HYDERABAD: Even though more sugar production is being anticipated this cane crushing season — which is nearing its end — as compared to 2019-20, consumers are unlikely to get any relief in the price of the sweetener as the rates are expected to cross Rs100 per kg in the days to come.
Millers like Ahmed Bawani, chairman of the Pakistan Sugar Mills Association (PSMA), Sindh zone, attributed the anticipated increase in price to higher cost of sugarcane paid to farmers “which is around 73pc of total production cost of sugar”.
“Average sugarcane price has been Rs275 per 40kg this season in Pakistan. The average price is Rs300 for lower Sindh; Rs250 in middle Sindh and Rs250 in upper Sindh region,” he said.
“In fact a little over Rs100bn has gone into Pakistan’s rural economy through sugarcane price this year, up from Rs70bn last year,” Mr Bawani added.
The Sindh government had fixed Rs202 per 40kg rate for sugarcane. Sindh is the second largest sugarcane-producing province after Punjab. Thirty-eight sugar mills are located in Sindh out of the total 84 mills in the country. Initially, 32 sugar mills started crushing, but later one mill in Badin was suspended for some reason.
Sugar recovery — or the amount of sucrose obtained from sugarcane — dropped by 0.3-0.4 percentage points this year when compared with last year’s recovery of 10.3pc, Mr Bawani said. The PSMA calculates recovery in each factory. Sucrose recovery in Sindh’s crop is more than Punjab’s — with the former’s recovery benchmark at 8.7pc against the latter’s 8.5pc.
Recovery remained over 10pc in Sindh during the last decade, as per Sindh Cane Commissioner figures. In 2019-20 it was 10.13pc. Last year, sugar production in Pakistan was recorded at 4.85 million tonnes. This year, production of around 5.5m tonnes is being expected.
Sindh produced 1,459,234.3 tonnes of sugar in 2019-20 and 1,719,302.8 tonnes in 2018-19. Around 14,286,367.152 tonnes of crop was crushed in 2019-20 and 15,930,654.722 tonnes in 2018-19.
A miller owes payment of quality premium against each decimal point of recovery to a grower if recovery crosses the benchmark in the crop supplied to the mill. This is, however, not being done in Sindh even though the millers lost an appeal in the Supreme Court in March 2018 after fighting it for two decades.
Sugar factories started cane crushing in Sindh in October, although the government had notified the date for Nov 30, 2020. Factory owners feel that mills might wind up crushing by end of February since they started work early. In Punjab, the provincial government threatened imposition of penalty on millers if they did not commence crushing as per notified date, they said.
Rising production cost
“I feel ex-factory rate of sugar will hover around Rs93-Rs95 per kg in the days to come and this will take retail cost to a little over Rs100 per kg,” conceded the Sindh PSMA chief. He noted that sugar is expected to become a bit more expensive depending on cost of production which is 73pc-75pc based on the cost of crop. “The government should ensure targeted subsidies for lower income groups under the Ehsaas programme through a reasonable formula to benefit deserving people instead of making sugar cheaper for the entire industry,” Mr Bawani added.
In his calculations, the sugar industry should subsidise around 500,000 tonnes for lower income groups, taking the government on board. Sugar retail price is jacked up after overall margin of Rs8-Rs9 is added in ex-factory price — involving brokers’ commission, transport cost, and wholesalers and retailers profits. Given the current price trend, retailers foresee sugar’s cost would be between Rs103 and Rs104.
Besides sugarcane cost, millers’ conversion charges are calculated at Rs10 per kg in crushing plus 17pc sales tax which goes to the federal government.
Bagasse and molasses
The millers get by-products — bagasse and molasses — from sugarcane and fetch additional income from their production.
Both are saleable commodities. Bagasse is used for cheaper electricity generation — at the rate of Rs7 per unit — when compared with conventional electricity whose tariff cost is worked by the Sindh PSMA chief at Rs18 per unit. Molasses is sold for ethanol production. A few millers have separate ethanol plants as well.
A 100kg bag of sweetener was sold for Rs69 per kg in wholesale while Rs71-Rs72 (depending on area) was the retail price recorded in November. In December-January the price hovered at Rs78 in wholesale and Rs80-Rs82 in retail. Currently the prices are pegged at Rs87 per kg in wholesale and Rs90-Rs92 in retail.
Talking to Dawn, Sindh Abadgar Board (SAB) Mehmood Nawaz Shah contested the PSMA’s ‘justification’s. “Sugarcane average is not more than Rs270 this season as mills had started buying cane at the notified rate of Rs202,” he said.“Every Rs50 increase in per 40kg sugarcane’s price translates into a raise of Rs10 per kg in sugar’s cost after deducting Rs2.50 per kg of by-products income. Four kilos of sugar is extracted out of 40kg cane besides the above-mentioned by-products,” Mr Shah explained.
“In 2018-19, the notified sugarcane price was Rs182 per 40kg and ex-factory sugar rate stood at Rs48-Rs50 per kg. So even if there is an increase of Rs100 in crop’s 40kg price, then ex-factory per kg sugar’s rate should not exceed beyond Rs20 per kg,” the SAB representative added.
Published in Dawn, February 17th, 2021