Cost and revenues

Cost of sugar procurement kept persistent move up and up, specially in Sindh, due to the precise reason of declining production and supply of sugarcane. It was not a fair manageable proposition by the sugar industry segment notwithstanding its per-sistent stride in improving the efficiency factors. Regular and unrestrained modernisation and replacement strategy kept in chase notwithstanding, escalating cost of sugar production could not be checked and contained. Sugarcane continued to be the major cost component and a constraint, defeating all other economy measures. Sugar manufacturing being a full-scale process to be functional at a time, sugar industry needs raw material input at a level quite higher than restricted sugarcane supplies. This feature of operational economies kept pushing sugarcane prices, in a bid to reach the efficiency level earmarked by each mills.

The other grinding wheel had been a great persisting obsession of the authorities concerning sugar prices and strong urge emerging in keeping them under stretched pressure, which is evidenced by liberal sugar imports spreading throughout the year, with frequent changes in policy structure tilting in favour of trade. As if this was not enough, effective sales tax on sugar prevailed at 18%, taking off crumbs, if at all left with exceptionally extra efficient units of the industry. These critical issues deserve to be carefully addressed in search of real redress, earlier the better, so as to save the engine of rural economic development and growth.

The major component of cost is the sugarcane price. How sugarcane price influenced cost of sugar production and how fared wholesale price trend of the Sindh sugar industry and its emerging impact can be gauged from the relevant representative data of the past five years.

						Wholesale sugar price per kg.
Year	Recovery % price per	Sugarcane support price per 40 Kgs, RS.	Cost of cane per kg of sugar price Rs.	Average actual sugarcane price Rs.	Cost of cane per kg of sugar Rs.	Excl. sales tax Rs.	Sales tax Rs.	Including sales tax Rs,
1994-95	9.20	20.75	5.64	25	6.79	11.11	2.10	13.21
1995-96	9.75	21.75	5.58	31	7.95	14.33	2.10	16.43
1996-97	9.97	24.50	6.14	50	12.54	17.20	2.10	19.30
1997-98	9.92	36.00	9.07	44	11.09	15.08	2.21	17.29
1998-99	8.96	36.00	10.04	40	11.16	15.86	2.25	18.11
1999-2000	9.18	36.00	9.80	46	12.53	18.16	2.52	20.68
Annual simple average increase %	9.46	14.69	14.75	16.80	16.00	12.69	1.42	11.30
2000-2001	9.22	36.00	9.76	61	16.54	21.18	3.65	24.83

Cost of sugar production during the past five years, 1994-95 to 1999-2000, increased at an average of 12.83%. In the same period, cost of sugarcane registered an average increase by 16.80%.

Cost of other components in sugar production was controlled by the sugar industry, which is evident by sugar manufacturing cost increase being lower by 3.54% than the increase in cost of sugarcane.

Wholesale sugar prices without taxation in this period increased by average of 12.69% and with tax by 11.30%. Increase in tax incidence could not be fully absorbed in sales price.

This gap increased in growth rate of wholesale price including sales tax and cost of sugar production by 1.53%. This denuded earning of the sugar industry.

Sugar industry's disarray, according to the analysis, is due to high incidence of sugarcane cost in cost of sugar production and deterrent of raising sugar prices in proportion to increase in costs of sugarcane and sugar production.

Sugar industry's sustainable economic performance depends on sugarcane price and linking it with sugar price. Sugar price needs to be allowed a proportionate increase instead of suppressing it by imports.

Potential of sugar industry is immense, awaiting fine tuning in policy framework and functional structure, both to be geared to their best. The overall result could be remarkably rewarding, eventually in economic growth of Pakistan. To what an extent the potential exists and at what a low level it is utilized can be seen fromthe sugarcane crushing and sugar production capacity available vis-a-vis its utilization giving on an average a low operational efficiency.

Season	No. of units	Sugarcane crushing Tons	Estimated crushing capacity Tons	Operating efficiency %
1991-92	51	24,795,816	37,885,126	65.45
1992-93	53	27,276,186	44,445,472	61.37
1993-94	62	34,181,899	45,887,903	74.49
1994-95	66	34,193,290	46,524,601	73.50
1995-96	67	28,151,434	48,528,524	58.01
1996-97	70	27,352,918	51,405,597	53.21
1997-98	75	41,012,473	52,895,109	77.54
1998-99	76	42,994,911	55,157,140	77.95
1999-20	78	28,982,711	55,163,129	52.54
2000-01	78	29,403,721	55,163,129	53.30

Situation prevailing in Sindh fared still worse, as can be seen from the following details.

