You are on page 1of 83

Capacity Utilization of Sugar Mills in SAARC Countries

An Exclusive Comparative Review of Sugar Industry In Pakistan and India

Research Department

Institute of Cost and Management Accountants of Pakistan (ICMAP)

Capacity Utilization of Sugar Mills in SAARC Countries – A Comparative Review

[ICMAP Research]

Contents
Page Executive Summary .............................................................................................3 Chapter 1: A Comparative Review of Pakistan and Indian Sugar Industry ...............11 (a) (b) (c) (d) (e) (f) Chapter 2: (a) (b) (c) (d) (e) (f) (g) (h) Chapter 3: (a) (b) (c) Synopsis .....................................................................................................12 Sugarcane Cultivation Area.....................................................................13 Sugarcane Yield ........................................................................................16 Sugarcane Production ..............................................................................21 Sugar Production ......................................................................................24 Sugar Recovery Ratio................................................................................27 Preamble .....................................................................................................32 Industry Snapshot .....................................................................................32 Historical Progress of Industry ...............................................................33 Scale and Size of Industry ........................................................................35 Size of Sugar Plants ...................................................................................40 Installed Crushing Capacity of Sugar Mills ..........................................46 Capacity Utilization of Sugar Mills ........................................................51 Increasing Number of Sick Sugar Mills in India...................................56 Bangladesh .................................................................................................60 Nepal ...........................................................................................................65 Sri Lanka .....................................................................................................69

Capacity Utilization of Sugar Mills in Pakistan and India .......................31

Sugar Industry in Other SAARC Countries: ................................................59

Appendices ............ ....................................................................................................................73 – Sugar Statistics of SAARC Countries ............................................................74 – Installed Capacities of Pakistani Listed and Non-Listed Sugar Mills .....78 – References .........................................................................................................79

2

Capacity Utilization of Sugar Mills in SAARC Countries – A Comparative Review

[ICMAP Research]

Executive Summary
This exclusive comparative review of the sugar industry in Pakistan and India has been undertaken by the Research Department of Institute of Cost and Management Accountants of Pakistan (ICMAP) with special focus on installed and utilized capacities of sugar mills in both countries. This Research Report is divided into following three Chapters:

Chapter –1:
This Chapter presents a ‘Comparative Review’ of the sugar sector in Pakistan and India with specific reference to sugarcane cultivation, yield, production, sugar production and recovery ratio. This would be helpful in understanding the main part of this report related to capacity utilization.

Chapter – 2:
This Chapter forms the main part of our Research Paper, providing a detailed review of the size and scale of the Pakistani and Indian sugar industry, the installed capacities of sugar mills and the capacity utilization achieved by the sugar industry in both countries.

Chapter – 3:
This Chapter provides useful facts and statistics on the sugar industry in other SAARC countries viz. Bangladesh, Nepal and Sri Lanka. Although the size of the sugar industry in these countries in limited, rather negligible, but still inclusion of their details is an attempt to make this report comprehensive.

3

Capacity Utilization of Sugar Mills in SAARC Countries – A Comparative Review

[ICMAP Research]

Contrasting Aspects of Pakistan and Indian Sugar Industry
It is an established fact that the size of Indian sugar sector, both in terms of sugarcane and sugar production, is far larger than Pakistan. ICMAP research substantiate this fact by concluding that Pakistan’s total sugar industry, comprising of around 80 sugar mills, is far smaller in number than each of the two Indian States i.e. Maharashtra (having 195 sugar mills) and Uttar Pradesh (154 sugar mills). Let us have a look below at some ‘contrasting’ aspects of Pakistani and Indian sugar industry, which have revealed as a result of this comparative research: 1) The sugar production capacity of India at 23.90 million tons (2009) is almost four times greater than sugar capacity of Pakistani sugar mills, which is around 6.24 million tons (2009). Unlike Pakistan’s privately-owned sugar sector, the ownership structure in India is much diverse. There are privately-owned sugar mills at one extreme, and cooperative factories, on other extreme, which are owned by farmers and managed by government. ICMAP research reveals that private sector in India is visible in number i.e. in States of UP, Tamil Nadu, Andhra Pradesh, Karnataka and Bihar. The Cooperative sector is dominating in States of Maharashtra, Gujrat, Punjab & Haryana. Installed capacities of Pakistani sugar mills are evenly distributed with 47% share in ‘Small-sized’ segment (capacity below 1500 TCD to 5500 TCD) and 41% share in ‘Medium-sized’ segment (capacity between 5501 TCD to 9500 TCD). In contrast, around 88% the Indian sugar mills are in the ‘Small-sized’ segment with capacities ranging between 2500 TCD to 5000 TCD. This points towards the fact that the Indian sugar industry need modernization/ rehabilitation and capacity expansions.

2)

3)

4

Capacity Utilization of Sugar Mills in SAARC Countries – A Comparative Review

[ICMAP Research]

4)

Pakistan is well ahead of India in the ‘Large-sized” segment (above 9500 TCD) with 12% share in overall sugar industry, as compared to only 1.4% of large sugar plants in India. All eight (8) large sugar plants in India are in the ‘private sector’. It is interesting to note that Sindh province of Pakistan do not have any large sugar plant, whereas Punjab and NWFP have 8 units and 2 units, respectively.

5)

The capacity utilization rate of Pakistani sugar mills fell down to 51.4% during 2008-09, from 80% achieved last year. ICMAP research shows that this sharp decline in capacity utilization was mainly due to 21.7% shortfall in sugarcane production from 64 million tons in 2007-08 to 50 million tons in 2008-09. Similarly, the capacity utilization rate of Indian sugar mills also declined to 63% during 2008-09 from 117% last year. The reason is identical to Pakistan i.e. around 17% shortfall in sugarcane production from 348 million tons in 2007-08 to 289 million tons in 2008-09.

6)

Our research indicates that during last five years [FY 2004-05 to FY 2008-09], the average capacity utilization of Indian sugar mills have been 95.2% as compared to 58.7% of Pakistani sugar mills. The highest capacity utilization of 81% by Pakistani sugar mills was achieved during FY 2007-08, whereas highest capacity utilization of 132% by Indian sugar industry was in FY 2006-07.

Pakistan Sugar Industry
We now summarize below the salient findings of sugar industries in Pakistan and India, separately. The main report may be referred for detailed review: 1) The annual crushing capacity of 81 sugar mills in Pakistan is around 72 million tons (2009). Although the annual sugar production capacity is 6.2 million, our industry is not able to meet the annual domestic consumption of

5

Capacity Utilization of Sugar Mills in SAARC Countries – A Comparative Review

[ICMAP Research]

around 4 million tons. In 2008-09, the sugar production was 3.21 million tons (as per PSMA figures, whereas USDA puts this figure at 3.51 million tons). 2) The sugar industry in Pakistan is pre-dominantly owned by the private sector, mostly in hands of influential families, having political connections. Out of 81 sugar mills, 40 mills (49%) are located in Punjab, 32 mills (40%) in Sindh and 09 mills (11%) in NWFP. About 46% (37) of sugar mills in Pakistan are Listed on Stock Exchange whereas 54% (44) are in Non-Listed sector. There are 38 ‘Small-sized’ sugar mills in Pakistan within capacity range between 1500 TCD to 5500 TCD, out of which Sindh Province has highest number with 22 small sugar plants, followed by 11 in Punjab and 5 in NWFP. Similarly, there are 33 ‘Medium-sized” sugar plants with capacity range between 5500 TCD to 9500 TCD – Punjab leads with 21, followed by 10 in Sindh and 2 in NWFP. There are only 10 “Large-sized’ sugar Plants in Pakistan [9500 TCD and above]. Out of them, 10 are in Punjab, 2 in NWFP whereas Sindh has no large-size sugar mills. The ‘Non-Listed’ sector dominates the ‘Small-sized” and “Large-sized” segments of sugar industry of Pakistan with 28.4% (out of 47%) and 7.4% (Out of 12%), respectively. The ‘Listed’ Sector has large share in the ‘Medium-sized’ segment with 22.2% (out of 41%). The ‘Listed’ sector is more prominent in Sindh Province with 19% share in total installed capacity, as against Punjab with 12% share. On the other hand, ‘Non-Listed’ sector is dominant in number in Punjab Province with 36% share, as compared to 24% of Sindh. The capacity utilization of Pakistani Sugar mills has fallen down sharply to 51.4% during 2008-09 from 80% in 2007-08. The main reason is shortage of raw material (sugarcane). Optimum utilization of capacity is only possible if sugarcane production is increased by 4 % to 5% annually.

3)

4)

5)

6)

6

Capacity Utilization of Sugar Mills in SAARC Countries – A Comparative Review

[ICMAP Research]

Indian Sugar Industry
1) The annual sugar production capacity of 582 sugar mills in India is 23.9 million tons (2009), showing 5% increase from 22.48 million last year. ICMAP research shows that the highest increase in capacity during last five years [2005-2009] is in Uttar Pradesh i.e. 62% which is mainly due to private sector initiative as 61% of 154 sugar factories in this State are in private sector. The capacity increase is only 3% in Maharashtra State where cooperatives are more dominant. The States of Maharashtra and Uttar Pradesh (UP) alone constitute 56% of the total sugar mills in India and if Karnataka State is also included, the share reaches 65%. This means that these three States are critical to the Indian sugar industry. Out of 624 installed factories (only 582 are functional) in India, about 51% are in the ‘Cooperative sector’, whereas 39% are in ‘Private sector’ and 10% in the ‘Public sector’. About 88% of sugar factories in India are in the ‘Small-sized’ segment with crushing capacity in the range between 2500 TCD to 5000 TCD. ICMAP study shows that 75% private, 94% cooperatives and 98% public sector units are in the small-scale segment. Moreover, all the 8 Large-sized sugar mills have been established by the Private Sector. There are presently 206 Sick/closed sugar factories across India, with two major sugar producing States of Maharashtra and UP share 107 sick units (50% of 206 sick units). Out of them, 61 are Private and 145 belong to the cooperative sector. This high proportion of sickness in cooperatives is seemingly due to highly regulated environment and lack of profit motive. Private sector is better placed in taking advantage of multiple outputs like electricity generation, bio-diesel etc.

2)

3)

4)

5)

7

Capacity Utilization of Sugar Mills in SAARC Countries – A Comparative Review

[ICMAP Research]

6)

The capacity utilization of Indian sugar mills has fallen down sharply to 63% during 2008-09 from 117% in 2007-08. The main reason is shortage of raw material (sugarcane) and high fluctuations in cane area under command. ICMAP research shows that highest shortfall of 68% in capacity utilization during 2008-09 (as compared to last year) is in Andhra Pradesh State, followed by 65% in Maharashtra, 62% in Karnataka, 52% in UP, 34% in Gujrat and Punjab, and 23% in Tamil Nadu.

