Pakistan’s agri-oriented export economy is often criticised for low inefficiency and resource hungriness per dollar earned. Chief among this list of usual suspects is sugarcane, a low-value add crop that is highly water-intensive, (read BR Research: The real cost of crops), mispriced (read BR Research: Water Pricing), and has grown at the expense of other high-value add crops (read BR Research: Explaining poor cotton demand).

This column has argued for government to remove structural distortions in public policy such as support price mechanism that have encouraged excessive sugarcane cultivation. With one stroke, the government will be able to lower cotton import bill and avoid giving subsidy of tens of billions of rupees annually to get rid of surplus stocks.

Arguments to protect sugarcane growers under the garb of national food security are feeble because household consumption of white sugar constitute is no more than 25 percent of total output. Primary consumers of sugar are business units ranging from carbonated beverages, fresh juices, confectionaries, and bakeries, among others. On the other hand, average monthly household expenditure on sugar does not exceed more than rupees hundred and fifty, a not so substantial sum even for low income brackets.

Setting the sugarcane procurement price free from government shackles is expected to have two consequences: on one hand, area under cultivation will decline as farmers may shift toward more profitable crops; and, those who continue to grow cane will be incentivized to invest in inputs to secure better prices for their produce. As in rest of the world, the sector may also eventually transition towards a price-setting mechanism where cane rates are linked with sucrose-content recovery.

Nevertheless, even if a public policy shift away from water-intensive crops is observed considering the specter of water shortage, it is unrealistic to expect the government to micromanage farming economy. That is, where there is demand, supply will follow.

The solution is not to wish sugarcane crop away, but to build a case for more efficient uses. Brazil’s sugarcane output currently stands at 7.5 times that of Pakistan, yet the crop has in no way held the country back. That’s because while white powdery stuff is what Latin America may be known for in movies, the country actually leads the way in ethanol.

Last year, Brazil’s sugar sector produced close to 28 billion liters of ethanol; which is equivalent to 44 liters per ton. In comparison, Brazil’s sugar output stood at only 38 million tons, or 6 percent of total cane. While no honest comparison cane be made in cross-units, even non-initiated readers will appreciate the quantum: world’s largest sugarcane producer uses most of its crop to produce industrial ethanol rather than edible sugar.

But to what end? Close to 95 percent of ethanol produced is consumed at home, as an additive to gasoline to make it more environments friendly. And that is no anomaly; Brazil is only behind US in ethanol production, which despite high output is a net importer. Why? Because most gasoline powered engines manufactured post 1990s are ethanol-add friendly; meaning the vehicle-engines require no tinkering.

So, what has held Pakistan back, after all, ethanol is a by-product of the milling process. Global ethanol trade is a $72 billion market, but for so long as government continues to poke its nose in raw material pricing business, it will continue to receive blame for industry’s lack of diversification.

The next piece in this series will explore trends in ethanol production, profile of domestic consuming sectors, and export destinations. Ethanol is no final answer to environment degrading fossil fuels, and has received its fair share of criticism over sustainability (read water-intensity). Yet, sugarcane is no the only source of ethanol, it can be extracted from any number of starchy crops whether wheat or corn.

Pakistan’s farming sector low productivity has no easy answers; bringing substantive transformation to crop mix may also take decades. But there certainly are some low hanging fruits and ethanol looks like one of them.