CONTENTS

INTRODUCTION.............................................................................2 SUGARCANE PRODUCTION............................................................2 SUGAR PRODUCTION.....................................................................4 PRODUCTION POLICY....................................................................4 CONSUMPTION..............................................................................5 TRADE...........................................................................................7 STOCKS.........................................................................................7 Export...........................................................................................7 SUGAR CRISIS IN PAKISTAN...........................................................8 IS THERE REALLY SUGAR SHORTAGE?.........................................10 PAKISTAN SUGAR ANNUAL REPORT 2010....................................10 ISSUES & ANALYSIS.....................................................................11 DEMAND AND SUPPLY OF SUGAR................................................12 REASONS....................................................................................14 CONCLUSION...............................................................................15 RECOMMENDATION:....................................................................15 RECOMMENDATION:

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INTRODUCTION:
Pakistan is the 5th largest country in the world in terms of area under sugar cane cultivation, 15th by production and 60th in; yield. Sugarcane is the primary raw material for the production of sugar. Since independence, the area under cultivation has increased more rapidly than any other major crop. It is one of the major crops in Pakistan cultivated over an area of around one million hectares. The sugar industry in Pakistan is the 2nd largest agro based industry comprising 84 sugar mills with annual crushing capacity of over 6.1 million tones. Sugarcane farming and sugar manufacturing contribute significantly to the national exchequer in the form of various taxes and levies. Sugar manufacturing and its by-products have contributed significantly towards the foreign exchange resources through import substitution.

SUGARCANE PRODUCTION:
Sugarcane is an important industrial and cash crop in Pakistan. Sugarcane is grown on around a million hectares and provides the raw material for Pakistans 84 sugar mills. The sugar industry is the countrys second largest agro-industry after textiles. Besides its edible use, Pakistan also uses sugar to produce alcohol for medicinal purposes, ethanol for fuel, chip board manufacturing, etc. In MY 2009/10, (Oct/Sept) Pakistans sugarcane production is estimated at 47.8 MMT, down 2.2 million tons from last years estimate. The decrease in sugarcane area and lower production during the last couple of years are attributed to the non-transparent government sugar policies, significant increase in minimum support prices for competing crops (e.g. wheat and rice), dwindling water resources, and higher input costs. Internal disputes between Pakistans sugar growers and processors also plague the industry. Procurement practices used by sugar processors such as delaying the crushing season, buying cane at less than the support price, and withholding payments hurt the farmers profitability. On the other hand, sugar processors complain that farmers grow unapproved varieties that produce low sucrose content resulting in lower sugar production and recovery rates. As a result of the fluctuations in quantity and quality of raw material, sugar mills have been required to operate at 50 percent of their installed capacity.
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Furthermore, the lower sugarcane supplies have also forced most of the mills in cane producing areas to close 1-2 months earlier than normal. Despite the industrys troubles, the tighter sugar supplies have led to higher sugar prices and benefitted sugar growers. This trend is projected to continue in MY 2010/11. In MY 2010/11 sugarcane production is forecast at 52.7 MMT, an increase of 10 percent over the previous year due to an anticipated increase in planting area. Cane prices may range from Rs. 1,200 to 1,800 per ton, which is significantly higher than last year. The higher prices are likely to persuade farmers to grow more sugarcane in 2010, thus, MY 2010/11 cane acreage is expecte to increase 14 percent to 1,075 thousand hectares.

