Sugar Industry in Pakistan

Sugar Industry
 The 2nd largest agriculture industry in Pakistan
 Major issue is the rivalry between mill owners and growers.
 Sugar price is regulated due to inelastic demand. Sugar cane uses “price
flooring” to support prices.
 Pricing strategy of sugar and sugarcane developed together.
 Mill owners are politically dominated. They pressurize growers.
 Politically motivated mill owners have a lot of power.

Importance of Sugar Industry

 At one time it used to be competitive in the international market. Pakistan is
currently out of competition.
 2nd largest industry in Pak after textiles.
 Pakistan is the 7th or 8th largest sugar producer in the world and 5th largest
sugar cane producer in terms of area under cultivation.
 1.1mn hectares under sugarcane cultivation.
 Yield per hectare is very low. Pak ranks 20th/21st in the world in this ratio.
 Reasons for poor cultivation process?

 There are 192 sugar producing nations but Brazil, Pakistan, India, China, an
Thailand produce approx. 70% of the world’s sugar cane.
 Sugar is a basic necessity (need)
 Inelastic demand
 Major Uses: pharmaceutical, confectionary, glue.
 Pakistan’s sugar consumption per capita is 28.5kg per annum per capita
where India’s consumption is 14kg and China’s consumption is as low as
11kg/annum/capita.
 Sugar industry provides major unskilled and skilled employment in the
country. But it acts as a major source of “seasonal” employment in rural
areas.
 Share in GDP is at 1.9% currently.
 10-12% of agricultural labour force is seasonal. This industry provides a
reason for development in rural areas. When sugar mill is setup in rural
areas, it leads to infrastructure development, electricity supply, schools and
employment opportunities.

 By products of sugar e.g. molasses and bagasse have potential higher revenue
than sugar itself.
 E.g. molasses produce ethanol, which has a big export market.
  Ethanol is used as a substitute or fuel and improves fuel quality.
 Not produced heavily in Pakistan as the distilleries have not been setup.
 Around 3000MW of electricity can be produced by sugar mills alone and
some of the mills are producing electricity.
 The energy is renewable but NOT sustainable
 Sugar produced every year (renewable).
 But electricity can be generated only in crushing season (seasonal –
unsustainable).
 Sugar is a very important contributor to government. 12-13billion rupees per
year in form of taxes, import-export duties etc.
 Sugar industry directly or indirectly provides employment to over 1.5million
people annually.
 3 major by-products:
 Bagasse:
o 30% of sugar weight is Bagasse (fibrous material)
o Currently being used in boilers for electricity generation
o Sugar mills are self-sufficient in electricity because they use bagasse
in boilers, which produce electricity.
o It is also used to make multi fibre density board, tissue paper,
packaging material etc.
 Molasses:
o 2.5-3% of sugar weight.
o It is a thick black liquid extracted from sugar cane.
o Most important use as a raw material for production of Ethanol
o But production and export is not significant considering we are the 5th
largest cultivators of sugar cane in the world
o Normally used as animal feed – nutritional
 Press mud:
o It is leftover remains from the boilers.
o Usually used as organic manure for the fields.
o Usually bought back by farmers from the sugar mill.

Factor Conditions:
1. Mill owners (politically influenced):
2. Transport
3. Price disputes
4. Govt. taxes and tariffs.
5. Yield per hectare of sugar + sugar recovery
6. Effect on other crops
7. Zoning and de-zoning

Nature of Sugarcane
 Sugar can be produced through 2 crops – sugarcane and sugar beet (looks
like turnip)
  97% produced through sugarcane, 2-3% through sugar beet.
 Sugar cane depletes soil from phosphate
 It is an annual crop. You have to occupy land throughout the year.
 Requires a lot of water. 1525mn tons of rainfall and irrigation water.
 Temperature – river Indus is the most suitable region for sugarcane
production. 60% of production is done in Punjab but Sindh is more suitable.
 The longer it takes for sugarcane to mature, the more sucrose content it has,
the higher recoverable yield per hectare.
 Sindh cultivation – 11 to 12 months, Punjab – 8-9 months. Sindh recovery is
better than Punjab.

Mill owners
 Water lodging and Salinity are some issues.
 No proper mapping concept of the land to cultivate sugar.
 Politically owned mills - the owners aren’t dependant on sugar, but farmers
are dependent, so, they are the weak link – they are exploited. (1)
 Govt. sets sugar cane support prices to encourage farmers by pricing at
182.40/kg. (1)
 But mill owners close their gates, as they are political leaders knowing that
farmers are the weaker party. (1)
 As days pass, the weight of the crop decreases and farmers have to pay
additional truck parking fee. (1)

Transport
 The minute the sugar is harvested, it needs to get to the mill, as sucrose
content is maximum (must reach mill within 6 hours). (2)
 In Pakistan, it takes 12-15 hours if everything goes smoothly, otherwise
weeks (2).
 With every passing day, sugar cane loses weight by 0.2%. (2)
 Weight influences the price (2).

Price Dispute

 Support prices of sugarcane provide a tool by govt. to encourage farmers to

grow. (3)
 Sugar cane support prices are higher compared to wheat and cotton. (3)
 Since the farmers are poor and needy, they are forced to sell their crop at
lower than the support price to the middleman. Middleman is actually an
employee of the mill owner. (3)
 Farmers have to grow crop next year too and sell it to the same owner, so
they are forced by middleman to sell it for cheaper. (3)

Govt. Taxes and Tariffs

  Sugar has an inelastic demand, but govt. imposes a price ceiling (4).
 This threatens farmers and they are unable to recover the costs. (4)
 Millers want to export sugar as international prices are fluctuating. (4)
 Millers argue that their cost of production and prices are higher than
international prices. (4)
 They demand their exports to be subsidized. (4)
 Govt. says that when international prices are low, millers take a subsidy but
when the prices are high, they make profit on the export resulting in political
manipulation (4)

Yield per hectare of sugar + sugar recovery

 Inappropriate use of fertilizers and pesticides along with poor knowledge of

farmers leads to low yield per hectare (low recover). (5)
 8.7% of recovery is the benchmark; you have to pay a premium for quality
higher than that. (5)
 Sindh mills have to pay higher quality premium (9.3% recovery) (5)
 Punjab doesn’t have to pay premium (8.5% recovery). (5)
 Support prices lower in Punjab. Price set at 178/kg by provincial
government. (5)
 Rivalry between Punjab and Sindh mills. (5)
 Sindh performing poor due to poor fertilizers and poor transport. But Punjab
is improving their mechanism for higher recovery. (5)
 Sindh is wearing out on factor advantage while Punjab is improving in this
area. (5)

Zoning and De-Zoning

 Bhutto devided areas into zones. The mills could only buy sugar from
certain zones only.
 Positive competition for the mill owners.
 They wanted timely cultivation as the mill owners had personal interest
in growth of crops because banks were easily giving loans to mill owners
and they had a reason to exploit this opportunity.
 De-zoning in 1988: increase area under cultivation but a decrease in yield
per hectare. Loss in the close working relation between mill owners and
farmers.
 Zoning had a positive impact on the industry.