Sugarcane support price doubled within four years and tripled in eight years. No industry can absorb increase of such a magnitude in cost of its raw material. During the decade, sugarcane support price registered 129 percent increase. In contrast, sugar wholesale prices moved up by 107 percent. This points out the quantum of disequilibrium.

b) Proper price mechanism for sugarcane:
Price of sugarcane is the main component instrumental in high cost of sugar. Under the prevalent conditions it will remain so. Table below shows trend of sugarcane quality by its yield factor per hectare.

Source: Ministry of Food, Agriculture & Livestock
(Economic Survey of Pakistan 1999-2000).

The yields have been on sliding scale, which for the year 1999-2000 fell behind the level reached in 1995-96. Area was on steady rise. The given yields have been highly unsatisfactory and, therefore, less rewarding for the growers and pinching upon the sugar industry.

By relative world reckoning of yields, after providing for allowance of sub-tropical climate, the yields and recoveries are both low and can be substantially increased through Research and Development and adoption of policy framework proposed. Improvement in productivity is essential to rationalise cost of sugarcane production. Conventional sugar research in vogue will not deliver. It must be imbued with dynamism through engaging private sector of this agro-based industry which holds favourable inter-active base with the sugarcane farmers.

Sugarcane price determination deserves to move away from the present system to the one providing for price-quality linkage for each consignment of sugarcane. Price determination justifies cost plus basis, to be reviewed periodically. Policy makers have not recognized that sugar delivered to mills in sugarcane and its extraction are two distinct operations. Each must be proportionately compensated for incremental sugar production. Total or disproportionate payment, as it is in vogue, for sugarcane negates improvement.

c) Quality premium:
Rate of quality premium was raised in 1998-99 to paisa 50 per 40 kgs. of sugarcane. It was out of proportion 56% increase per 0.1% incremental sugar recovery over 8.7% benchmark. This payout exceeded about 22% on savings to be had by incremental recovery. This anomaly turned extremely unfavourable to the sugar industry of Sindh.

Applicability of QP solely in Sindh lacks justification, created distortion in the cost of sugar production. The Lahore High Court declared QP as "unlawful and without legal authority" during 1995. It must hold good at the national level, rather leaving Sindh as exception to bear its brunt in isolation. System of quality premium (operational in Sindh only and under litigation) in its present form is detached from the objective with which it was originally introduced several years ago. The system had basic flaws when it was introduced and with the passage of time it was much manipulated that its utility as an instrument of quality improvement has been completely lost.

Quality premium was paisa 32 for 1997-98 and raised without rationale to paisa 50 for 1998-99 & 1999-2000 per 0.1% incremental sugar recovery over benchmark of 8.7% for Sindh.

Mechanism of quality premium is irrational. Out of proportion increase administered in it is obvious from the quantum jump represented by the above figures.

d) Tax distress:
Sugar is an essential consumer item. Yet it has been subjected to rigours of taxation. It has to bear 11 taxes, five federal and six provincial. Average burden of taxes per ton of sugar now works out at about Rs.3,400/=. It forms about 17 percent of the cost of sugar sales. It is a high stress factor. A lot of paper work, hastle and hardships, besides financial stress result out of such tax layers. Sugar is a food item. Its exemption from tax galore would be a welcome relief for the consumers, the sugar industry and other industries consuming sugar in manufacture of value-added products.

Initially, sugar was subject to central excise duty at Rs.2,100/= per ton. During March 1998 sugar was brought under the sales tax regime at 12-1/2% in the early stage. It was increased to 15% in December 1998 and a further increase of three percent sales tax came into force on sugar sales to the unregistered buyers. The benefit accruing on removal of highly exploitative Octroi system was, by and large, knocked off. By end of the review year, sugar was subject to sales tax @ 16.5% On value basis at Rs.14/= per kg.

About the price movement of sugar the government in Pakistan have been concerned, rather anxious to keep depressed, it would be of soothing influence to exempt sugar from sales tax and similar other burdens. This shall find favour with the authorities, as high costs of sugar production and sales, is distinctly attributable to the government policy outfit.

Sugarcane input works out about 60 percent of the cost components and the government taxes another about 11 percent. In the balance one-third, a host of items, such as processing, wages, utilities, depreciation, administrative, selling and financial expenses are included. In a tight jacket cost structure, a little is left for the management to save and to earn. This represents woes of the sugar industry which deserve sympathetic economic consideration.