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Key Elements

Sugar industry is operating without definite policy framework. This has been quite evident by (a) the effective sugar production capacity being twice the domestic demand, (b) sugar production awaiting stable upswings and (c) be it a surplus or shortage in sugar production, it should have in-built safeguards to avoid disturbing influence on sugar economy.

No specific sugar price policy portrait but partial package covering sugarcane has been the root cause of current malady. Which of the ministry owns the sugar industry is unknown. Ministries of agriculture, finance, commerce, industries and planning division etc., all of their own accord tend to administer their terms! A promising industry, (a) with great potentials to energise rural Pakistan, (b) to contribute substantially to socio-economic growth and development and (c) able to earn handful of forex remains stuck up with uncertain future.

The sugar industry's dilemma is:
a) lower level of capacity utilisation,
b) limited scope in economies of scale,
c) problems in event of shortfall and surplus production of sugar,
d) cost/ price disequilibrium in domestic and export markets.

(a) Augmenting sugarcane supplies:
Research and development is overdue for cultivation of high quality sugarcane, having 72 tons/hectare yields and sugar recovery at 11%. This work needs to be undertaken expeditiously.

During the past five years, sugarcane crop showed fluctuating feature. It has been trailing way behind the potentials possessed. Increased yields are bound to give more and real revenues to the growers. Simultaneously, supplies improved to the industry would gear up its operational efficiency and give benefit, though small, in form of economies of scale.

(b) Research and development:
Evolving of proper structure, system and procedures for research work is prime need of the hour. The PSMA suggests an outline to adopt, as on the next page.

i) Sugar research institute be set up in each division of the provinces growing sugarcane. Board of each such institute may consist of three representatives each of the Pakistan Sugar Mills Association, sugarcane growers bodies and government functionaries, concerned with sugarcane research and development.

ii) Funding of research activity shall be from the cess fund being recovered on sugarcane and from part of the sales tax on sugar. Part of the sugarcane cess contribution as earmarked for research be deposited by the sugar industry directly with the SRIs and these be competent to formulate their budgets and spendings.

iii) Close coordination .among SRIs be formalised so as to prevent over, lapping of efforts and for benefit by consultation. Similarly, the SRIs shall have coordinated working with sugarcane growers and sugar mills in each province.

Assessment of the funds collected so far on sugarcane cess account with their past spendings and status of the balances needs to be made known to those contributing it. These funds be transferred to the proposed SRIs on the divisional and provincial levels for utilisation.

As research work begins on proper lines and yields increase, more funds would be self-generating. The funds being applied would assume the role of investments. Sugarcane growers and sugar industry would be willing contributors to their known cause of benefit.

a) It is imperative that proper advance planning is made before advent of each season in consultation with PSMA for smooth functioning of sugar industry and sugar supplies.

b) After two consecutive years of sugar exports, Pakistan fell in reverse gear during the 1999-2000 season and has to import 420 thousand tons of sugar, at a hefty US$ 104.123 million, in scarce foreign exchange resources. Inspiring optimism of having a firm foothold in the sugar export sphere was ripped in no time. This setback, however, must give us strong reasons to review the situation of relapse critically so as to identify lapses and measures to overcome them. Odd events need not be side tracked but to be assessed carefully so as to avoid their repetition.

The PSMA have all along ardently advocated its learning from the past practical experiences, crystallised in the concept. It is the sugarcane farm sector which retains its core feature in good or bad patch of performance by the sugar industry in the national economic scene. Sugar is produced in the farms and processed in the factories. This fact deserves placement in sharp focus to guide at all times and events with a view to keep sugarcane and sugar production in good stead. No other clue becomes a remedy for good going of the growers, the industry, the consumers and the government, four strong stakeholders to share equitably of their efforts and contribution in making sugar show superb.

The government and growers have to share the view of the sugar industry that it is not emphasis mere of export of sugar alone, but it will lead the show of export of byproducts like molasses, industrial alcohol and inspire for further integration in producing a number of more value-added products, possessing potentials of processing from the raw byproducts coming simultaneously out of sugar processing .

Such a promising chain of growth and development in diversified forms squarely depends upon the roll out of sugar, in matching equation of sugar processing capacity installed in the country. Entire strategy ought to converge on this point.

c) The strategy to achieve the above goal will prevent import of sugar and some other products coming out of its process and save forex spendings. For these objectives to attain sugar production needs a fair estimation well in time, before the odd tides proverbially sweep away. Fair determination of the sugarcane crop volume and its quality latest by the commencement of the crushing season is inevitable. In case of no alternative to import of refined sugar, the system be rationalised with levies on domestic sugar production at (i) federal, (ii) provincial and (iii) local levels and in consonance with the sugar production cost framework in the country.

d) Sugar industry deserves a fair market price keeping in view its production cost plus economic return on equity as sugar production cost is influenced to the extent of about 85/90% by the government policy framework. Sugarcane cost and sales tax account for as much as 73.7% of the cost of sugar production.

The PSMA-SZ have persistently approached the top echelon of the Sindh government, inviting its attention to plathora of problems being faced by the Sindh sugar industry and their becoming unbearable and impress the need for their addressing becoming sick and in the process disrupting the rural economy of Sindh in general and of its southern tip in particular, latter being the best suited cite for cultivation of sugarcane crop. Several issues were identified as awaiting attention, action. Dialogue has been on-going about them and hopefully, good result of it, by mutual understanding, would arrive at shortly. Some of the major issues in this regard relate to:

1. Regularisation of the agreement about the rate of sugarcane cess fund contribution.
2. Evolving mechanism for sugarcane cess fund's appropriate utilisation.
3. Doing away with the surcharge on sugarcane cess.
4. Exempting sugar industry from market committees for collection of fee.
5. Revision of sugarcane price mechanism and its payment schedule on fair basis.
6. Constitution of sugarcane promotion board.
7. Revision of the Sugar Factories Control Act/Rules, 1950 having become outmoded, by new effective lines so as to promote sugarcane growers and sugar industry's interests, seen as common and indivisible.
8. Creating sound marketing mechanism for sugarcane supplies to the sugar mills so that coordinated harvest and crushing takes place as it will improve sugar recoveries, avoid sucrose losses and curtail unproductive transport costs of long hauls.

Some problems relate to the federal government to attend and solve. These have been:
1. Sales tax on bagasse for 1996-97.
2. Input tax adjustment on consumption of stores, spare parts, PoL products & lubricants etc.
3. Road cess and surcharge demand by Sindh government.
4. Quality premium in Sindh province.
5. Linking of sugarcane price to recovery.
6. Creation of Development Zones.
7. Adequate availability of working capital finances.

The dialogue on these and allied subjects has been in progress. Its results would have soothing effect on the sugar economy of Sindh where it has acquired a cardinal place in the overall industrial structure.

ASHRAF W. TABANI
Chairman
Pakistan Sugar Mills Association
Sindh Zone

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