Sugar Industries in SAARC Countries
The sugar industry in other SAARC countries viz. Bangladesh, Nepal and Sri Lanka is quite insignificant, as compared to the sugar industry of Pakistan and India. An attempt has been made in this study to provide a snapshot of the sugar industries in these three SAARC countries, with special focus on installed capacity and capacity utilization of sugar mills. A summary is given below:

Bangladesh Sugar Industry
1) There are 15 operating sugar mills in Bangladesh with total installed sugar production capacity of 21,044 tons per day. Bangladesh has no private crushing mills and all the sugar factories are in the public sector, under the control of Bangladesh Sugar & Food Industries Corporation (BSFIC). The performance of all 15 sugar mills has been quite steady with 70% capacity utilization during the period 2005 to 2008. During 2006-07 and 200708, capacity utilization was above 85%. As annual sugar production is not sufficient to meet the local demand, Bangladesh imports substantial amount of sugar from other exporting countries. Imports are made by both public and private sector. During 200708, sugar production stood at 0.16 million tons against target of 0.20 million tons. The local demand of sugar for 2010 is estimated at around 1.3 million tons.

2)

3)

8

Capacity Utilization of Sugar Mills in SAARC Countries – A Comparative Review

[ICMAP Research]

4)

The main reason for low sugar production is attributed to low availability of sugarcane in view of drastic decline in cultivation area of sugarcane throughout the country.

Nepal Sugar Industry
1) There are 12 Sugar mills in Nepal – two mills are in Public sector (which are closed) and 10 mills in the Private sector (functional). The combined capacity of 8 private sugar mills is 20,750 TCD which is equal to annual crushing capacity of 3.11 million tons. The sugarcane production of Nepal is around 1.62 million tons with yield of 35 tons per hectare. However, in 2008-09 the cane production fell down to 59,000 tons. Nepal sugar mills produce around 0.10 million tons of sugar annually, which is not sufficient to meet the annual domestic demand of 0.16 million tons. Resultantly, nearly 50,000 tons of sugar are imported annually, mainly from India. The sugar capacity utilization of Nepalese sugar mills has always remained below 50 percent and ICMAP research shows that utilized capacity is declining gradually, leading to increased imports.

2)

3)

4)

Sri Lanka Sugar Industry
1) The sugar industry of Sri Lanka is quite negligible with only four installed Sugar mills, out of which two are closed and not currently producing sugar. The total cane crushing capacity of four sugar mills (two closed and two functional) is 8250 TCD. The two operational sugar factories (Pelwatte & Sevanagala) have total capacity of 5050 TCD which is equal to annual capacity of 1.01 million tons.

2)

9

Capacity Utilization of Sugar Mills in SAARC Countries – A Comparative Review

[ICMAP Research]

3)

The total sugar producing capacity of two operational sugar mills is 440 tons per day or 88,000 tons per annum. Pelwatte has 330 tons capacity whereas Sevanagala has 110 tons capacity. The capacity utilization of the two sugar mills in Sri Lanka is below 50 percent and there is further room for increasing capacity utilization.

4)

10

Capacity Utilization of Sugar Mills in SAARC Countries – A Comparative Review

[ICMAP Research]

CHAPTER – 1 A Comparative Review of Pakistan and Indian Sugar Industry

11

Capacity Utilization of Sugar Mills in SAARC Countries – A Comparative Review

[ICMAP Research]

Synopsis of Comparitive Study
q q q q q q Maharashtra State of India alone produces more sugarcane than Pakistan. Total Sugar Produced in Pakistan is almost half of the Sugar produced in Maharashtra State. Maharashtra and Punjab (India) have higher cane recovery than Sindh and Punjab (Pakistan) Maharashtra and Punjab have higher cane yields than Sindh and Punjab despite similar land. Pakistan’s Punjab has larger cultivation area than Indian’s Punjab. Sugarcane cultivation area in India and Pakistan has declined by 12% and 17%, respectively, during 2008-09 from last year due to shift in farmers preference. Sugarcane production in both India and Pakistan has declined by 17% and 21%, respectively, during 2008-09 from last year due to reduction in the cultivation area. Sugar production in both India and Pakistan has declined by 38% and 32%, respectively, during 2008-09 from last year due to shortage of sugarcane. Punjab shares 65% in total sugarcane production of Pakistan. Sindh has better sugarcane yield than Punjab. Sindh has better cane recovery than Punjab.

q

q q q q

12

Capacity Utilization of Sugar Mills in SAARC Countries – A Comparative Review

[ICMAP Research]

Sugarcane Cultivation Area
Sugarcane cultivation area in both India and Pakistan has declined by 12% and 17%, respectively, during 2008-09 as compared to last year due to shift in farmers preference. Pakistan Sugarcane occupies around 5 percent of the total cropped area in Pakistan. Normal area under cultivation is one million hectares. During FY 2008-09, sugarcane was sown in area of 1045,000 hectares, as against 1242,000 hectares last year, showing decline of 16 percent. The largest area where sugarcane cultivation is made in Pakistan is Punjab Province. In 2008-09, sugarcane was sown in area of 675,000 hectares, as against area of 827,000 hectares in 2007-08. India Sugarcane occupies around 4 percent of the total cropped area in India. Normal area under cultivation is 124 million hectares. During 2008-09, sugarcane was sown in area of 4408,000 hectares, as against 5043,000 hectares last year, showing decline of 13 percent. The largest area where sugarcane cultivation is made in India is Uttar Pradesh State. In 2008-09, sugarcane was sown in area of 2058,000 hectares, against 2179,000 hectares in 2007-08.

13

Capacity Utilization of Sugar Mills in SAARC Countries – A Comparative Review

[ICMAP Research]

TABLE – 1

Pakistan – Cultivation Area
(000 Hectares) PAKISTAN Sindh Punjab N.W.F.P Balochistan Total – Pakistan 2004 – 05 215 645 106 0.40 966 2005 – 06 2006 – 07 183 625 99 0.30 907 215 712 102 — 1,029 2007- 08 309 827 105 0.50 1,242 2008 - 09 264 675 105 0.79 1,045

Source: ICMAP Research

TABLE – 2

India – Cultivation Area
(000 Hectares) INDIA Uttar Pradesh Maharashtra Tamil Nadu Punjab Other States Total – India 2004 – 05 1955 324 232 86 1065 3662 2005 – 06 2006 – 07 2156 501 336 84 1796 4201 2247 1049 391 99 1348 5134 2007- 08 2179 1088 352 111 1313 5043 2008 - 09 2058 770 323 105 1152 4408

Source: ICMAP Research

14

Capacity Utilization of Sugar Mills in SAARC Countries – A Comparative Review

[ICMAP Research]

Pakistan’s Punjab has larger cultivation area than Indian’s Punjab
The cultivation area in the Pakistani Punjab is much higher as compared to the Indian Punjab. This can be observed from the following Table-3. The average cultivation area in Pakistani Punjab during the last five years (2005-2009) is 697 thousand hectares, whereas the average cultivation area of Indian Punjab is only 97 thousand hectares during the same period. This may be due to preference of farmers. TABLE – 3

Cultivation Area of Pakistani Punjab and Indian Punjab
(000 Hectares) Years 2004-05 2005-06 2006-07 2007-08 2008-09 Average Pakistani Punjab 645 625 712 827 675 697 Indian Punjab 86 84 99 111 105 97
Source: ICMAP Research

15

Capacity Utilization of Sugar Mills in SAARC Countries – A Comparative Review

[ICMAP Research]

Sugarcane Yield
Sugar cane is a water intensive crop and its yield per hectare is highly sensitive to optimal water allocation along with appropriate weather conditions. Pakistan Pakistan is fifth largest sugarcane grower, but its yield is one of the lowest in the world. In the top ten list of sugar producing countries, Pakistan stands at 9th position after USA in yield. Pakistan’s average cane yield has remained between 45-50 tons / hectare, which is 15-20 tons less than world’s average yeild of 65 tons / hecter. Pakistan is also far behind India which has an average yield of around 70 tons per hecter. India India is second largest sugarcane grower and its average yield is 66-70 tons/hectare, which is higher than world average of 65 tons/hectare.

India’s cane yield is comparatively less than other top ten sugar producing countries such as Colombia, Brazil, Australia, China and Mexico.

The tropical Indian states viz. Andhra Pradesh, Karnataka & Tamil Nadu have higher sugarcane yields as compared to the sub-tropical regions. Cane yields in certain Indian states also vary across regions. For example, in Maharashtra, yields are lower in the Western region as compared with Eastern Maharashtra.

Sindh Province is the most productive region, as compared to Punjab in terms of sugar cane yield and recovery rate. However, in terms of aggregate acreage it is far behind Punjab.

16

Capacity Utilization of Sugar Mills in SAARC Countries – A Comparative Review

[ICMAP Research]

Sindh has better sugarcane yield than Punjab
The agro-ecological conditions in Sindh such as longer growing season and a humid climate are best suited for sugar cane plantation. In general, with the exception of drought season, the overall average yield per hectare and recovery rate in Sindh has always remained higher than Punjab. Table-4 shows that average yield of Sindh for last five years (2005-2009) is 55.65 tons per hectare, whereas average yield of Punjab for the same period is only 48.20 tons per hectare – which is 7.45 tons lesser than Sindh. TABLE – 4

Sugar Cane Yields in Pakistan
(Tons Per Hectare)
Provinces 2004 – 05 2005 – 06 2006 – 07 2007- 08 2008 - 09 2009 – 10 Average

Sindh Punjab N.W.F.P Balochistan Average (Pak)

43.52 45.47 45.43 7.50 44.80

61.40 46.30 41.60 3.33 49.77

58.27 52.73 47.00 0 52.67

60.00 48.73 45.11 6.00 51.28

55.94 47.40 44.84 5.00 49.39

54.82 48.62 42.72 5.00 48.72

55.65 48.20 44.45 4.47

Source: ICMAP Research

Note: Since the sugarcane acreage and production in Balochistan is very negligible, so we have calculated the sugarcane yield of Pakistan by dividing the total yield of three provinces by 3, instead of 4. By doing this, our yield matches with that of PSMA and other agencies. Otherwise if we divide the total yields of four provinces by 4, the total yield of Pakistan decreases appreciably.

17

Capacity Utilization of Sugar Mills in SAARC Countries – A Comparative Review

[ICMAP Research]

The government agricultural policy, however, is to prioritize Sindh as a cottongrowing region, hence it is diverting the incentive structures away from sugar cane cultivation. Similarly, the growth rate in sugarcane production in Sindh has exceeded Punjab in recent years. However, because of its larger area under sugarcane, the Punjab produces major share of national output.

