MR. K. ALI QAZILBASH SECRETARY GENERAL

RASHID PLAZA, JINNAH AVENUE

ISLAMABAD

PHONES: 051- 2270525 & 2823971 FAX: 051-2274153

ANNUAL REVIEW 38™ ANNUAL GENERAL MEETING 04^{th October' 2003}

I welcome you on behalf of the Central Executive Committee, at the 38^{th Annual General Meeting of the Pakistan Sugar Mills Association. Historically, our meeting is held at the end of the sugar year to jointly review the overall picture, and discuss what industry has been through during the year.}

All-important concerning events and efforts are put on record, and future strategy is discussed to have a unanimous view. Unfortunately, in the past due to lack of cohesion the industry has suffered tremendously and today we require to take measures to save the interest of the industry, farmers and the end consumer with selfless devotion.

During the last three years the industry has suffered on account of a glut created in the year 2000-01, when during the shortfall at the end year 2000, traders were allowed to import over 1.0 million tonnes of subsidized sugar resulting in a surplus of 621,000 on 30^{th Sept' 2001.}

Since then, we had two years of good harvest which increased the surplus stock to 759,000 tonnes on 30^{th Sept' 2003, in-spite of the export purchase of 100,000 tonnes made through TCP, and the annual increase of 85,000 tonnes in the domestic consumption each year. During the year the consumption also increased on account of excessive sale of over 150,000 tonnes of sugar as carry along ration by about 250,000 Afghan Refugee families returning home and the unrecorded direct sale to Afghanistan from the local market ultimately going up to CAR states.}

Our past two years annual reports highlighted the events that led to the low tariff adjustments to facilitate traders dump the subsidized sugar, restricting the sale of the indigenous sugar. Without going into further details that led the industry into present situation, it is worth mentioning that during this period of three seasons over thirty meetings took place with the Ministers and the senior officials of the Ministry of Finance, Commerce, Industry and Food, drawing their attention to the situation, which ended precariously with fresh promises.

We also recall that during our meetings a single figure controversy would provide an excuse to delay the decision. For instance: -

* In the beginning of each season, the crop condition and sugarcane production is advised much lower than the PSMA estimates.

* Sugar production is disagreed till the crushing ends.

* Consumption is disagreed till the season ends.

* With all these factors applied, the end stocks are disagreed till close to the start of next season.It is on the approach of the new season that the figures are reconciled, and fresh threats and promises are made with the advise to commence early crushing and make prompt payment to the growers. So once again, we go through the same cycle of promises with no progress on ground.

In the past years, we have noted that the sugarcane plantation has been more or less, on 1.0 million Hectares. The variation from this figure has been within a range of (+) 15.5% in 1998-99 i.e. maximum and (-) 4 % i.e. minimum in 2000-2001. Similarly the yield has been varying between 50-42 tonnes' per hectare depending on the quality, health and water availability for the crop during the particular year.

Sugarcane plantation in 2002-03 crop was over an area of 1.0997 Hectares that produced well over 52 million tonnes. The Mills utilized 41.79 million tonnes of sugarcane i.e. about 80.28% of the total cane production, with a yield of 3.66 million tonnes of sugar, an all time high production in Pakistan. With addition of the beet sugar and a small quantity of sugar processed from raw sugar the total production ended up with 3.677 million tones, and 2.05 million tonnes of Molasses.

At the start of this year under review i.e. on 1^{st Oct 2002 the sugar stock balance was 637,000, which ensured the availability of 4.323 million tonnes against a projected consumption of 3.324 million tonnes. Ending stocks on 30th Sep 03 were foreseen at about 860,000 tonnes.}

The situation warranted serious consideration as the prices were alarmingly on the slide. After considering 300,000 tonnes as buffer stock for consumption in Oct' 03, the balance stock of 560,000 tonnes was declared as net exportable surplus, for the disposal ofwhich efforts were geared up to convince Government, for a relief to secure the future of the industry and the sugarcane growers.

ECC's decision on March '03 was welcomed by the industry, which instructed export of 300,000 tonnes of sugar through T.C.P. After the TCP had financial approval, it proceeded with the export of first tranche of 100,000 tonnes. With the first tranche still incomplete, i.e. 20% stock still laying with the mills, no further action was taken for the export of the balance. Therefore, the year has ended up with the balance stock of 759,000 tonnes on 30^{th Sept' 03.}

Nature has been very kind for the past two years, and water supply in the most areas of the country has been in abundance, which resulted in high sugarcane production. Our forecast came true when the year 2002-03 ended with high stocks as foreseen by us an year earlier.

Winter rains and recent monsoon has further brightened the crop production estimates for the year 2003-04. With the exception of some areas where rains and floods have damaged a portion of the sugarcane crop in southern Sindh, we have satisfactory reports from the rest of the country. Preliminary estimate shows that the sugarcane plantation is over an area of 1.086 million hectares, marginally lower than the past year and not 4-7% as stated in the press, whereas the yield is expected to show a boost in the cane crop much higher than the expectations.

In the recent estimates for 2003-04 world sugar production is averaged at 145.4 million tonnes raw value i.e. 135.9 million tonnes white. World consumption is foreseen at 143.0 million tonnes raw i.e. 133.6 white. Global sugar surplus of 2.30 million tonnes is forecasted in the preliminary reports for 2003-04. Thus 2003-04 is likely to be another surplus year in a consecutive row of 10 years, and oversupply plus large stocks held internationally are likely to continue to keep the world sugar prices under pressure leaving little hope for a sustained recovery in the world sugar market. Thailand has already capped its sugarcane production to 65.0 million tonnes and has guaranteed the cane price at about 5807- bahtper tonne i.e. around Rs. 8257- per tonne, equivalent to Rs. 337- per 40 kg, having average sucrose contents of 10.3% (ISO).