Sugarcane Area Production and Yield (Graph) Projected 1947-2010

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SUGAR PRODUCTION
In MY 2010/11 refined sugar production is forecast at 3.75 MMT, primarily due to anticipated increase in area under sugar cane crop. Pakistans domestic consumption is expected to be 4.28 MMT. Domestic production will be supplemented through imports. For MY 2009/10, refined sugar production is estimated at 3.42 MMT (raw value) based on 80 percent crushing and 8.9 percent recovery. The production decreased primarily due to a smaller growing area, which is down 8 percent from the previous year. The MINFA and the PSMA have initiated a sugar crop development project utilizing sugar beets. The provinces of Punjab and Sindh have already conducted research in the cultivation of sugar beet with limited success. Industrial adoption and commercialization of sugar beet have been slow because it requires additional research as well as comprehensive planning on the part of government, industry and the farming community. In addition, the sugar
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industry is reluctant to promote sugar beet cultivation because the amount of time needed to process beets into sugar. The hot temperatures and processing delays could also easily deteriorate the quality of the product. Beet processing requires more fuel, making it costlier compared to cane processing. In order to promote this initiative, the GOP is considering tax holidays for companies that process sugar beets.

PRODUCTION POLICY
The Federal government generally does not procure sugarcane, but it authorizes provincial governments to fix respective sugarcane prices in consultation with representatives of both the sugar industry and farmer organizations. For MY 2010/11, none of the cane producing states; Punjab and Sindh, increased sugarcane prices. To assist sugar processors in the economic downturn, the Ministry of Food and Agriculture (MINFA) and the Ministry of Industries and Production are in consultation with the Pakistan Sugar Mills Association (PSMA) to finds ways of making sugar operations run more efficiently. The sugar industry is also searching for opportunities to develop value added by-products, reducing costs, and promoting cultivation of high sucrose cane. The GOP is also considering PSMAs proposal to use sugarcane in electricity production.

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CONSUMPTION:
The MY 2010/11 sugar consumption is forecast at 4.28 MMT. Consumption estimates for MY 2009/10 is lowered to 4.2 million tons, 50,000 tons less than the earlier estimates due to relatively tight domestic supplies and higher prices. Although limited sugar supplies and the steady increase in prices have affected household sugar consumption, overall sugar consumption remains the same due to growing demand by the processed food sector (soft drinks, fruit drinks, dairy, confectionary, traditional sweets etc). Bulk consumers such as bakeries, makers of candy and local sweets, and soft drink manufacturers account for about 60 percent of the total sugar demand. Pakistans sugar industry continued to deal with uncertainty in CY 2009 due to decreasing sugar production and a lack of coordinated government policy. Despite the Economic Coordination Committee of the Cabinets (ECCs) February 2009 decision to import 200,000 metric tons of sugar, the Trading Corporation of Pakistan (TCP -government entity responsible for importing and exporting commodities) was still unable to arrange timely imports. As a result of the governments inability to deal with the supply situation, the Pakistan Supreme Court intervened to stabilize sugar prices. Despite the Supreme Courts intervention, however, sugar prices continued to rise due to the tighter supplies. Sugar prices have been on the rise since May 2008 and reached record levels in December 2009. The current sugar retail price is around $803 per ton, about 60 percent higher than last years level. Prices are expected to hover around Rs.60 in the remaining part of the year due to anticipated better sugar supplies in the international market. The future stability of retail prices will depend upon timely imports and prevailing prices in the international market. Table: Monthly Average Retail Prices of Sugar (Rs. per Kg) Year/month2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 January February March April May June July 29 30 27 27 26 26 26 24 22 21 21 22 22 22 22 22 20 20 21 20 20 20 20 20 19 18 18 18 21 21 21 24 27 26 26 27 29 28 29 35 35 37 29 35 35 36 36 34 35 31 30 30 30 29 28 29 26 25 25 25 28 29 31 39 42 43 44 45 45 46 66 68 64 61 60 63 66