Indian States of Maharashtra and Punjab have higher sugarcane yields than the Pakistani Provinces of Sindh and Punjab despite similar land
The Sindh Province of Pakistan is located in the same geographical and climatic region as Maharashtra State in India. However, the sugar yield is much higher in Maharashtra as compared to Sindh. ICMAP research indicates that the average yield in Maharashtra is around 72 tons per hectare, whereas in Sindh it is only 56 tons – a difference of about 16 tons per hectare. Similarly, sugar cane yield in the Indian East Punjab is around 60 tons per hectare, whereas in our Punjab it averages 48 tons/hectare – a difference of 12 tons per hectare. (Please see Table-5). Yields in Pakistani Punjab, remained below 40 tons / hectare for about 10 years and recently started rising to over 45 tons. However, individual farmers obtained yields of 120 tones / hectare. TABLE – 5

Maharashtra vs. Sindh – Yield Comparison
(Average 2005- 2009) PAKISTAN (Provinces) Sindh Punjab Yield 56 48 INDIA (States) Maharashtra Punjab Yield 72 60 Difference (tons/ht) 16 12
Source: ICMAP Research

18

Capacity Utilization of Sugar Mills in SAARC Countries – A Comparative Review

[ICMAP Research]

TABLE – 6

Pakistan – India Yield Comparison
(Tons / Hectare) Years 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 Average India 68.49 67.38 63.58 59.39 64.74 66.93 69.03 69.04 61.82 65.60 Pakistan 45.41 48.06 47.33 50.00 45.04 49.77 52.67 51.28 49.39 48.77
Source: ICMAP Research

Reasons for low yield in Pakistan
Table-6 compares the sugarcane yields in Pakistan and India for the last 10 years. The Research Department studied several articles/ papers by agricultural experts and organizations (such as Sugar Farmer Association and Weed Science society of Pakistan) and came to the conclusion that low yield in Pakistan is mainly due to the following reasons: (a) (b) (c) Shortage of Irrigation water Cultivation of unapproved cane varieties High input prices

19

Capacity Utilization of Sugar Mills in SAARC Countries – A Comparative Review

[ICMAP Research]

(d) (e) (f) (g) (h) (i) (j) (k) (l)

Unavailability of inputs at required stage of cultivation Poor crop management practices Lack of facilities for cane research & development Weed infestation Conventional planting methods or late planting Early and late harvesting Lack of Credit facilities Excessive rationing Poor drainage

On the other hand, India patronizes its sugarcane scientists by allocating to them adequate budget and necessary resources for research, development and crop management. Further it provide easy credit facilities, on time availability of suitable fertilizer, subsidized electricity for tube well irrigation and better marketing system which facilitate farmers to enhance sugarcane production and yield. Also, it strives hard to explore surplus sugar whenever it is economically feasible.

20

Capacity Utilization of Sugar Mills in SAARC Countries – A Comparative Review

[ICMAP Research]

Sugarcane Production
Sugarcane production in both India and Pakistan has declined by 17% and 21%, respectively, during 2008-09 as compared to last year due to reduction in the cultivation area. Pakistan Pakistan’s share in the total world production of sugarcane is around 3 percent. The average sugarcane production in Pakistan is around 51 million tons. India India’s share in the total world production of sugarcane is around 19 to 20 percent. The average sugarcane production in India is around 288 million tons, which is 5.65 times more than sugarcane production in Pakistan. Uttar Pradesh state of India leads the country with an average sugarcane production of around 125 million tons, followed by Maharashtra with 55 million tons and Tamil Nadu 35 million tons. The sugarcane production of Uttar Pradesh alone is about 2.44 times higher than the total production of Pakistan. Even Maharashtra produces more sugarcane than Pakistan. Sugarcane production has declined by 20% from 340.56 million tons in 200708 to 272 million tons in 2008-09.

Punjab leads the country in cane production with an average of 33.68 million tons (2005-2009). Sindh is second with average of 13.34 million tons.

Sugarcane production has declined by 18.80% from 63.91 million tons in 200708 to 51.89 million tons in 2008-09. The main reason was shortage of irrigation water, shifting of area to rice crop, less use of DAP and non-payment of dues to farmers by sugar mill owners on time.

21

Capacity Utilization of Sugar Mills in SAARC Countries – A Comparative Review

[ICMAP Research]

Punjab shares 65% in total sugarcane production of Pakistan
Although Sindh leads Punjab in sugarcane yield per hectare, Punjab shares 65% in the total sugarcane production of Pakistan. As per Table-7 the average sugar cane production of Punjab during last six years (2004-2009) is 33.68 million tons, as compared to 13.34 million tons of Sindh and 4.66 million tons of NWFP. The average cane production of Pakistan is around 52 million tons. TABLE – 7

Sugar Cane Production in Pakistan
(In Million Tons) Provinces Sindh Punjab N.W.F.P Balochistan Total 2004 – 05 2005 – 06 2006 – 07 9.36 29.33 4.82 0.03 43.54 11.24 28.97 4.10 0.01 44.32 12.59 37.54 4.80 0.00 54.93 2007- 08 18.79 40.30 4.79 0.03 63.91 2008 - 09 14.76 32.29 4.80 0.04 51.89 Average 13.34 33.68 4.66 0.02 51.72

Source: ICMAP Research

Maharashtra State alone produces more sugarcane than Pakistan
The sugarcane production in both India and Pakistan have declined during 2008-09 as compared to last year, as can be seen in Table-8. An interesting fact is that sugar cane production in Maharashtra State of India alone is much higher than the overall production of sugarcane in Pakistan. This shows the magnitude of the sugar industry of India. Table-9 indicates that the average sugarcane production in Maharashtra State is around 55 million tons, as against average cane production of 34 million tons of Punjab and only 13 million tons of Sindh.

22

Capacity Utilization of Sugar Mills in SAARC Countries – A Comparative Review

[ICMAP Research]

TABLE – 8

Pakistan – India Comparison Sugarcane Production
(Million Tons)

Years 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 Average

India 295.96 297.21 281.57 233.84 237.09 281.17 355.52 340.56 272.00 288.32 TABLE – 9

Pakistan 43.62 48.04 52.05 53.80 43.54 44.32 54.93 63.91 51.89 50.68
Source: ICMAP Research

Comparison of Indian States with Pakistan
(Average 2005- 2009)
(Million Tons) PAKISTAN (Provinces) Sindh Punjab Sugarcane Production 13.34 33.68 INDIA (States) Maharashtra Punjab Uttar Pradesh Tamil Nadu Sugarcane Production 55.10 5.80 124.59 34.63
Source: ICMAP Research

23

Capacity Utilization of Sugar Mills in SAARC Countries – A Comparative Review

[ICMAP Research]

Sugar Production
Sugar production in both India and Pakistan has declined by 38% and 32%, respectively, during 2008-09 as compared to last year due to shortage of sugarcane. Pakistan Pakistan’s share in total world production of sugar (157 million tons in 2008-09) is only 2.15 percent. Average sugar production in Pakistan during last ten years (2001 –2009) is around 3.37 million tons. India India’s share in total world production of sugar (157 million tons in 2008-09) is 12.32 percent. Average sugar production in India during last ten years (2001-2009) is around 19.34 million tons, which is 5.74 times higher than Pakistan. Maharashtra State leads the country in sugar production. During 2007-08, its share was 34% in the overall sugar production in India.

Punjab Province leads the country in sugar production. During 2007-08, its share was 62% in the overall sugar production of Pakistan.

24

Capacity Utilization of Sugar Mills in SAARC Countries – A Comparative Review

[ICMAP Research]

TABLE – 10

Pakistan – India Comparison Sugar Production
(Million Tons) Years 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 Average India 2.47 3.20 3.65 4.00 2.92 2.59 3.52 4.74 3.20 3.37 Pakistan 18.51 18.53 20.14 14.00 12.70 19.27 28.30 26.33 16.30 19.34
Source: ICMAP Research

Total Sugar Produced in Pakistan is half of Sugar Produced in Maharashtra Because of huge market, the sugar produced in India is over five and half times greater than Pakistan. It is interesting to note that the total production of sugar in Pakistan is only half of the sugar produced in only one State of India, which is Maharashtra. Table-11 and Table-12 gives statistical picture of this fact.

25

Capacity Utilization of Sugar Mills in SAARC Countries – A Comparative Review

[ICMAP Research]

TABLE – 11

Pakistan – Sugar Production
(‘000’ Tons) PROVINCES Sindh Punjab N.W.F.P Balochistan Total – Pakistan 2004 – 05 754 2,047 121 0 2,922 2005 – 06 902 1,566 119 0 2,587 TABLE – 12 2006 – 07 1,068 2,267 186 0 3,521 2007- 08 1575 2,952 226 1 4,754

India – Sugar Production
(‘000’ Tons) STATES Maharashtra Uttar Pradesh Karnataka Tamil Nadu Other States Total – INDIA 2004 – 05 2217 5037 1040 1126 3271 12,691 2005 – 06 5197 5784 1943 2170 4173 19,297 2006 – 07 9095 8475 2659 2599 5500 28,328 2007- 08 9065 7319 2897 2191 4856 26,328

26

Capacity Utilization of Sugar Mills in SAARC Countries – A Comparative Review

[ICMAP Research]

Sugar Recovery Ratio
Sugar Recovery Ratio is an important indicator of technical efficiency of the Sugar Mills with regard to the conversion of raw sugarcane into sugar. Pakistan The recovery percentage of sugar from cane is on a lower side as compared to International standard. The average sugar recovery in Pakistan is 8.79% as compared to world standard of over 10.50%. Pakistan is far behind India which has an average sugar recovery of 10.34% (2001-2008) Sindh Province has higher cane recovery ratio than Punjab and NWFP. The average cane recovery of Sindh for the last five years (2004-2008) is 9.45% as against 8.64% of Punjab and 8.03% of NWFP. India The cane recovery of Indian mills is well over 10% and meets the world standard of 10.50%. The average sugar recovery in India is 10.34%, with recovery rate varying from State to State. The period of November to March (150 days) is an ideal one for sugar recovery in general, more particularly in Bihar and Utter Pradesh. The months of April, May and June are very hot in Uttar Pradesh, Bihar and Punjab, leading to drying of sucrose content and lesser recovery.

Sindh has better cane recovery than Punjab
The geographical and climatic conditions in Sindh make it a naturally favorable region for sugarcane cultivation. Like sugarcane yield, the recovery ratio of sugar mills in Sindh is also far better than Punjab. As per Table-13 the average sugar cane recovery in Sindh during last five years (2004-2008) is 9.45% as compared to only 8.64% of Punjab and 8% of NWFP.

