: Is support price alone to be blamed for excess cultivation of cane seen between 2016-2018?

SA: A natural cycle of seven years has developed due to these distortions. When the government increases support price rate, initially the farmers benefit. In following seasons, area under sugarcane is expanded, resulting in bumper crop. This results in wrangling between growers and millers over procurement rate, as millers seek to benefit from crop surplus. Eventually, disheartened growers reduce acreage causing shortage of cane and pushing retail price of sugar up as has been witnessed in the ongoing year. The is the part of the cycle when millers finally rake in profits.

Here it should be noted that the last bumper crop had additional factors at play as well. The previous government had introduced a substantive subsidy on fertilizer, bringing price down to Rs1,400 per bag from Rs3,000 per bag. Fertilizer application increased dramatically; up to three times in some cases. Yield grew from average 57 tons per hectare to up to 62 tons per hectare. Recovery suffered as a result, because excess application of nitrogen slows down the maturing process of the crop.

BRR: Considering that both crushing capacity and cane cultivation are in surplus, should support price still be in place?

SA: In principle, either both the price of sugarcane and retail price of sugar be fixed, or there should be no price intervention whatsoever. In my opinion, support price should now be phased out as the instrument is out of sync with on-ground realities. Yes, it would result in price volatility initially, but such teething issues are predictable. Over time, cane production will come to reflect market dynamics.

Even if farmers demand much higher rates initially, mills will restrict procurement to the extent of meeting domestic sugar requirements, unless cane procurement price results in an export-competitive cost of sugar production.

Remember that whether support price remains in place or the rate is set by market forces, the variation from long-term average sugarcane acreage of one million hectares will be no more than +/- ten to fifteen percent.

Landowners in floodplains of river delta - regions at high risk of flooding - have traditionally preferred cane over other cash crops and will continue to do so, because it is the most suited crop for those conditions. Similarly, livestock owners also prefer its cultivation as it is an important fodder source.

Cropping patterns in the country will not see a change unless the farm economics for other crops become feasible. Growers that earn forty thousand rupees per acre from wheat will not shift to oilseeds if per acre income from canola is at five thousand rupees.

BRR: What is your policy recommendation for sugarcane industry?

SA: I believe the industry can no longer afford to be complacent with regards to investment in R&D. Annual turnover from sugar sale alone is over Rs300 billion; and this does not even take into account revenue from vertically integrated operations such as ethanol production, electricity generation from bagasse, sale of molasses and other by-products.

Expenditure on R&D should reflect the size of industry and its economic footprint. Well-funded R&D activities will result in development of better varieties, higher cane and sugar yield, improved agronomic practices, and processing efficiency as has been seen in other countries.

Innovative technologies are already available yet have not been adopted locally; one example is surge irrigation - already common in Argentina and Australia - which results in up to 25 percent saving of irrigation water and increases crop yield by twenty percent.

Cess fund collected annually is close to Rs4 billion yet is not spent towards R&D. Cane breeding program has proved to be a disappointment, as it should have resulted in development of new varieties with higher yield and lowered cost of production of sugar and other by products. Most importantly, the industry should be concerned about the failure of ratoon crop, which plays a crucial role in determination of farmer profitability. It can be made successful if mechanized plantation and harvesting is adopted, resulting in higher profitability for all stakeholders.