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August

26

22 22 22 22 22 22

20 20 20 20 20 20

19 19 19 21 21 19

26 26 28 28 27 25

36 35 35 35 33. 33

34 33 32 33 30 34

30 29 29 28 26 29

32 33 37 37 35 30

52 48 45 45 58 46

73 81 82 89 74 71

September 27 October 27 November 26 December 25 Average 27

SOURCE: FEDERAL BUERAU OF STATISTICS

TRADE:
In MY 2010/11 sugar imports are forecast at 700,000 MT, and MY 2009/10 sugar imports are estimated at 1,030,000 MT. On January 2010, the ECC decided to import 1.25 million tons of refined sugar from the international market. Accordingly, the GOP authorized the TCP to import 500,000 MT for government stocks and the remaining 750,000 MT for the private sector before June 2010. Industry reports indicate that the TCP has issued tenders for the import of half a million tons of sugar, whereas, private sector is waiting for a drop international sugar prices. The ECC also decided that the private sector import would be exempted from sales taxes and other duties to ensure that landing cost of imported sugar will range around Rs.50 per Kg and retail price at Rs.55. The ECC also decided to scrap the 16 percent General Sales Tax (GST) in order to stem the rise of sugar prices. Imports of raw sugar are subject to a 25 percent import duty, whereas, imports of refined sugar may enter duty free.

STOCKS:
MY 2010/11 stocks are forecast at 850,000 MT based on projected supplydemand scenarios and trade expectations.

Export
Ethanol exports have raised steadily over the past five years, as distilleries convert larger volumes of molasses into value added ethanol. To date, there
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is no direct financial assistance or tax incentive provided by the government for the production or marketing of ethanol or ethanol blended petrol. Nor does the GOP currently support any research and or development projects for ethanol production. Never-the-less, increasing volumes of ethanol will be produced in response to its competitive use in the world markets. At present, over a 50 percent of locally produced ethanol is exported at an average price of about $500/MT. Main destinations include: Europe, Far Eastern (Korea, Japan, Taiwan and the Philippines) and Middle East (Dubai and Saudi Arabia).

Year Wise Molasses Production and Ethanol Export:

SUGAR CRISIS IN PAKISTAN

At 4.89 million tons of annual sugar production, Pakistan is the tenth largest sugar producer in the world, and yet it has to import sugar, exposing it to the effects of sugar shortages and rising prices in the world. Pakistanis consume over 25 Kg of sugar per person versus India's 20Kg. Sugar cost Rs 25 per Kg
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(30 US cents) at the start of 2009 and now costs more than Rs 50. This doubling of the price is likely to further enrich the large number of sugar producing politicians who are already rich and powerful. The most pessimistic estimates show a 23 percent decline in sugar crop production this year. While last year Pakistan produced 4.7 million tons, farmers are on track to produce 3.2 million tons this year. That means a severe shortfall as annual national consumption is 4.2 million tons. Sugar production and per capita consumption as well as overall calorie intake have been rising in Pakistan. In the last four decades, per capita calorie intake in Pakistan has grown from 1750-2450 (kilo) calories with an average annual growth rate of 0.90%. Nevertheless, 20% of Pakistan's population is still undernourished. Sugar consumption has been showing an increasing trend for the last 15 years. It has increased from 2.89 million tons in 1995-96 to 3.95 million tons in 2005-06. One of the many reasons behind this increase is rise in the total population of the country, which has reached 170 million. The per capita sugar consumption data shows that it has also risen from 22.2 kg in 1995 to 25.8 kg in 2004-05. For 2008-09, the overall sugar consumption is forecast at over 4 million tons, which is less than the target production. But the government is importing about 300,000 tons of sugar to ensure availability of sufficient stock to cover any shortfalls from the usual smuggling to Afghanistan which remains a fact of life in Pakistan. In addition to relatively large per capita sugar consumption, Pakistanis also consume significantly higher amounts of meat, poultry and milk products than other South Asian nations, getting more protein and almost half their daily, per capita calorie intake from non-food-grain sources. The fact that Pakistanis have a sweet tooth is not lost on the nation's ruling elite, particularly the powerful political families and the Pakistani military.
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While the military owns Fauji sugar mills, more than 50% of the sugar in Pakistan is produced in sugar mills owned by the most powerful politicians of all major parties and their families.

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IS THERE REALLY SUGAR SHORTAGE?