27

Capacity Utilization of Sugar Mills in SAARC Countries – A Comparative Review

[ICMAP Research]

TABLE – 13

Sugar Cane Recovery in Pakistan
(In Percentage) Provinces Sindh Punjab N.W.F.P 2004 – 05 9.53 9.00 8.6 2005 – 06 9.83 8.10 7.69 2006 – 07 9.14 8.53 8.23 2007- 08 9.33 8.93 7.62 Average 9.45% 8.64% 8.03%

Source: ICMAP Research

Indian States of Maharashtra and Punjab have higher cane recovery than the Pakistani Provinces of Sindh and Punjab
The Sindh Province of Pakistan is located in the same geographical and climatic region as Maharashtra State in India. However, the sugar recovery is much higher in Maharashtra as compared to Sindh. ICMAP research shows (see Table-14) that average recovery in Maharashtra is 11.60% as against 9.45% of Sindh i.e. a difference of about 2.15%. Similarly, sugar cane yield in the Indian East Punjab is around 10% as compared to only 8.63% of Pakistan Punjab. TABLE – 14

Maharashtra vs. Sindh
(Average 2005- 2008) PAKISTAN (Provinces) Sindh Punjab Recovery (%) 9.45% 8.63% INDIA (States) Maharashtra Punjab Recovery (%) 11.60% 10.00% Difference (%) 2.15% 1.37%

Source: ICMAP Research

28

Capacity Utilization of Sugar Mills in SAARC Countries – A Comparative Review

[ICMAP Research]

TABLE – 15

Pakistan – India Comparison Sugar Recovery Ratio (%)
Years 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 Average India 10.48 10.27 10.36 10.57 10.17 10.21 10.15 10.56 10.34 Pakistan 8.39 8.71 8.74 9.15 9.10 8.60 8.69 8.98 8.79
Source: ICMAP Research

Reasons for low cane recovery in Pakistan
Table-15 gives a comparative view of the sugar recovery ratios in Pakistan and India for the last 10 years. Indian recovery ratio has all along remained over 10% whereas Pakistan has never crossed 10% ratio. A study of available material indicates that there are a number of factors leading to low recovery rate by the mills, however ICMAP research concludes that there are two basic reasons: (a) Role of Middlemen The sugarcane quality is deteriorated due to time loss in its transportation from field to Mill-gate. It is estimated that recovery ratio reduces by 0.1% for each day in transit. The role of middlemen is important here who purchases

29

Capacity Utilization of Sugar Mills in SAARC Countries – A Comparative Review

[ICMAP Research]

cane from the growers at government fixed prices and sells them at higher rates to millers, thus causing inordinate delay in delivery. Sometimes, the farmers are also willing to engage middlemen to market their cane to highest bidder in order to get higher price for their crops. In certain cases, sugarcane is transported at long distance and can be as several weeks old by the time it is milled. (b) Mill Efficiency in Juice Extraction Mill inefficiency in juice extraction is another reason. Juice extraction efficiency of the current mill stands around 90-92 per cent instead of the usual 98 per cent. Cane is also mixed with trash that affects the mill efficiency in extraction rate of sugar.

Note: It is to be added here that the higher prices of sugarcane due to negative role of middlemen leads to high cost of production of sugar by mills and escalation of sugar prices in country.

30

Capacity Utilization of Sugar Mills in SAARC Countries – A Comparative Review

[ICMAP Research]

CHAPTER – 2 Capacity Utilization of Sugar Mills in Pakistan and India

31

Capacity Utilization of Sugar Mills in SAARC Countries – A Comparative Review

[ICMAP Research]

1)

Preamble

There are around 81 sugar mills in Pakistan with an estimated total installed cane crushing capacity of 600,000 tons per day (TCD), which is equivalent to annual crushing capacity of 72 million tons (on the basis of 120 days crushing season in Pakistan). The annual sugar producing capacity (on the basis of 8.6% national average recovery ratio) is around 6.2 million tons, which is greater than the annual domestic consumption of 4 million tons. According to an estimate, the sugar mills have capacity to produce 6 to 7 million tons sugar annually. The question is why we are facing consistent sugar shortages and crisis, when our industry is fully capable of not only meeting the domestic demand, but also of producing surplus sugar for export? One of the main reasons, apart from shortage of sugarcane, is that the sugar industry is not fully utilizing its installed capacity. This Chapter analyses the reasons of low capacity utilization of sugar mills in Pakistan and also gives a comparative review of the capacity utilization by the sugar mills in India. An attempt has been made to provide historical and current statistics on installed and utilized capacities, not only in Pakistan and India, but also in other SAARC countries viz. Bangladesh, Sri Lanka and Nepal. Before, we move forward let us have a brief look on the sugar industry dynamics in Pakistan and India.

2)

Industry Snapshot

Pakistan
2.1 The sugar industry in Pakistan is the second largest agro-industry after textiles. About 120,000 workers (skilled, semi-skilled, managerial) are directly associated with the sugar industry. The industry also provides indirect employment to around 4 million workers.

2.2

32

Capacity Utilization of Sugar Mills in SAARC Countries – A Comparative Review

[ICMAP Research]

2.3

It accounts for 8 percent of the total value-added in the large-scale manufacturing industries. The sugar industry contributes around Rupees 15 to 20 billion annually towards national exchequer in shape of General Sales Tax (GST), federal, provincial and local taxes.

2.4

India
2.5 2.6 The sugar industry in India is the second largest agro-industry, after textiles. More than 50 million farmers and their families are dependent on sugarcane for their livelihood. An estimated 0.5 million workers are directly employed for sugar cane cultivation and harvesting. The Indian sugar industry generates surplus exportable energy through cogeneration and contributes in reducing the energy deficit that India is currently facing. The sugar industry is also the primary source of raw material for the alcohol industry in India. The annual economic contribution of the sugar industry to the exchequer through principal indirect taxes amounts to more than Indian Rupees 2800 crores (equivalent to Pak Rs. 50.4 billion)

2.7

2.8

2.9

3)

Historical Progress of Industry

Pakistan
3.1 At Independence, there were only two small sugar mills, built in 1936-38, one in NWFP and other in Punjab, having total crushing capacity per day (TCD) of 5020 TCD, producing 8000 tons sugar.

33

Capacity Utilization of Sugar Mills in SAARC Countries – A Comparative Review

[ICMAP Research]

3.2

During the next two decades (1950 to 1970), 16 more sugar mills were established. The expansion of processing capacity started in 1949 with the building of the Premier Sugar Mill at NWFP. By end 1970, the TCD capacity of 18 sugar mills enhanced to 76,550 TCD. During the next two decades (1970 to 1990), 33 more units were set up, which raised the number of sugar mills in the country to 51, with total crushing capacity of 211,850 TCD. In 1980s, due to generally pro-business policy environment, liberal sanctioning and credit regime, private investment flowed into the industry. Major growth in capacities was witnessed in late 1980's and early 1990's, when the government opened up industrial sector for private investment. By the year 2004, 25 more units were established, enhancing the number of sugar mills to 76, with total crushing capacity of 355,150 TCD. In 1998, the government introduced a three-year ban on construction of new sugar mills in the country. As a result, further mills were not established. At present, there are around 80 sugar mills in the country with the total production capacity of around 6 to 7 million tons of sugar.

3.3

3.4

3.5

3.6

India
3.7 Indians knew the art of making sugar since the fourth century. However by 1920s scientific sugar processing by vacuum pan method started but initially the development was slow. Country met its sugar requirement through imports. In mid 20s number of sugar mills sprang up in UP and Bihar. The advent of modern sugar processing industry in India began in 1930 with grant of tariff protection. During 1930-31 there were 30 sugar mills in India with capacity of producing 120,000 tons sugar. These mills faced competition from Japanese sugar, which was ruling Indian market.

3.8

34

Capacity Utilization of Sugar Mills in SAARC Countries – A Comparative Review

[ICMAP Research]

3.9

Sugar production picked up under the ‘Sugar Industry Protection Act of 1932 and within five years i.e. by 1935-36, the country became self-sufficient in 1935. The number of sugar mills increased to 135 with total production capacity of 934,000 tons of sugar. The private sector was quite instrumental in this rapid growth of the sugar industry.

3.10 The era of planning for industrial development began in 1950-51 and Government laid down targets of sugar production and consumption, licensed and installed capacity, sugarcane production during each of the Five Year Plan periods. 3.11 At present, there are around 626 sugar mills in India with total production capacity of more than 25 million tons of sugar. Out of these 626, only 589 are operational and rest are sick units.

4)

Scale and Size of Industry

Pakistan
4.1 Sugar industry in Pakistan is mostly located in Punjab and Sindh Provinces, with few mills located in the NWFP. Previously, Punjab was partly dependent on supply of sugar from Sindh, but later it became self-sufficient in sugar production with the establishment of large-scale sugar plants. ICMAP research shows that out of total 81 sugar mills in Pakistan, 72 mills (89%) are located in Punjab (49%) and Sindh (40%). Furthermore, 37 out of 81 (i.e. 46%) sugar mills are in the Listed sector, whereas 44 (54%) are in NonListed sector. Table-1 gives province-wise number of mills:

4.2

35

Capacity Utilization of Sugar Mills in SAARC Countries – A Comparative Review

[ICMAP Research]

TABLE – 1

Pakistan - Number of Sugar Mills in Provinces
Province Sindh Punjab N.W.F.P Total Listed 17 16 04 37 Non-Listed 15 24 05 44 Total 32 40 09 81 Share in Total 40% 49% 11% 100%
ICMAP Research

4.3

Out of 40 sugar mills in Punjab, 40% are Listed and 60% Non-listed. In Sindh, out of 32 mills, 53% are Listed and 47% Non-listed. NWFP has 9 sugar mills, out of which 4 are Listed and 5 Non-listed. The sugar industry is Pakistan is pre-dominantly owned by the private sector, mostly in hands of influential families, having political connections.

4.4

India
4.5 About half of the total sugar mills of India are located in its two major States viz. Maharashtra and Uttar Pradesh (UP). Until 1950s, the sugar industry was almost confined to the states of UP and Bihar. In early 1960s the industry dispersed into South India, West India and Northern parts. ICMAP research shows that out of 624 installed sugar mills in India, 245 mills i.e. 39% are in Private sector, 62 (10%) are in Public sector and 317 mills i.e. 51% in cooperative sector. (Table-2)

4.6

36

Capacity Utilization of Sugar Mills in SAARC Countries – A Comparative Review

[ICMAP Research]

TABLE – 2

India - Number of Sugar Mills in States
Sector Private Public Cooperatives Total 4.7 Number of Mills 245 62 317 624 Share in Total 39% 10% 51% 100%

Unlike Pakistan’s privately owned sugar industry, the ownership structure is much more diverse in India. The Indian sugar industry is marked by coexistence of different ownership and management structures. At one extreme, there are privately owned sugar mills that procure sugarcane from nearby cane growers, and at the other there are Cooperative factories, which are owned by farmers and managed by government. There are state owned cooperative mills as well. ICMAP research indicates (please see Table-3) that ‘Private sector’ dominates the ‘Cooperatives’ in the Indian states of UP, Andhra Pradesh, Tamil Nadu, Karnataka and Bihar. However, in the states of Mahrashtra, Gujrat, Punjab and Haryana, the ‘Cooperatives” dominate in number over private. If sick units are excluded, there are 582 functional sugar mills in India as per official data. The size of Indian sugar sector, both in terms of sugarcane and sugar production, is far larger than Pakistan. ICMAP research shows that Pakistan’s total sugar industry comprising 81 mills, is far smaller in number than each of the two Indian States i.e. Mahrashtra (having 195 sugar mills) and UP (154 sugar mills).

