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Problem of Sindh sugar industry

Sugar industry is crushed by burden of high cost of production, more so in absence of commensurating increase in price line of the end-product. This bad patch seems growing larger during the recent years. Its bang effect has made some units of the industry victim. Adequate safeguards need to be put promptly in place. These have assumed priority so as to protect the sugar industry, a well recognized outfit for growth of rural Pakistan. Slow search of a suitable remedy could drag sugar industry in pool of perils.

Some major cost escalating factors are being rundown in their relevant importance to give some insight to the nature and magnitude of myriad problems.

a) High cost of sugarcane:
Sugarcane support price was pushed up out of proportion in the recent past to Rs.36/= from Rs.24.50 per unit of 40 kgs. Its crushing blow was not fully absorbed as yet. Now indicative price of it has been raised further to Rs.43/= per 40 kgs for the next season of 2001-02. The Agricultural Price Commission assessed on average cost of sugarcane production, inclusive of land rent, at Rs.30.32 per 40 kgs of sugarcane for 2000-01 for the quality of sugarcane specified at average recovery of 8.7% for Sindh. Restraint required to be observed in retaining price at Rs.36/= towards adjustment against steep increase in support price administered in 1997-98 in one go. Its similar containment until sugar cost-price gets in gear to equitable dispensation could prove an appropriate strategy to execute. Sugarcane support price be assessed by the cost of its production in consultation with the Pakistan Sugar Mills Association. No other formula could be appropriate. This having been abandoned recently is regretted.

Sugar prices could not rise at any time to level off the crushing burden laid on the industry by disproportionate nature of administrative sugarcane support price and the actual price going still higher. Their imbalance can be gauged from the comparative position of sugarcane support price and sugar wholesale price trend ,over the past 10-years.

Comparative statement of sugarcane, sugar prices

Sugarcane support price doubled within four years and tripled in eight years. The latest increase of indicative price to Rs.43/= is 19.5% in one push. Though support price of sugarcane is not any reality to sugar industry in terms of actual price, it is a customary practice being followed year after year bearing no salutary influence of it. This time around the change is in terminology, changed from supportive to indicative price.
No industry can absorb increase of such a magnitude in cost of its raw material. During the decade, sugarcane support price registered a phenomenal at 153 percent increase.

b) Proper price mechanism for sugarcane:
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.

Area, production and yield of sugarcane

Source: Ministry of Food, Agriculture & Livestock

The yields have generally been on sliding scale, which for the year 2000-01 fell behind the level reached in 1997-98, ignoring area being steady. The given yields have been highly unsatisfactory and, therefore, less rewarding for the growers and impinging upon the sugar industry prospects.

By relative world reckoning of yields, after providing for allowance of subtropical climate, the yields and recoveries are both low and can be substantially increased through Research and Development and adoption of promotional policy framework. Improvement in productivity is essential to retionalise cost of sugarcane production.

Conventional sugar research be replaced by dynamism on engaging private sector for this agro-based industry which holds requisite inter-active base with the sugarcane farmers.

c) Quality premium:
Rate of quality premium was raised out of context in 1998-99 to paisa 50 per 40 kgs. of sugarcane. It meant 56% increase per 0.1% incremental sugar recovery over 8.7% benchmark. The payout exceeded by about 22% on assumed saving 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, now subject to litigation, in its present form is detached from the objective with which it was introduced several years ago. The system had basic flaws when it was introduced and with the passage of time it were widened by which 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 per 0.1% incremental sugar recovery over benchmark of 8.7% for Sindh. Mechanism of quality premium is totally irrational. In the free market price of sugarcane, much higher than the support/indicative price, the QP bears no standing. Higher price of sugarcane absorbs much more than QP to be determinable on availability of sugarcane at prescribed support price.

d) Tax distress:
Sugar is an essential consumer item. Yet it has been subjected to rigours of taxation. Sales tax at effective 18% is typically big drain and forms 16 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 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.

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