This year again, there seems to be a crisis-like situation in the sugar-cane growing areas of Sindh and Punjab despite the fact that the crop size is estimated to be all-time high at 52 million tons against an estimated 45 million tons at the time of sowing.

The sugar-cane crisis is making headlines in the national press while all the stakeholders, i.e. cane-growers, mills,consumers and the government, suffer. The loss also is also suffered by financial institutions providing credit facility to sugar-cane growers and crushers as they are not able to repay loans.

Workers in the seasonal industry who wait for major part of the year for the crushing season to begin hoping a job and sustenance also suffer because of delayed crushing. The crisis and the ensuing loss could be averted with better planning and co-ordination between the stake-holders. An integrated planning and decision-specific data management could create trust in the industry.

Sugar-cane is an important and one of the main cash crops of the country. Cultivated over an approximate area of one million hectares, a little more than 5 per cent of the arable area, its share last year in our agriculture value addition was 6.3 per cent and contribution to the GDP was 1.3 per cent. Last year the crop size went up by 10 per cent to 48 million tons.

Increase in yield per hectare also registered a growth of around 6 per cent mainly due to the conducive weather conditions and not as a result of any new research. The increase in yield for the last two years is also a problem mainly for farmers turning their boon into a bane. Better support prices induced the farmers to increase the area under cultivation adding more miseries to farmers in the handling of a bumper crop. The crop provides employment opportunities to more than a million people in areas where unemployment rate is very high.Sugar-cane growing and sugar industry, by virtue of their location,are definitely a good resource of alleviating poverty provided properly managed.

There are 77 sugar mills in the country (38 in Punjab, 32 in Sindh, 6 in NWFP and one in AJK) with an installed capacity of over 5.5 million tons almost double the domestic requirement of less than three million tons even after accounting for the smuggling to Afghanistan.

An unplanned addition of 25 new mills during the last decade has aggravated the problems in an inefficient industry. Rising support prices of cane year after year, announced by provincial governments, to compensate farmers for rising costs of agricultural inputs (seed, fertilizers, diesel fuel, irrigation water,labour, etc.) are driving up mills’ costs. Sugar mills can not recover these costs by revising selling prices. Last year’s carried-over stocks and cheaper sugar produced in neighbouring, and Pacific countries have rendered the domestic industry uncompetitive.

Pakistan has been unable to compete in the world sugar market. The main reasons of this disadvantage are; (a) low recovery of sucrose— lowest in the world—between 8 and 8.4 per cent due to varieties like ‘ratoon’ which have lost their luster during the last three decades. New and better strains could not be introduced; (b) very low average yield of 44/45 tons per hectare against the world average of over 60 tons per hectare; (c) bad water management; (d) wrong sugar industry policies; (e) high cost of inputs including rising prices of diesel fuel, fertilizers etc. and (f) inconsistent support pricing policies.

Support prices are usually set for reasons other than economic. Moreover, the data provided by the ministry of agriculture, the Pakistan Sugar Mills Association and others are not very reliable as large variations in estimates and actual have been observed. Bad planning leads to import of sugar in one year and surplus stocks in the next. The situation brings losses to farmers, sugar mills and other stake-holders.Consumers also suffer. As in the case of shortage, we import spending foreign exchange and when we have surplus, we find it difficult to sell in the world market.

This year carry-over stocks of sugar inflated to over 400,000 tons that included last years 200,000 tons despite allowing export of 100,000 tons in November last. In the wake of bumper crop and carry-over sugar stocks as has happened for the last three years, sugar mills delayed the crushing season bringing unbearable hardships for the sugar-cane growers.The Trading Corporation of Pakistan has procured 18,000 tons of sugar to support the commodity market; however these efforts are not enough to address the problem sufficiently.

Two years ago the Securities and Exchange Commission of Pakistan had notified ‘Sugar Industry (Cost Accounting Records) Order 2001. The order though serves a purpose in regulation is largely devoid of the decision-specific information catering to the needs of stake-holders. The order does not address the cost information needs of upstream stake-holders (growers) and downstream stake-holders (consumers) for a better management of crop and crushing.

Data should contain the predictive and feed-back value and be neutral. Amendment is also needed in the ‘Sugar Industry (Cost Accounting Records) Order 2001 as it does not provide for reconciliation of cost data to financial results. Neither clear definitions exists of direct/indirect costs. Allocation of overheads has not been specified. The issue of unused capacity cost has not been addressed.

Sugar industry uses cost-based approach in fixing the sale price of sugar and procurement price of sugar-cane, an approach which is faulty, because the industry has a sizable excess capacity. The excess capacity’s effect on indirect cost rates exposes the industry to black hole demand spiral.

Reconciliation of variances (Schedule I (f)) be required and done within one month of the closure of crushing in a mills and not at the end of financial year which falls after five months of the crushing season. White sugar transferred for self-use be valued at market price as sugar industry has excess installed capacity and white sugar commodity market is efficient. Time-limit for adjusting variances should also be prescribed.

The All Pakistan Sugar Mills Association should constitute a task force to study the entire industry for managing it in a better way. Research for developing new varieties of sugar-cane could bring relief if taken up seriously with the private sector support and funds.

Suggestions listed below should be considered to improve the situation:

1) A total ban on installation of new sugar mills till the industry starts producing over 80 per cent i.e beyond 4.5 million tons which seems a task unachievable during the next 10 years.

2) A very close co-ordination between cane growers and sugar producers will benefit both. Sugar mills should help farmers in procuring virus free seed/suckers, fertilizers and technological support. Farmers should be persuaded to sow a combination of early and late varieties, so that not only work load of farmers is distributed evenly over the entire season, but the mills’ gates are also not inundated with over-supply.

3) Mills should be induced to raise their own sugar-cane plantation. For the purpose they may lease the lands from farmers of their locality. Having support of better financial and technical resources, they will be able to raise better crops and could also provide support to the farmers/growers. Mills’ own plantations will provide the year round regular employment to the local people, who now wait for the crushing season for their sustenance.

4) At least one year advance planning with respect to sugar stocks on hand is needed. Sugar mills sharing the cane growing area be allocated quotas managed by their own association (and not the government) to avoid corruption and bureaucracy. Quotas should be allocated on the basis of efficiency achieved in cost last year by the mills. Quantity demanded of sugar domestically by households, pharmaceutical, beverage and food industries should be carefully estimated by the sugar mills association in a way that variance in the budgeted quantity and actual demanded should not go beyond a range of 3 - 4 per cent.

5) Pakistan will continue to be an inefficient sugar producer till new varieties of sugar-cane with better yields of over 10 per cent were developed. There is a need for private and public partnership in the research area. Sugar industry and agriculture universities should combine resources to come up with research projects with the objectives of benefiting business and creating employment opportunities.

6) Fixing floor pricing should not be politicized. Pricing be worked out by representatives of stake-holders with technical support of institutions having know-how and the data accumulated for the purpose. Support prices should be fixed in an overall cost management perspective keeping international competition and available capacity as the benchmark.