A STUDY was undertaken in 2003-04 to determine the competitiveness of sugarcane production in NWFP with special reference to the official policies whether they helped or discriminated against the sugarcane activity. Another major objective was to assess whether Pakistan qualifies for the export of sugarcane/sugar or should produce sugar as import substitution strategy to ensure food security. Let us take a look where do we stand now.
Sugarcane production is characterized by a shorter than normal growing cycles and relatively low yields as compared to international standards (60 tones). Its share in value- added in agriculture and gross domestic product (GDP) are 4.2 and one percent respectively.
The sugar industry contributes around Rs4 billion under the head of excise duty. The industry directly employs over seventy-five thousands people, including managers, technicians, engineers, financial experts, skilled and unskilled workers. The sugar industry holds a relatively important position in agriculture, agribusiness and food consumption.
In agribusiness, sugar is second in total sales after textiles. To the consumer, sugar is an essential commodity like vegetable ghee or flour. Because of the size of the sugar industry and its importance to the consumer, sugar is subject to a number of policies and government interventions. However, the sugar policy to date has been characterized often by conflicting objectives: a) self-sufficiency in sugar production; b) ensuring availability of sugar to consumers at low prices; c) raising government revenues by taxing sugar production.
To achieve self-sufficiency, the government has maintained high support prices for sugarcane and provided protection to the domestic sugar industry by imposing tariffs and other controls on the import of sugar. At the same time, the government has administered the marketing of white sugar including its rationing at fixed prices to keep its price low for urban consumers. The sugar industry has also been subject to high excise taxes that over time have become an important source of the government revenue.
These policies have met with only partial success. Price and distributional controls were basically unsustainable over the longer run due to the potentially large subsidies that would have been necessary in order to keep consumer prices low and also because it did not encourage more sugar production.
Heavy taxes on white sugar production has restricted the ability of the mill sector to compete for available cane supplies and led to under utilization of capacity. Also, despite high support prices, cane production has stagnated in recent years and yields have remained low. The result is a relatively high cost sugar and large imports to meet domestic shortage.
The policy making is fairly complex and a number of agencies are involved in shaping of sugar policy. The leading role however, appears to be that of the Ministry of Food and Agriculture and the various committees including Agriculture Price Commission and All Pakistan Sugar Mills Association.
The sugar policy suffers from a number of weaknesses. These include: a) an excessive short-term outlook b) a lack of economic policy analysis capability in the relevant ministries c) a single-crop approach to pricing policies which does not adequately take into account the effects of support prices on other crops; and d) ineffective involvement of growers and other stakeholders.
A comprehensive research and policy analysis is therefore needed for all the factors at the farm level and at the industry level that causes low profits for the farmers and high cost of sugar production.
Pakistan ranks fourth in sugarcane production and holds seventh position in yield which is about 50 tones per hectare as compared to the yield of India and Egypt who are getting 66 tones and 105 tones per hectare, respectively, while the world’s average is around 60 tones.
Despite a strong production base, the sugar industry with seventy-six units and installed production capacity of five million tones, has always suffered from 50 percent capacity utilization due to lower cane production and the diversion of cane to gur making industry. The total production of sugarcane was 52.01 million tones, but only 41.92 million tones were crushed by sugar industry, indicating 80 percent utilisation of cane in sugar production.
Pakistan is the twelfth largest sugar producing country and the total production of sugar during 2002-03 was 3.6 million tones as compared to 3.02 million tones during 2001-02. The sugar recovery of about nine percent in Pakistan is also low as compared to 12-14 percent standard recovery of other major sugar producing countries.
The cost of sugar production has been increasing due to persistent increase in the support price of sugarcane. Theoretically, higher support prices should have stimulated higher production of sugar cane but cultivation of low yielding cane varieties and inadequate crop management have failed to boost output of this important cash crop. These two factors along with higher central excise duty have been responsible for higher sale price of sugar.
