Economic policymaking is all about trade-offs. A bad trade-off makes the economy suffer.
“Mushroom growth of sugar mills in the main cotton-growing areas of Southern Punjab and Sindh has placed the cotton crop in direct competition with sugar cane for area and resources,” says the State Bank of Pakistan (SBP) in its first quarterly report of the current fiscal year.
When a new sugar mill is set up in an area, it incentivises farmers to switch over from cotton or other crops to sugar cane.
Sugar mills are mostly owned by top politicians or their frontmen or financiers. That makes the formulation of a realistic policy on crop rationalisation more challenging
New sugar mills began springing up — and the government started focusing more on the cultivation of sugar cane — with the beginning of Asif Zardari’s era from 2008-09. The trend continued during the days of Nawaz Sharif, too. At the end of 2007-08, there were 78 sugar mills, according to the Pakistan Sugar Mills Association (PSMA). The number went up to 89 in 2017-18.
Had our policymakers been mindful of the fact that the area under cotton cultivation would shrink and adequate input resources would be unavailable for cotton as a result of mushroom growth of sugar mills, they would have made a different choice.
Apparently, they went for the negative impact on cotton with all anticipated benefits of growing more sugar cane. A bad trade-off indeed as cotton is the lifeline of our textile industry, the largest foreign exchange earner and the biggest job provider.
Our cotton production routinely falls short of the needs of the textile industry. An unusual shortage could hit the textile industry’s export performance and push up the total import bill with increased imports of cotton.
Imports of raw cotton increased from 450,000 tonnes in 2012-13 to 610,000 tonnes in 2017-18 as local production failed to meet the textile industry’s demand. In the outgoing fiscal year, the cotton output totalled a little less than 12 million bales against the target of 14m bales. Imports of the commodity consumed $1 billion-plus. Can we afford this at a time when the country is facing a foreign exchange crisis?
Sugar exports somewhat compensate the cost of cotton imports. In 2017-18, we earned half a billion dollars through exports of sugar. That could not have been possible without a surplus in sugar production, sugar millers argue.
According to the SBP, the sugar cane output totalled 82.1m tonnes in 2017-18 from $73.4m tonnes a year earlier — an increase of 11.8 per cent. Just how fast the sugar cane output has been growing can be gauged from the fact that if we compare the 2017-18 output with 62.8m tonnes of 2014-15, we see about 31pc growth in just three years.
An intriguing aspect of the excessive cultivation of sugar cane is that often the surplus cannot be exported without offering the millers some sort of subsidy. This happens due to delays in finalising sugar export plans, high cost of domestic production and international market conditions.
The SBP quarterly report points out that in the last fiscal year, the monthly average price of local sugar stood at $448 per tonne compared to the global average of about $330.
The government had to give a subsidy of Rs14bn on sugar exports. What is more intriguing is the fact that larger sugar cane outputs year after year are not even helping farmers. Millers pay them less than the indicative or support price of the commodity. Particularly, small growers suffer due to this anomaly. Yet the government continues to spend billions of rupees under commodity pricing subsidies. So technically, sugar exports are costing more to the government than the accrued benefits as a significant expenditure is incurred on facilitating these exports, according to the SBP’s quarterly report.
According to a WWF Pakistan chapter report of 2012, growing sugar cane also consumes more water: 0.05m cubic meters per hectare against cotton (0.02mcm per hectare) and even rice (0.03mcm per hectare).
For several years, Pakistan’s water woes have been growing. The scarcity of water continues to ruin the prospects of crop outputs in large parts of Sindh, Balochistan and some areas of Punjab. Can we afford to promote sugar cane at the cost of cotton knowing that the former consumes more than double quantity of water than the latter?
The answer is obvious. But the problem is that sugar mills are mostly owned by top politicians or their frontmen or financiers. That makes the formulation of a realistic policy on the rationalisation of major crops more challenging.
Perhaps the time has come to open a debate on this subject in parliament and set up a parliamentary panel to probe the issue. The task force on agriculture set up by Prime Minister Imran Khan can hardly do this. Its recommendations would likely be opposed fiercely by the top leadership of the opposition that has vast stakes in the sugar industry. “Even the politicians of the treasury benches with a vested interest might resist,” says a senior official of the Ministry of National Food Security and Research.
“But if we don’t limit sugar cane cultivation, the economy might continue to suffer due to the erratic output of cotton and rice. That, in turn, might keep net textile exports low and affect growth of rice exports.”
Perhaps it’s time to initiate a major crop rationalisation plan with the consent of the provinces, focusing on ensuring food adequacy, effective use of water, higher per-hectare yields and highest export value of the surplus output. But encouraging farmers to switch over from sugar cane to cotton, rice or any other crop will also require the introduction of solid provincial work plans with feedback from farmers’ lobbies and local and international experts on agriculture. n
Published in Dawn, The Business and Finance Weekly, February 18th, 2019