4.8

4.9

37

Capacity Utilization of Sugar Mills in SAARC Countries – A Comparative Review

[ICMAP Research]

TABLE – 3

State-wise Number of Sugar Mills in India
No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16 17. 18. 19. State Maharashtra Uttar Pradesh (UP) Karnataka Andhra Pradesh Tamil Nadu Punjab & Haryana Bihar Gujarat Madhya Pradesh Uttrakhand Orrisa Assam Rajasthan Kerala Pondicherry West Bengal Chhattisgarh Goa Nagaland All India Public 0 33 3 1 3 0 15 0 2 2 0 0 1 0 0 1 0 0 1 62 Private 30 94 31 27 21 10 13 1 5 4 4 1 1 1 1 1 0 0 0 245 Cooperative 165 28 23 15 16 28 0 22 5 4 4 2 1 1 1 0 1 1 0 317 Total 195 154 57 43 40 38 28 23 12 10 8 3 3 2 2 2 1 1 1 624
ICMAP Research

38

Capacity Utilization of Sugar Mills in SAARC Countries – A Comparative Review

[ICMAP Research]

4.10 It is understood from our analysis that the increased share of public and semi-public sector companies (cooperatives) in India is due to the fact that ‘sick’ or ‘bankrupt units’ are kept afloat through continued lending from public sector banks and state government subsidies. However, the number of private sugar mills is increasing in different Indian states. 4.11 ICMAP research shows (Pls. See Table-4) that the States of Maharashtra and UP alone constitute 56% of the total sugar mills in India and if Karnataka State is also included, the share reaches 65 percent. This means that these three States are critical to the Indian sugar industry. TABLE – 4

Top 10 States and their Shares in Total Number of Sugar Mills in India
No. State Public Private Cooperative Total Share (%)

1.. 2. 3. 4. 5. 6. 7. 8. 9. 10.

Maharashtra Uttar Pradesh (UP) Karnataka* Andhra Pradesh Tamil Nadu** Punjab & Haryana Bihar Gujarat Madhya Pradesh Uttrakhand Total – All India

0 33 3 1 3 0 15 0 2 2 62

30 94 31 27 21 10 13 1 5 4 245

165 28 23 15 16 28 0 22 5 4 317

195 154 57 43 40 38 28 23 12 10 624

31.25 24.68 9.13 6.90 6.41 6.09 4.49 3.68 1.92 1.60 96.15%

ICMAP Research * Mysore State was renamed as ‘Karnataka” in 1973 ** Madras State was renamed as ‘Tamil Nadu” in 1968

39

Capacity Utilization of Sugar Mills in SAARC Countries – A Comparative Review

[ICMAP Research]

5)

Size of Sugar Plants

Pakistan
5.1 ICMAP study reveals interesting facts about the sugar size plants and their share in the small, medium and large-scale segments of the sugar industry in both India and Pakistan. A break-up of Province-wise and crushing capacity-wise of sugar mills in Pakistan is given in Table-5 below: TABLE – 5

Break-up of Province-wise and Capacity-wise Number of Sugar Mills in Pakistan
Size of Plant SMALL-SIZE SEGMENT Below 1500 TCD 1501 TCD to 3500 TCD 3501 TCD to 5500 TCD Nil 07 15 01 04 06 01 02 02 02 13 23 2.5% 16.0% 28.4% 47% MID-SIZE SEGMENT 5501 TCD to 7500 TCD 7501 TCD to 9500 TCD 07 03 09 12 Nil 02 16 17 19.8% 21.0% 41% LARGE-SIZE SEGMENT 9501 TCD & above TOTAL – ALL INDIA Nil 32 08 40 02 09 10 81 12% 100% Sindh Punjab NWFP Total Share (%)

ICMAP Research

40

Capacity Utilization of Sugar Mills in SAARC Countries – A Comparative Review

[ICMAP Research]

5.2

As per our study, the installed capacities of Pakistani sugar mills are evenly distributed between small-sized and medium-sized segments with 47% and 41% shares, respectively. The small-size segment has been classified into sugar mills having capacity below 1500 TCD to 5500 TCD, whereas the medium-size segment is considered in the range between 5501 TCD to 9500 TCD.

5.3

This capacity distribution of sugar mills in Pakistan is quite in contrast with the Indian sugar Industry, where about 88% of the sugar mills are in the “Small-sized segment” with capacities ranging between 2500 TCD to 5000 TCD (Please refer to ICMAP Analysis in Table-7, under the head “India” of Section 5 of this chapter.)

5.4

The study further reveals (Table-6) that the highest number of ‘Small-size” sugar plants are in Sindh Province i.e. about 27%, followed by 14% in Punjab and 6% in NWFP. Similarly, the highest number of ‘Medium-size” sugar mills are located in Punjab with 26% share. Sindh is second with 12% followed by NWFP with only 2.5%. Punjab leads in ‘Large-scale’ sugar plants with 10%. It is quite interesting that there is no sugar mill in Sindh with capacity of above 9500 TCD.

41

Capacity Utilization of Sugar Mills in SAARC Countries – A Comparative Review

[ICMAP Research]

TABLE – 6

Break-up of Capacity-wise Number of Listed and Non-listed Sugar Mills in Pakistan
Provinces Small-size (1500 to 5500 TCD) 08 14 (27%) PUNJAB LISTED NON-LISTED NWFP LISTED NON-LISTED TOTAL 02 03 (6%) 38 01 01 (2.5%) 33 01 01 (2.5%) 10 81 04 05 4.9% 6.2% 11% 100% 05 06 (14%) 08 13 (26%) 03 05 (10%) 16 24 19.8% 29.6% 50% Medium-size 5501 to 9500 TCD) 09 01 (12%) Large-size Total (9500 TCD & above) Nil Nil (0%) 17 15 Share (%)

SINDH LISTED NON-LISTED 21.0% 18.5% 39%

ICMAP Research

Listed (Small-size) Listed (Large-size)

= 08 (Sindh) + 05 (Punjab) + 02 (NWFP) = 15/81 = 18.5% = 00 (Sindh) + 03 (Punjab) + 01 (NWFP) = 04/81 = 5.0% = 14 (Sindh) + 06 (Punjab) + 03 (NWFP) = 23 /81 = 28.4% = 00 (Sindh) + 05 (Punjab) + 01 (NWFP) = 06 /81 = 7.4%

Listed (Medium-size) = 09 (Sindh) + 08 (Punjab) + 01 (NWFP) = 18/81 = 22.2%

Non-Listed (Small-size) Non-Listed (Large-size)

Non-Listed (Medium-size) = 01 (Sindh) + 13 (Punjab) + 01 (NWFP) = 15 /81 = 18.5%

42

Capacity Utilization of Sugar Mills in SAARC Countries – A Comparative Review

[ICMAP Research]

5.5

ICMAP research indicates that ‘Non-Listed” sugar mills dominate with 28.4% share in the “Small-size” segment, whereas “Listed” sector has share of 18.5%. The position in the “Medium-size” segment is reversed with “Listed” sugar mills on top with 22.2% as against 18.5% of “Non-listed” sector. In the “Large-size” segment, Non-Listed” sector again takes lead with 7.4% as compared to only 5% of the “Listed” sector. (Please see Table-7).

TABLE – 7

Share of Listed and Non-Listed Sugar Mills in Small, Medium and Large Scale Segments
Size of Plant SMALL-SIZE SEGMENT MEDIUM-SIZE SEGMENT LARGE-SIZE SEGMENT TOTAL – ALL SEGMENTS 5.6 Listed 18.5% 22.2% 5.0% 46% Non-Listed 28.4% 18.5% 7.4% 54% Total 47% 41% 12% 100%

The study reveals that Pakistan is well ahead of India in the “Large-scale” segment, with 12% share in its overall sugar industry, as compared to only 1.4% of large sugar plants in India. This is further discussed at length in the following paragraphs.

India
5.7 In 1993, the Indian Government stipulated 1250 TCD capacity as the minimum size for licensing new sugar mills. This was because of the fact that about 70% of sugar mills were having capacity in the range between l250 TCD to 2500, and 15% sugar factories had capacity below l250 TCD.

43

Capacity Utilization of Sugar Mills in SAARC Countries – A Comparative Review

[ICMAP Research]

5.8

After de-licensing in 1998, the entrepreneurs were allowed to set up sugar factories with focus on larger integrated plants to secure economies of scale. However, they were required to maintain a radial distance of 15 kms from the existing sugar factory. Incentives were provided by the government for setting up fresh capacities, instead of expanding the existing capacities. This resulted in creation of a fragmented supply base in India, with an average installed capacity of 2500 TCD, which is far lower than world minimum economic size of 10,000 TCD. Later, the average plant size in India increased to around 3,500 TCD.

5.9

5.10 The new sugar mills in India are presently set-up with an initial installed capacity of 5,000 TCD, with capacity expandable upto 7,500 to 10,000 TCD or above. However, cane availability is the limiting factor behind increasing plant sizes. 5.11 ICMAP research shows that around 88% of sugar factories in India are in the “Small-size Segment” with crushing capacity in the range between 2500 TCD to 5000 TCD. Majority of them i.e. 297 factories, (51% share) are in the cooperative sector, alone. Moreover, 64 out of 582 sugar mills are in the “Medium-size Segment” with 11% share and only 8 sugar factories are in “Large-scale” with only 1.4% share. Table-8 shows a break-up of sectorwise and crushing capacity wise number of functional sugar factories in India (Official quote is 624 sugar mills including sick units).

A large small-size segment of 88% points towards the fact that the Indian sugar industry need modernization/rehabilitation and expansion of capacities. It is needless to state that sugar factories having higher capacities enjoy economies of scale, which lowers their cost of production, thus improving their viability and international competitiveness.

44

Capacity Utilization of Sugar Mills in SAARC Countries – A Comparative Review

[ICMAP Research]

TABLE – 8

Break-up of Sector-wise and Capacity-wise Number of Functional Sugar Factories in India
Size of Plant Private Co-operative Public Total Share (%)

SMALL-SIZE SEGMENT 2500 TCD 2501 TCD to 5000 TCD 53 99 131 166 44 17 228 282 39.2% 48.5% 88% MID-SIZE SEGMENT 5001 TCD to 10,000 TCD LARGE-SIZE SEGMENT 10,000 TCD & above TOTAL – ALL INDIA 8 203 — 317 — 62 8 582 1.4% 100% 43 20 1 64 11%

Source: 11th Five-Year Plan of India & ICMAP Research

5.12 It is further observed from Table-8 that around 75% private, 94% Cooperatives and 98% Public sugar factories are in the small-size segment. Moreover, all the eight large-scale sugar mills in India have been established by the ‘Private sector’. 5.13 Sugar plant size is the main criteria for determining productivity and viability of sugar industry. However, majority of the Indian sugar factories, especially the “Cooperatives”, are having small plant sizes with outdated machineries and technology. They need modernization and upgradation.