Islamabad--Unending queues, deafening noise and unruly crowds are becoming a routine at subsidized sugar outlets, clearly manifesting the consumer craze for a commodity. Most often, they scuffle with one another or outlets staffers, going crazy for nothing and keeping aside all ethics. The situations sometimes force the police to baton charge or scatter them. Standing beside such outlets, any saner person is used to think why that unruly craze for a commodity? Why we as a nation always rush after a commodity - already short in quantity and getting more expensive? Of course, we are still far behind of the developed nations where consumers act economically and sagaciously. But, here the consumer craze not only result in artificial shortages but also help make the producers earn more profits. The sugar consumption witnesses an alarming hike each year during the holy month of Ramadan due to its excessive use in drinks, sweets, vermicelli, 'kheer' and other kind of desserts. Over the years, the government has been grappling to meet the rising demand and ensure availability of commodity in the market on reasonable prices and has been importing the commodity to cater the domestic need.

PAKISTAN SUGAR ANNUAL REPORT 2010

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Pakistan's MY 2010/11 sugar production is forecast at 3.77 million metric tons (MMT), up 10 percent from last years estimate of 3.42 MMT, according to the USDA Foreign Agricultural Service. Consumption is forecast at 4.28 MMT and imports at 700,000 tons. The GOP is considering a tax holiday for companies that process sugar beets. The sugar industry in Pakistan continued to deal with uncertainty in CY 2009 due to decreasing sugar production and a lack of coordinated government policy. The increase is largely driven by higher prices and a strong demand. Despite efforts to achieve self-sufficiency, Pakistan remains a net importer of sugar. In MY 2009/10 sugar imports are forecast at 1.03 million tons and 700,000 tons in MY 2010/11. Sugar consumption in MY 2009/10 is expected to decrease 50,000 tons due to limited sugar supplies and price increases. Sugar consumption in MY 2010/11 is forecast at 4.28 MMT.

ISSUES & ANALYSIS

It has been hoarding of a totally new kind because the main agency involved in keeping stocks away from the market when they could have been used for stabilizing rising price was state-owned. It could only have allowed elements specializing in exploiting human needs and giving black marketers a free run of the show under the instructions of the government. The culprit in this case is the Trading Corporation of Pakistan (TCP) that has stocks of refined sugar of about 200,000 tons. They could have been used to control the situation. These stocks had been purchased from sugar mills to provide them relief and enable them to off-load excess produce. This isnt something from the distant past but an event that took place only last year. The idea was that the sugar mill owners had been going through a difficult period and needed to be bailed out. What makes an industry producing in excess of markets demand eligible for state support and resources of the national
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exchequer are anybodys guess but this is exactly what had happened. Many sugar mills of the country were thus provided financial assistance by the government in a situation that was not the responsibility of the state. The decision was clearly a case of the states backing for a resourceful segment for the exploitation of national resources and rake off operations against the general public. Purchase of stocks from sugar mills providing incontrovertible evidence of the government backing, mill owners has been one factor in the building of the current sugar price crises; another has been mill owners reluctance to pay growers for the supply of cane. In this case too, the government is seen on the mill owners side of the fence. The overall produce of the main food crop is undermined by the sugar mills policy of late start of the crushing season. The government should have been taking strict notice of this situation but the best that is done is holding negotiations with millers and ultimately accepting their point of view to the detriment of the wheat crop and the national interest. These factors have contributed towards creating a crisis of shortage of the commodity and resultantly its rising price. However, these factors did not fall in line automatically and were maneuvered towards a specific end by a plan jointly managed by elements that should have been working to control the price escalation and meet the shortage of the commodity. An effort was seemingly made to reduce the demand-supply gap by importing sugar last year. The TCP opened tenders for importing 50,000 tons of sugar in August 5. The organization was reported to have plans for importing 300,000 of sugar and contracts for the import of the bulk of that quantity were made towards the early part of the current fiscal. In addition, sugar mills made contracts for importing 400,000 tons of sugar by August last year and 22,000 tons sugar also reached Pakistan from China by that time.