The average world per capita consumption of sugar for the year 1998 was 20.9 Kilograms, whereas in Pakistan it was 19.0 Kilograms. Currently per capita requirement of sugar is about 21Kg in addition to those of gur. The domestic consumption has never exceeded 3.1 million tones.
The import of sugar is a makeshift arrangement to overcome a temporary short supply. The sugar import has caused damage to industry rather than to stabilize price in the open market. It has been mainly due to ill-timed imports and quantity imported being much higher than desired. Ill-timed imports have affected lifting of sugar from mills in the past few years.
Despite a potential for surplus output, Pakistan cannot afford to utilize it for export because the prevailing prices of sugar in the international market are much cheaper.
Sugar industry operates without any definite policy framework. The industry, which is the second largest after textile industry and has a direct bearing on the lives of millions of farm workers, is at the mercy of those who hardly understand industry mechanics.
The decision-makers are very sensitive to any increase in sugar prices but are least concerned about spending millions of dollars on ill-timed import of sugar. Other interest group tries to protect sugarcane growers by simply increasing its support price; still another group resist any increase in sale price of sugar. The millers face problems whether there is a shortage in sugarcane supply or surplus production of sugar.
With the current trends of competitiveness in the world trading systems in general together with WTO, we can no longer continue our traditional administered and insulated farm economy. We should have well-defined and well-analysed policies in line with global trends in agricultural markets.
Area under sugarcane has increased over time, but the increase in productivity per unit area has been very low. Therefore, efforts should be made to improve its productivity. As a result of these efforts substantial improvement can take place in its yield. Improved seed production, quality control and distribution depend largely upon the availability of skilled and competent manpower, which is insufficient. It was realized during this study that low support price of sugarcane encouraged to a large extent, the diversion of cane to gur making.
Our study indicated that cane enterprise could be undertaken as a measure of import substitution but not for export promotion. As most of the cane production is utilized by the sugar industry, generalizing the data we can say that Pakistan should produce sugar as a measure of import substitution for which it has high comparative advantage, instead using it for export promotion where it has comparative disadvantage.
One of the objective of the study was to determine whether the policy incentives have favoured or discriminated against cane production. The results revealed that generally the production of cane was discouraged and not supported by policy incentives. Farmers received less than the world prices during 2003-04 harvest year.
Some policy recommendations coming out of this study are already spelt out. The most obvious policy implications are laid as follow.
* The farmers, agricultural scientists and policy makers should put emphasis on increasing cane yield rather than increasing price support. Price support improves farmer’s income in the short run but for sure increase the production cost of cane in the long run due to price support capitalization into the land values.
* The analysis of the study showed that tractor is the main source of land preparation, transportation of farmyard manure and transferring of cane from field to mills. It is recommended that indigenous technology for tractor production at home should be introduced to provide tractors to farmers at affordable prices.
*Up to date and timely information regarding inputs, inputs prices especially availability of improved cane varieties, output market prices, and agricultural and macroeconomic policies should be ensured which are important parameters to improve the competitiveness and comparative advantage of sugarcane farmers.
* There is food policy crisis rather than food crisis. A serious and sincere effort is needed on the part of policy makers to make agricultural, trade and micro-macro policies consistent with our food policy objectives to achieve food self sufficiency and ensure cheaper and safer food to the people.
* In Pakistan ratoon crop forms 50-60 percent of the total cane crop, which is usually considered as a “free crop” and given no proper attention that results in 30-40 percent less yield. This crop needs proper attention to enhance the yield up to its potential.
* Dissemination of improved sugarcane varieties through field days/farmer’s training and demonstration plots.
* Though forcing a farmer to sow or not to sow in the garb of zoning cannot be regarded as legitimate, there must be a system under which growers and millers should make agreements regarding prices, quality and quantity of sugarcane to be purchased by the factory before sowing crop in order to avoid any tussle and complication.
* Timely payments to the farmers for their produce should be ensured.