45

Capacity Utilization of Sugar Mills in SAARC Countries – A Comparative Review

[ICMAP Research]

6)

Installed Crushing Capacity of Sugar Mills

Pakistan
6.1 At independence in 1947, the country had only two small sugar mills with total cane crushing capacity per day of 5020 TCD, producing around 8000 tons of sugar. Please see Table-9. ICMAP research shows that during the next two decades i.e. 1970 and 1980, there was phenomenal increase in installed capacity i.e. 263% between 1950 1960 and 320% between 1960 - 1970. The number of sugar mills increased to 18 with total installed capacity of 18220 TCD. Major growth in capacities was witnessed in late 1980s and early 1990s when the industrial sector was opened for private investment. By 1990, the number of sugar mills increased to 51 with total estimated capacity of 211,850 TCD. By the year 2000, there was further raise in the capacity to 355,150 TCD with setting up of 25 more new sugar mills. TABLE –9

6.2

6.3

Installed Cane Crushing Capacity of Pakistani Sugar Mills (1950 to 2009)
Year By 1950 By 1960 By 1970 By 1980 By 1990 By 2000 By 2004 By 2009 Total Number of Mills 2 6 18 33 51 76 76 81 Crushing Capacity Per Day (TCD) 5,020 18,220 76,550 125,950 211,850 355,150 501,400 549,900 % Share increase in Capacity after every 10 years — 263% 320% 65% 68% 68% 41% 10%
Source: ICMAP Research

46

Capacity Utilization of Sugar Mills in SAARC Countries – A Comparative Review

[ICMAP Research]

TABLE –10

Installed Annual Sugar Production Capacity of Pakistani Sugar Mills (1950 to 2009)
Year Total No. of Sugar Production Operational Mills Capacity (Tons) 2 6 18 33 51 76 76 81 — — 710,996 1,420,716 2,267,642 3,550,079 5,505,372 6,235,866 100% 60% 57% 55% 13%
Source: ICMAP Research

% Share increase In Capacity after every 10 years

By 1950 By 1960 By 1970 By 1980 By 1990 By 2000 By 2004 By 2009

6.4

ICMAP study reveals that the sugar production capacity has also increased by 100% during period from 1970 to 1980 (see Table-10). By 1970, the annual sugar capacity stood at 710,996 Tons, which increased by 100% to 1,420,716 tons by end 1980s. From 1980-1990, capacity enhanced by 60%; from 19902000 it further raised by 57% and during period 2000-2009 the capacity increased by 68%, reaching around 6.2 million tons. The total installed daily crushing capacity (TCD) of 80 sugar mills in Pakistan in 2008-2009 was 549,900 Tons, which is equal to annual capacity of around 66 million tons (549,900 x 120 days). Table-5 shows that Punjab has the highest share of 60 percent in the total crushing capacity of Pakistan. Sindh and NWFP have the share of 32% and 8% respectively.

6.5

47

Capacity Utilization of Sugar Mills in SAARC Countries – A Comparative Review

[ICMAP Research]

TABLE – 11

Province-wise Installed Capacity (TCD) (2008-2009)
(Value in Tons) PROVINCE SINDH PUNJAB N.W.F.P TOTAL INSTALLED CAPACITY 173,200 330,100 46,600 549,900 SHARE IN TOTAL 32% 60% 8% 100%

Source: Pakistan Sugar Mills Association & ICMAP Research

6.6

The break-up of installed capacity (TCD) by Listed and Non-listed sugar mills is given in Table-8. It can be noted that the ‘Listed’ sugar mills share 47 percent of total installed capacity in Pakistan, whereas the “Non-listed’ sector has a share of 53 percent. TABLE – 12

Break-Up of Installed Capacity (TCD) by Listed and Non-Listed Sugar Mills
(Value in Tons) Province Sindh Punjab N.W.F.P TOTAL Listed 106,200 130,500 22,700 259,400 Non-Listed 67,000 199,600 23,900 290,500 Total 173,200 330,100 46,600 549,900 Share of Listed 19% 24% 04% 47% Share of Non-Listed 12% 36% 5% 53%

Source: ICMAP Research

48

Capacity Utilization of Sugar Mills in SAARC Countries – A Comparative Review

[ICMAP Research]

6.7

ICMAP research shows that ‘Listed” sector is more prominent in Sindh Province with 19% share in total installed capacity, as against Punjab with 12% share. On the other hand, ‘Non-Listed’ sector is dominant in number in Punjab Province with 36% share, as compared to 24% of Sindh.

6.8

The sugar industry was on the list of ‘specified industries’, requiring prior approval of government before installation or any expansion in installed capacity. This requirement was done away with in 1987, after which new units were established at much faster rate (The number of sugar mills increased from 41 to 76 during 1985 to 2000). Accordingly, installed capacity increased manifold.

India
6.9 ICMAP research indicates that the installed sugar production capacity in India shows phenomenal double-digit growth in each decade from 1950 to 2000 i.e. 47% (1950-1960), 35% (1960-1970), 79% (1970-1980), 67% (1980-1990) and 64% (1990-2000). The installed capacity increased from 1.67 million tons in 1950s to 16.18 million tons in 2000. (Please refer Table–13) 6.10 The installed sugar capacity in 2008-2009 stands at around 23.9 million tons, showing 5% increase from last year. During 2005-2009, the capacity increased in range of 4% to 8%.

49

Capacity Utilization of Sugar Mills in SAARC Countries – A Comparative Review

[ICMAP Research]

TABLE – 13

Installed Annual Sugar Production Capacity of Indian Sugar Mills (1950 to 2009)
Year Total No. of Sugar Production Operational Mills Capacity (Tons) % Share increase In Capacity after every 10 years — 47% 35% 79% 67% 64% 17% 4% 8% 5% 6%
Source: ICMAP Research

By 1950 By 1960 By 1970 By 1980 By 1990 By 2000 By 2005 2005-06 2006-07 2007-08 2008-09

139 174 220 299 377 423 400 453 501 516 582

1,670,000 2,450,000 3,303,000 5,910,000 9,850,000 16,180,000 18,985,000 19,808,000 21,392,000 22,480,000 23,900,000

6.11 A State-wise break-up of installed sugar capacity is given in Table-14. ICMAP research shows that the highest increase in capacity during last five years (2005-2009) is in the State of Uttar Pradesh i.e. around 62%, which is mainly due to presence of highest number of private sugar mills. In UP there are total 154 sugar mills, out of which 94 mills (61%) are in private sector. The situation is different in Maharashtra and other states where cooperatives are more dominant.

50

Capacity Utilization of Sugar Mills in SAARC Countries – A Comparative Review

[ICMAP Research]

TABLE – 14

State-wise Break-up of Installed Sugar Capacity (Tons) in India
No State 2005- 06 2006-07 2007-08 2008-09 % Increase 2005-2009 3% 62% 15% Nil 1.3%

1.. Maharashtra 2. 3. 4. 5. Uttar Pradesh (UP) South India Punjab & Haryana Other States ALL INDIA

7,009,000 5,234,000 3,986,000 1,220,000 2,359,000

7,052,000 6,542,000 4,211,000 1,220,000 2,367,000

7,161,000 7,326,000 4,395,000 1,220,000 2,378,000

7,220,000 8,470,000 4,600,000 1,220,000 2,390,000

19,808,000 21,392,000 22,480,000 23,900,000
Source: ICMAP Research

7)

Capacity Utilization of Sugar Mills

Pakistan
7.1 The sugar industry in Pakistan is presently working at 50% capacity, with capacity utilization rate at around 51.4% during 2008-2009, showing a decline of 28.6% from last year (see Table-15).

ICMAP research shows that main reason for this sharp decline in capacity utilization is around 21.7% shortfall in the sugarcane production in the country – i.e. from 64 million tons in 2007-08 to 50 million tons in 2008-09. This attributes to about 17% decline in cane cultivation area from 1.24 million hectares (07/08) to 1.03 million hectares (08/09).

51

Capacity Utilization of Sugar Mills in SAARC Countries – A Comparative Review

[ICMAP Research]

TABLE –15

Capacity Utilization of Pakistani Sugar Mills (2004 to 2009)
Year Installed Crushing Capacity (TCD) 549,900 549,900 549,900 541,900 493,400 Utilized Capacity (Cane Crushed) (TCD) 282,716 439,808 337,366 250,755 267,515 Capacity Utilization (%) 51.4% 80.0% 61.4% 46.3% 54.2%
Source: ICMAP Research

2008-09 2007-08 2006-07 2005-06 2004-05

7.2

Table-16 indicates that the year 2007-08 was a peak year for the sugar industry, with sugar mills in both Sindh and Punjab provinces achieving more than 80% capacity utilization. Sindh improved from 56% in 2006-07 to 81% in 2007-08, and Punjab 67% to 84% during same period. During 2008-09 the capacity utilization has come down sharply to around 50 percent. TABLE –16

Province-wise Capacity Utilization of Pakistani Sugar Mills during 2007-08
Province Installed Capacity (TCD) 173,200 330,100 46,600 Utilized Capacity (TCD) 139,475 275,530 24,803 Utilization (%) in 20072008 81% 84% 53% Utilization (%) in 20062007 56% 67% 40%
Source: ICMAP Research

SINDH PUNJAB NWFP

52

Capacity Utilization of Sugar Mills in SAARC Countries – A Comparative Review

[ICMAP Research]

7.3

ICMAP research indicates that basic reason for capacity under-utilization is due to the fact that during last decade there has been unplanned expansion of sugar industry without corresponding increase in the raw material (sugarcane). The cost of production has also increased considerably. The new mills established in haste are in the capacity range of 3000 TCD to 4000 TCD, which according to experts are uneconomical and against the principles of economies of scale. The trend in the world is to establish mills in capacity range from 10,000 TCD to 20,000 TCD through ‘vertical expansion’, as compared to standard capacity of 4000 TCD in Pakistan. In order to improve capacity utilization, there is immediate need to accelerate sugarcane production by 4% to 5% annually, so that the sugar mills in the country have sufficient cane available for crushing, thus leading to optimum utilization of capacity. ICMAP study points that the Millers are not in favor of current “de-zoning system”, which has given free hand to farmers to sell their inferior quality sugarcane to any mill. This has resulted in un-competitiveness and unprofitability of the sugar mills.

7.4

7.5

7.6

India
7.7 The capacity utilization of India sugar industry during 2008—2009 stood at 63%, which shows a marked decline from 117% of last year (see Table-17).

ICMAP research shows that main reason for this sharp decline in capacity utilization of Indian sugar mills is due to 17% shortfall in the sugarcane production in the country – i.e. from 348 million tons in 2007-08 to 289 million tons in 2008-09. This attributes to about 12% decline in cane cultivation area from 5 million hectares to 4.4 million hectares.

53

Capacity Utilization of Sugar Mills in SAARC Countries – A Comparative Review

[ICMAP Research]

TABLE –17

Capacity Utilization of Indian Sugar Mills (2004 to 2009)
(Value in ‘000’ Tons)

Year

Installed Capacity (Tons) 23,900 22,480 21,392 19,808 18,985

Utilized Capacity (Tons) 15,000 26,328 28,328 19,267 12,691

Capacity Utilization (%) 63% 117% 132% 97% 67%
Source: ICMAP Research

2008-09 2007-08 2006-07 2005-06 2004-05

7.8

The main reason for under capacity utilization is shortage of raw material and high fluctuations in cane area under the command. The Indian sugar industry is of the view that the government should increase the radial distance between sugar mills from present 15K.m. to 25K.m. The capacity utilization of sugar mills in different states of India is given in Table-18. It can be noted that there was a very sharp decline in capacity utilization in all the states, which is mainly due to steep fall in sugar production from 26 million tons in 2007-08 to 15 million tons in 2008-09.