Recently Brazil and Australia together with Thailand filed their complaint with the WTO against lavish subsidy on Sugar export provided to 15 nations by the European Union.

EU is one of the world's largest Sugar buyer, and procures about 1.7 million tonnes of Sugar annually having extremely low custom duty from 19 ACP countries which are considered small and vulnerable and largely dependent on only one commodity i.e. sugar. European Union buys from these countries and exports the surplus by giving high subsidies, against which Brazil, Australia, and Thais have protested, as these subsidies have artificially depressed the world Sugar market prices. EU is also playing a role of large size sugar exporter distorting world sugar prices with multibillion Euros subsidy. ACP: - Agriculture Common Policy (Countries)

Agriculture including Sugar was the core issue in WTO round at Doha Qatar during the free trade negotiations, which later headed to Cancun- Mexico held recently.

Appropriate policy adoption to offset the negative policy of WTO regime was expected, as agriculture is the single largest sector of our economy with a limited market access. European Union and US were expected to take a joint position in farm trade position.

Failure of Ministerial meeting to a draft resolution was an expected bad news, as its blockade was indicated. This has certainly communicated a damaging signal for the countries hoping for an economic recovery, as developing countries were justified in demanding a substantial reduction in the lavish subsidies and a fair market access. We wait and see what happens in the next rounds, while the pressure for action from many countries is mounting.Conclusions

Present stock inventory, higher than the previous year by 17% and the expected next year's harvest is once again posing a threat. The global surplus and the continued downward price trend will also have a direct impact on our domestic prices to remain depressed.

It is well in your knowledge that PSMA opted for a desperate move by offering a self financing scheme to export 15% of the stock held on 30^{th April' 2003, with the condition of levy of penalty in case of mills unable to export. A limited period was suggested to the Government to achieve optimum benefit in an effort to stabilize and curb the sliding prices. The offer was later withdrawn after the laps of its effective period.}

In the meantime with ECC's approval TCP was asked to purchase and export 100,000 tonnes of sugar. The export is still in progress, which could hardly bring any effect on the market due to a smaller quantity movement in six months. 20% of TCP's purchased stock is still lying at the mills godowns.

With the score of these events and our successive meetings with the Government we should now realize the necessity of self help.

It is not very late to own up to our mistakes and realize that the domestic price of sugar fell from Rs. 267- in Jan 2001, to Rs. 207- in Sept 2003, in the retail market. The market crashed Rs. 67- (23%) within a period of less than three years. Whereas, the sugarcane support price was increased from Rs. 35/36 to Rs. 40/43.

Sugarcane farmers also had some bitter moments, whereas loss of revenue to the Government was obvious. We are afraid the worst is still to come, and thegrowers will have to face the brunt of it in the face of changing situation in the coming season i.e. linkage of sugarcane prices with sucrose contents and market price.

In a recent move Government has shown its interest by approving purchase of another 100,000 tonnes of sugar from the mills for a buffer stock, on the condition that the grower's outstanding are cleared and the industry pledges to commence the crushing season 2003-04 by no later than 1^{st Nov'2003. This beside making no impact on the domestic market would rather destroy the price mechanism and stability.}

However, PSMA has so far declined to response till a consensus is achieved from our member mills at the General Body meeting today.

* In the meantime PSMA has suggested a fresh proposal to the Government for

the export of 400,000 tonnes by TCP with the help of funds to be generated by the levy of an export surcharge of Rs. 0/60 per kg on the domestic sale of 2003-04 only, through CED. This is a fair proposal, which could lead such ventures with mild effect on collection and the domestic market.

In case we fail to pursue the Government to accept this proposal, then we must be prepared to consider alternative means to support the export loss through a workable and united decision to resolve our problems rationally. Present situationdemands extreme cohesion, and ability for joint implementation of decisions made at the Association level.

During Jan 2001 to Sept 2003, 9.148 million tonnes of sugar was marketed, sold at a retail price Rs. 26/51 Per kg down to Rs. 20/50 Per kg. A detail calculation confirms that the 9.148 million tonnes of sugar was sold in retail market for Rs. 204.292 billion, thus you arrive at an average retail sale price of Rs. 22/33. If the industry could hold the retail market at a fair price of Rs. 24/-, the same quantity would have fetched Rs. 219.558 billion.

Squarely the industry has sustained a loss of Rs. 15.265 billion on the basis of fair retail price evaluation. Had the industry supported an export of 500,000 tonnes by bearing a loss of Rs. 3.0 billion, it could have been in a different situation today, saving a major portion of the loss Rs. 12.265 billion sustained at the cost of only 19%.

We should now decide to take some measures for the future of the industry, and I wish we have the will and consensus to stand on our feet and revive the industry and secure its future i.e. self financed export.

To conclude I would like to thank the Chairmen and the Members of the Central and Zonal Committees for their help and co-operation. I shall still be looking forward for their valuable views and guidance.

Iskander M. Khan

Chairman 04 Oct' 2003

APPENDIX TO 2003 ANNUAL REPORT LIST OF ATTACHED STATISTICAL TABLES