Season	Sugarcane crushing Tons	Estimated crushing capacity Tons	Operating efficiency %
1991-92	11,956,718	15,430,500	77.49
1992-93	12,724,944	16,870,500	75.43
1993-94	13,031,888	18,310,500	71.17
1994-95	12,037,995	18,310,500	65.74
1995-96	10,341,335	19,030,500	54.34
1996-97	10,314,835	21,910,500	47.08
1997-98	13,853,313	21,910,500	63.23
1998-99	15,095,412	23,535,098	64.14
1999-20	10,856,757	23,535,098	46.13
2000-01	10,495,339	23,535,098	44.59

The potentials need to be fully exploited so that entire valuable investment in this wholly agro-based key industrial segment is efficiently utilized and no part of it stays put.

The core problem is increasing sugarcane production through intensive crop pattern, i.e. improving the yields. This shall improve efficiency of sugar industrial capacity utilisation. Potential to increase sugarcane output through yield is immense. This needs to be properly exploited on priority, to serve vital economic ends and of the sugar stakeholders.

During the past decade, Pakistan encountered contrasting situations of short and excess sugar production, resulting from wider swings in sugarcane production. Pakistan has been a good but unpredictable player in the global sugar market. Having potential to produce sugar quite more than its requirement, Pakistan need to carve a predictable path of surplus, supplying sugar to deficit countries. It can have a good market at door knocks in the adjacent countries of Asia and Central Asia, to which it can have easy access.

Year	Imports	(Quantity in tons) Export
1990-91	433,320	--
1991-92	116,892	--
1992-93	75,156	--
1993-94	47,669	121,565
1994-95	5,188	315,866
1995-96	3,480	--
1996-97	681,083	--
1997-98	109,393	457,471
1998-99	10,125	616,095
1999-20	66,627	--
2000-01	487,621	--
2001-02	619,754	--

Unpredictable performance of the sugar industry in Pakistan, as evinced by fluctuating trend of sugar production, provided properly assessed, is attributable to low level of sugarcane yields and so also sugar recoveries. Reason in both cases is quality of sugarcane. Over the years, no meaningful efforts have been made in the direction of research and development. Mostly confined to the public sector agencies, it has succumbed to administrative fiats and no real R&D.

Some spadework, at least taking timely care of inputs, which existed during the well demarketed field areas, attached with specific sugar mills, got not just disrupted but disbanded during 1988 by dismantling the vibrant structure.

Sugarcane needs consistent research work to keep its quality free from strain and stress. Its neglect has been a colossal loss to (a) the farmers in form of lower yields, (b) the mills by lower recoveries, (c) consumers by lower sugar availability and (d) the exchequer by reduced tax revenues and increased import cost.

Area under sugarcane crop has been around one million hectares during the past eight years. Sugarcane production fared in aggregate range of 35 million to 55 million tons, which was precisely due to lower average yields, in between 39 to 50 tons per hectare.

Year	Area Hectare Tons	Production Tons	Yield per hectareTons	Utilisation % by sugar mills
1990-91	883,800	35,988,700	40.72	62.80
1991-92	879,800	34,204,000	38.90	72.49
1992-93	884,600	38,058,900	43.02	71.67
1993-94	962,800	44,427,000	46.14	76.93
1994-95	1,009,000	47,168,444	46.75	75.49
1995-96	963,100	45,229,700	47.00	62.24
1996-97	964,511	41,998,409	43.54	64.65
1997-98	1,056,200	53,104,200	50.28	77.29
1998-99	1,155,100	55,191,100	47.78	77.90
1999-20	1,015,073	46,696,673	46.00	62.07
2000-01	926,542	44,099,146	47.60	66.69

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 support price has been the root cause of current malady. The sugar industry is roughly dealt by several ministries at a time, in piecemeal menu. A promising industry, (a) with great potential to energise rural Pakistan, (b) to contribute substantially to socio-economic growth and development and (c) able to earn handful of forex, resultantly remains stuck up with uncertain future.