7.9

54

Capacity Utilization of Sugar Mills in SAARC Countries – A Comparative Review

[ICMAP Research]

TABLE –18

State-wise Capacity Utilization (%) of Indian Sugar Mills (2005 to 2009)
No. 1 2. 3. 4. 5. 6. 7. Indian States Maharashtra Uttar Pradesh Karnataka Tamil Nadu Gujarat Andhra Pradesh Punjab 2005-06 74% 111% 126% 141% 109% 136% 49% 2006-07 129% 130% 157% 165% 132% 180% 71% 2007-08 127% 100% 164% 129% 127% 143% 78% 2008-09 62% 48% 102% 106% 93% 75% 44%

Source: ICMAP Research

7.10 ICMAP research shows that highest shortfall of 68% in capacity utilization during 2008-09 was witnessed in the Andhra Pradesh State, followed by Maharashtra 65%, Karnataka 62%, UP 52%, Gujarat and Punjab 34% each and Tamil Nadu 23%. The sugar production also fell sharply. 7.11 Despite the shortfall in capacity utilization, the sugar mills in Karnataka and Tamil Nadu States managed to operate above 100% capacity, which is far better than UP State where the situation seemed not good for sugar industry with only 48% capacity utilization. The sugar production in UP State fell sharply from 7.32 million tons in 2007-08 to 4.10 million tons in 2008-09. ICMAP research shows that the year 2008-09 was not a good year for both Pakistan and India with marked decline in capacity utilization from last year i.e. for Pakistan, capacity utilization fell from 81% to 51% whereas for India it reduced from 117% to 63%. The main reason behind this is attributed to shortages in supply of sugarcane.

55

Capacity Utilization of Sugar Mills in SAARC Countries – A Comparative Review

[ICMAP Research]

7)
7.1

Increasing Number of Sick Sugar Mills in India
According to official Indian estimates, during 2008-09, as many as 206 sugar mills across India are sick, with two major producing states of Maharastra and Uttar Pradesh accounting for over half of them. Out of these mills, 61 are private whereas 145 belong to the co-operative sector. The State-wise breakup of the sick sugar mills in India is given in Table-19. TABLE – 19

State-wise Number of Sick Sugar Mills in India (2008-09)
No 1. 2. 3. 4. 5. State Maharashtra Uttar Pradesh (UP) Tamil Nadu Karnataka Other States Total Sick Units Sick Units 63 44 23 22 54 206
ICMAP Research

7.2

ICMAP study reveals that there is rapid tendency of sickness in the Indian sugar mills, especially those in the ‘Cooperative sector’. It can be observed from Table – 20 below that there were only 38 sick sugar units during 200203, which sharply raised to 144 in 2003-04.

56

Capacity Utilization of Sugar Mills in SAARC Countries – A Comparative Review

[ICMAP Research]

TABLE – 20

Year-wise Detail of Sick Sugar Mills in India
States Uttar Pradesh Maharastra Punjab & Haryana South India Other States Total 7.3 2002 - 03 03 2003 - 04 19 2004 - 05 16 2005 - 06 16 2006 - 07 14 2007 - 08 23

12 0

49 01

89 05

47 05

25 08

24 08

10 13 38

33 42 144

26 39 175

22 41 131

19 39 105

20 38 113

The share of sick units in the total established sugar mills (total 624 as per official figure) comes to around 33% which is quite high. The main reasons for the closure/sickness of these mills are : (a) (b) (c) (d) (e) (f) Non-availability of adequate raw material (sugar cane) Poor recovery from sugarcane Un-economic size of sugar plants Lack of modernization of Plants High cost of working capital Declaration of high state advisory cane price by some states

57

Capacity Utilization of Sugar Mills in SAARC Countries – A Comparative Review

[ICMAP Research]

7.4

According to KPMG study (2009) the chronic reasons for sickness of Indian sugar mills are: (a) (b) (c) (d) (e) (f) Shortage in sugarcane supply Obsolete technologies Low capacity utilization High cost of production Poor financial performance Discriminatory government policies

7.5

According to an Indian study, high proportion of sick units in ‘cooperative sector’, may be due to highly regulated environment and lack of profit motive. Private sector is better placed in taking advantage of multiple outputs like generation of electricity, bio-diesel etc due to their large size. The cooperative sugar mills do not opt for power co-generation due to nonavailability of adequate finance, while the private sector units have access to cheaper source of funds. At end-2009, the Maharashtra government started liquidating 31 cooperative sugar factories and also framed a lease policy for sick units. According to latest news, it is studying the UP model of selling loss making sugar cooperative mills to private sector (UP has offered to sell or transfer the management of 25 loss-making co-operative mills to private sector)

7.6

7.7

58

Capacity Utilization of Sugar Mills in SAARC Countries – A Comparative Review

[ICMAP Research]

CHAPTER – 3 Sugar Industry in Other SAARC Countries Bangladesh Nepal Sri Lanka

59

Capacity Utilization of Sugar Mills in SAARC Countries – A Comparative Review

[ICMAP Research]

Bangladesh

1.1

Bangladesh has no private crushing mills. All the sugar mills are in public sector and under the control of Bangladesh Sugar & Food Industries Corporation (BSFIC). From 1972-73 to 2008-2009, BSFIC has contributed about Taka 2.9 million to national exchequer in the form of duties and taxes. Around 5 million people are directly or indirectly benefited by the sugar industry in Bangladesh through cane cultivation, employment in by-product based industries and trade & commerce. In addition, 12,633 officers, staff and workers are employed under BSFIC. There are 15 operating sugar mills in Bangladesh (Table-1) with total installed sugar production capacity of 21,044 tons per day. Before 1947, there were only three sugar mills in Bangladesh with total cane crushing capacity of 3,900 TCD. When Bangladesh was part of Pakistan (East Pakistan), 9 more sugar mills were established during period 1954 to 1970, raising the crushing capacity to 13,128 TCD. After Bangladesh’s independence in 1971, three more units were set up, which enhanced the crushing capacity of Bangladesh sugar industry to present level of 21,044 TCD or 2.63 million tons annually. The crushing capacity utilization of fifteen sugar mills of Bangladesh has been quite steady and it remained over 70% during the period 2005 to 2008, as shown in Table-2.

1.2

1.3

1.4

1.5

60

Capacity Utilization of Sugar Mills in SAARC Countries – A Comparative Review

[ICMAP Research]

TABLE –1

Installed Cane Crushing Capacity of Sugar Mills in Bangladesh (1947–2009)
Name of Sugar Mills Before Pakistan Era (1947) 1. North Bengal Sugar mill 2. Setabgonj Sugar mill 3. Carew & Co. 1933 1933 1938 Total Crushing Capacity Pakistan Regime (1947-1971) 4. 5. 6. 7. 8. 9. 10. 11. 12. Rangpur Sugar mill Thakurgaon Sugar mill Zealbangla Sugar mill Jaypurhat Sugar mill Rajshahi Sugar mill Kushtia Sugar mill Mobarakgonj Sugar mill Shampur Sugar mill Panchagar Sugar mill 1954 1958 1958 1962 1965 1965 1967 1967 1970 1500 1524 1016 2032 2000 1524 1500 1016 1016 13,128 1500 1250 1150 3,900 Year of Establishment Cane Crushing capacity (TCD)

Total Crushing Capacity Independent Bangladesh (1971 -2009) 12. Faridpur Sugar mill 13. Nator Sugar mill 14. Pabna Sugar mill 1976 1984 1996 Total Crushing Capacity Total Cane Crushing Capacity

1016 1500 1500 4,016 21,044

61

Capacity Utilization of Sugar Mills in SAARC Countries – A Comparative Review

[ICMAP Research]

TABLE –2

Crushing Capacity Utilization of Bangladeshi Sugar Mills (2004 to 2008)
Year 2007-08 2006-07 2005-06 2004-05 Installed Crushing Capacity (TCD) 21,044 21,044 21,044 21,044 Utilized Capacity (TCD) 18,300 18,680 14,825 11,316 Capacity Utilization (%) 87% 89% 70% 54%
Source: ICMAP Research

1.6

The total sugar production capacity of Bangladesh sugar industry at present is around 210,440 tons per annum based on 125 Effective Crushing Days (ECD) and 8% sugar recovery rate from Cane (calculation = 21,044 x 125 x 8%). Table-3 shows the sugar production capacity and capacity utilization of the Bangladesh sugar industry for the last five years. TABLE –3

Sugar Capacity Utilization of Bangladeshi Sugar Mills (2004 to 2008)
Year 2007-08 2006-07 2005-06 2004-05 Installed Sugar Capacity (Tons) 210,440 210,440 210,440 210,440 Sugar Production (Tons) 163,840 165,000 133,280 106,650 Capacity Utilization (%) 78% 78% 63% 51%
Source: ICMAP Research

62

Capacity Utilization of Sugar Mills in SAARC Countries – A Comparative Review

[ICMAP Research]

1.7

For full capacity utilization, the sugar mills require annually about 2.50 million tons sugarcane, majority of which is collected from private growers in the mill zone at government- fixed price. Average annual sugar production in Bangladesh, during the last 37 years (upto 2008) was 1,46,603 tons with an average(weighted) sugar recovery rate of 7.60%. The annual demand for sugar in Bangladesh during 2010 is around 1.3 million tons, of which the state-owned sugar mills have the capacity to supply only 0.21 million tons. A substantial portion of the local demand (i.e. 1.09 million tons) is met through imports. It is estimated that annual sugar demand would rise to 1.58 million tons by 2015, and 1.86 million tons by 2020.

1.8

1.9

1.10 The annual sugar production is not sufficient to meet the local demand. During 2007-08, the fifteen sugar mills under BSFIC produced 0.16 million tons of sugar, against set target of 0.20 million tons. 1.11 The main reason for low sugar production is attributed to low availability of sugar cane in view of drastic decline in cultivation area of sugarcane throughout the country. During 1993-1994, the cropping area was about 0.45 million acres which has now squeezed to about 0.2 million acres, as farmers shifted to other cash crops. 1.12 The other factors of low sugar production in Bangladesh are lower yield, poor quality, obsolete machinery, setting up of locally made sugarcane crushers in mill areas and collective bargaining agents. The Bangladesh government has taken initiatives to increase sugar cultivation including providing substantial amount of subsidy to farmers, raising the prices of sugarcane etc.