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According to the official count, Pakistan needs about one million tons of sugar to bridge the demand supply gap. The above quantities plus stocks with the TCP should have been sufficient to meet any shortfall but they cannot if the commodity is not released in the market. This can be summed up as a plan for allowing rise in the price of sugar. The crises, it appears, is man- made - the result either of mismanagement or even more deplorable reasons. The latest move to resolve the crises is a strange one. Supply to the Utility Stores has been doubled with a view to providing relief to the public. The Utility Stores are selling sugar at Rs27 per kg while it is being sold in the market for Rs42 for the same quantity. Can a commodity be sold at two different prices with creating additional problems? The answer is in the negative. In any case, a price difference of Rs15 is unheard of and, to the say least, is not natural.

DEMAND AND SUPPLY OF SUGAR

In Pakistan, demand and supply of sugar is not balanced. Pakistan is not a sugar exporting country; it imports sugar to meet the domestic demand. Pakistan imported 260840 MT of sugar in 2007-08 and 23980 MT in 2008-09. According to Pakistan Sugar Mills Association (PSMA), sugar production in Pakistan in the current season fell to 3.2 million tons from 4.35 million a year ago. The government is likely to import 200,000 tons of raw sugar to overcome the current sugar crises in the country.

SUGAR SCENARIO IN PAKISTAN

The current sugar crises in the country has not only affected the common person but also forced the Government to revise the progress of sugar industry to control the price hikes and assure availability of sugar. Before the beginning of the
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Ramadan it disappeared and is now available on high prices, which has badly affected the life of the common man during the holy month. Pakistan, despite being an agrarian country, is not self-sufficient in sugar production for domestic requirement. Pakistan is the biggest consumers of sugar in South Asia, with 25 kg per capita consumption per year, whereas in India it is 20 kg, Bangladesh 10 kg and China 11 kg. Sugar consumption in Pakistan has been showing an increasing trend since the 1980s, because of the rapid increase in the total population of the country, which has reached 170 million. Average recovery of sugar from sugarcane in Pakistan is below 9 percent whereas in the neighboring countries the average recovery rate is over 10 percent. The average recovery rate is stagnant in crushing sugar. Although, Pakistan is the world's fourth largest grower of sugarcane, but yield per hectare is the lowest in the world. The average yield in Pakistan is less than 50 tons per hectare. Despite the fact that sugar production have doubled during the last eight years and government has also doubled the sugarcane support prices, but its availability on a cheap rate is not assured. The consumption of sugar in Pakistan is strongly related to religious events in the Islamic calendar so; the government should also keep a record of the stock and consumption of sugar according to the Islamic calendar. It is however, unfortunate due to the crisis in the sugar industry that the consumers are the sufferers, who have to buy the essential item at a much higher rate with a limited supply. It may be recalled that before start of the crisis, sugar was being sold at a price of Rs 36 per kg, which shot up to the level of Rs 55 per kg before the month of Ramadan. In the best interests of the people, the authorities concerned in Pakistan, especially those looking after the agriculture sector would have to evolve a policy to keep the
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supply and price of sugar in line with the buying power of the people at the grass root level.

REASONS
Black-marketing Hoarding Keeping stocks Excessive consumption Poor administration and weak monitoring system. Flood Inflation Smuggling

CONCLUSION
Sugar industry has a potential to achieve heights in Pakistan if major steps are taken into consideration in this regard Other than sugar we can diversify and produce Ethanol which has been proved to be very helpful in developing economies and ease our import bill.

RECOMMENDATION:
The Government should facilitate improved varieties of sugar cane having higher sucrose recovery through Agriculture Research Institutes and more effective measure required for disease control and better pesticides used. Availability of adequate supply of water, appropriate use of fertilizer and proper spraying of insecticides & pesticides can improve yield per hectare.

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