63

Capacity Utilization of Sugar Mills in SAARC Countries – A Comparative Review

[ICMAP Research]

1.13 BSFIC is encouraging farmers to cultivate relay crops like tomato, potato, radish, cabbage and cauliflowers in between two lines of sugarcane, in addition to announcing prizes for farmers achieving highest production of sugarcane. 1.14 Bangladesh mainly depends on state and private sector import of sugar. A duty of US$ 58 (Taka 4000@68/Dollar) on raw sugar import and US$ 73 (Taka 5000) on white sugar import is imposed. 1.15 The Bangladesh government is planning to generate around 100 MW power from the country’s 15 state-owned sugar mills by using sugarcane’s bagasse. About 0.5 million tons bagasse is produced by BSFIC mills annually, 95% of which is used for generating power for the mills.

64

Capacity Utilization of Sugar Mills in SAARC Countries – A Comparative Review

[ICMAP Research]

Nepal
1.1 Sugarcane is one of the leading cash and industrial crops of Nepal. The sugarcane production of Nepal is around 1.62 million tons, with yield of 35 metric tons per hectare, which is very low. There are 12 Sugar Mills in Nepal – two mills under public sector and 10 mills under private sector. Both the public sector sugar mills viz. (1) Birgunj Sugar Mills and (2) Lumbini Sugar Mills have been closed down. Birgunj was closed down for privatization and not producing sugar at present (Table-4). TABLE – 4

1.2

Public Sector Sugar Mills of Nepal
No 1 2 Name of Sugar Mill Birgunj Sugar factory Ltd Lumbini Sugar Mills Total 1.3 Crushing Capacity (TCD) 2500 1250 3,750 Annual Crushing Capacity (Tons) 375,000 Closed 150,000 Closed 525,000

The Nepal government established Birgunj Sugar Mill and Lumbini Sugar Mill in the mid nineties. After the liberalisation of Nepalese economy in early 1990s, licenses were given to private sector. As a result, several sugar mills in private sector were established including Sri Ram Sugar Mill, Eastern Sugar Mill, Vashulinga Sugar Mill, Mahalaxmi Sugar Mill and Everest Sugar Mill. The combined capacity of 8 private sector sugar mills (see Table –5) is 20,750 TCD which is equal to annual crushing capacity of 3,112,500 tons (20,750 TCD x 150 days). Recently, Vasulinga Sugar mill has been closed down. The total capacity of two public sector mills is 3,750 TCD.

1.4

65

Capacity Utilization of Sugar Mills in SAARC Countries – A Comparative Review

[ICMAP Research]

TABLE – 5

Crushing Capacity of Private Sector Sugar Mills of Nepal
No Name of Sugar Mill Crushing Capacity (TCD) 2500 3000 3000 3000 3000 1250 2500 2500 Annual Crushing Capacity (Tons) 375,000 450,000 450,000 450,000 450,000 187,500 375,000 375,000

1 2 3 4 5 6 7 8

Eastern Sugar Mills Everest Sugar Mills Indushankar Chini Udyog Sri Ram Sugar Mills Mahendra Sugar Mills Bagmati Sugar Mills Mahalaxami Sugar Mills Vasulinga Sugar Mills (closed) Total

20,750

3,112,500

Source: Nepal Sugar Mills Association

1.5

The sugar capacity utilization of Nepalese Sugar mills has always remained below fifty percent, as shown in Table–6. The capacity is declining gradually and during 2007-08 it stood at 31%. The main dependence of the Nepalese sugar industry is on imports from India and other countries.

66

Capacity Utilization of Sugar Mills in SAARC Countries – A Comparative Review

[ICMAP Research]

TABLE–6

Sugar Capacity Utilization of Nepalese Sugar Mills (2001 to 2008)
Year 2007-08 2006-07 2005-06 2004-05 2003-04 2002-03 2001-02 Capacity Utilization (%) 31% 34% 32% 42% 42% 43% 40%
Source: Department of Industries – Nepal

1.6

The main reason for under-utilization of Nepalese Sugar Mills is lack of raw materials and political disturbance. Sugarcane cultivation has decreased largely due to inadequate motivation to farmers. The cost of production is also very high due to lesser capacity utilization. The current annual domestic demand for sugar in Nepal is around 0.16 million tons, while annual domestic production is around 0.10 million tons. As such, Nepal’s sugar supply is hardly adequate to meet domestic demand. The remaining amount is fulfilled through imports. Nepal imports nearly 50,000 metric tons of sugar from India and abroad. The private sector is the major supplier of sugar in the market although, National Trading Limited and Salt Trading Ltd. are also involved in sugar procurement and supply.

1.7

1.8

67

Capacity Utilization of Sugar Mills in SAARC Countries – A Comparative Review

[ICMAP Research]

1.9

Sugar imports are subject to customs tariff of 15%, which has been reduced from 25% in order to meet the shortage of sugar in the country. The private sector is now encouraged by Nepalese government to import sugar to meet the local consumer demand, especially in festival seasons.

1.10 The consumers are often forced to buy sugar at higher prices due to its frequent shortage.

68

Capacity Utilization of Sugar Mills in SAARC Countries – A Comparative Review

[ICMAP Research]

Sri Lanka
1.1 Sri Lanka is not a major producer of sugar and relies mainly on imports. The share of local sugar production in total demand is only 10%, whereas 90% sugar is imported. At present, the average annual sugar imports is around 400,000 MT, costing around Nepalese Rupee 20 billion. During 2007-08, country incurred cost of Nepalese Rupee 22.3 billion on importing 575,000 tons sugar. In 1970, sugar production was 9,000 tons (4% of domestic consumption) whereas sugar imports stood at 244,000 tons. By 1994, sugar production raised to 72,275 tons (13% local consumption) whereas imports also soared to 491,000 tons. In 2005, production further improved to 54,000 tons and imports were 418,000 tons. During 2007-08, sugar produced declined to 38,000 tons. All sugar produced is locally consumed. Table-7 gives history of sugar produced and imports made: TABLE –7

1.2

Sugar Produced and Imported by Sri Lanka (1970 to 2008)
Year 1970 1994 2005 2008 Sugar Produced (Tons) 9,000 72,275 54,000 38,000 Imports Made (Tons) 244,000 491,000 418,000 575,000
Source: ICMAP and Sri Lankan newspapers

69

Capacity Utilization of Sugar Mills in SAARC Countries – A Comparative Review

[ICMAP Research]

1.3

Sri Lanka consumes around 62,000 tons of sugar every month i.e. 744,000 tons annually. The per capita consumption is around 30 Kg, increasing from 20 Kg in 1998. During 1970s, sugarcane was cultivated in 25,000 hectares in different parts of Sri Lanka i.e. Kantale (3,800 hactares) Hingurana (5,600 hactares), Pelawatta (4,500 hactares), Sevanagala (4,600 hactares) and Moneragal (5,700 hactares). Kantale and Hingurana sugarcane plantations were closed due to various reasons. At present. total extent under sugarcane is 15, 000 hectares. Sugar marketing has been privatized. Sugar cane growers sell their cane to the factory, by weight and at a price set by the factory. The Millers do not pay for sugar content and quality of cane. The sugar recovery rate is very low at an average of 8.4%, mainly due to the poor quality of cane and low level of processing efficiencies. Smaller size of sugar mills and low levels of processing efficiencies and capacity utilization has led to high cost of production of sugar. Sri Lanka’s sugar industry operated under a high degree of trade protection in 1980s. In the 1990s, as trade protection was gradually withdrawn, the industry became less able to compete. As a result, the state-owned ‘Sri Lanka Sugar Company Ltd. (SLSCL)’ was commercialized by putting its assets in three separate companies viz. (1) Sevenagala, (2) Hingurana, and (3) Kantale. There are four sugar factories in Sri Lanka, out of which two factories are closed and not currently producing sugar. The closed sugar factories are (1) Hingurana, and (2) Kantalaj. The sugar mills presently in operation are (1) Pelwatta, and (2) Sevanagala.

1.4

1.5

1.6 1.7 1.8

1.9

1.10 The closed sugar mills viz. Hingurana and Kantalaj are state-owned and established during 1960s. Hingurana (old name was Gal Oya Sugar Mill) was privatized in 1993 whereas Kantalaj was privatized in 1994. Both of them were later re-possessed by the government due to labor disputes and high factory losses. They are presently out of operation and slated for liquidation.

70

Capacity Utilization of Sugar Mills in SAARC Countries – A Comparative Review

[ICMAP Research]

1.11 At present only Pelwatte and Sevanagala Sugar Industries are operational and producing sugar for local consumption. Sevangala Sugar Factory was privatized in 1992. 1.12 The total cane crushing capacity of the four sugar factories (two closed and two functional) are given in Table-8. As can be seen, the combined daily crushing capacity of these two functional mills is 5,050 TCD or 1.01 million tons annual capacity (200 crushing days season). TABLE – 8

Crushing Capacity of Sugar Mills in Sri Lanka
No Name of Sugar Mill Closed Sugar Mills 1 2 Hingurana Sugar Mill Kantalaj Sugar Mill Total Functional Sugar Mills 3 4 Pelwatta Sugar Mill Sevanagala Sugar Mill Total 3300 1750 5,050 660,000 350,000 1,010,000
Source: ICMAP Research

Crushing Capacity (TCD)

Annual Crushing Capacity (Tons)

2000 1200 3,200

400,000 240,000 640,000

1.13 The total sugar production capacity of Pelwatta and Sevangala Sugar Mills is 440 tons per day or 88,000 tons per annum. Pelwatta has 330 tons capacity whereas Sevangala has 110 tons capacity. The sugar capacity utilization of these two sugar factories is given in Table–9.

71

Capacity Utilization of Sugar Mills in SAARC Countries – A Comparative Review

[ICMAP Research]

TABLE –9

Sugar Capacity Utilization of Sugar Mills in Sri Lanka
Year 2007-08 2006-07 2005-06 2004-05 Installed Sugar Capacity (Tons) 88,000 88,000 88,000 88,000 Sugar Production (Tons) 37,988 32,000 56,000 54,000 Capacity Utilization (%) 43.17% 36.36% 63.64% 61.36%
Source: ICMAP Research

1.14 ICMAP research shows that capacity utilization of the only two functional sugar factories in Sri Lanka is below fifty percent and there is further room for increasing capacity utilization. 1.15 The size of existing sugar factories and their deficiencies in maintenance are the major hurdles in achieving economies of scale, required to be price competitive with imports. In addition, cane quality, insufficient supply and regular disruptions in mills operations are also impeding factors in the way of optimum operating efficiencies by the sugar factories. 1.16 There is no proper institutional body to develop sugar industry in Sri Lanka. Although, the Ministry of Plantation Industries looks after the sugar affairs, it is mainly dealt by Sugarcane Research Institute (SRI), which is also responsible for providing technical guidance for sugar industry development. However, there is no representation of sugar manufacturers in the Institute. 1.17 There is no apex body to oversee and facilitate the functions such as planning and implementation of sugar industry development, promotion of investment, administration of development funds, allocation of lands, fixing cane sugar and by-product prices, determining tax/tariff rates, licensing, arbitration in labour disputes, etc.

72