Pakistan Sugar Annual Report 2009

Executive Summary

The Ministry of Food, Agriculture and Livestock (MINFAL), in consultation with the Provincial Governments of Punjab and Sindh and the Pakistan Sugar Mills Association (PSMA), has undertaken measures to support increased sugarcane productivity and production by linking the cane price with sugar recovery. Supplementing cane production with sugar beet has proven successful but sugar mills are reluctant to accept the new crop due to technical and administrative challenges and because of the higher energy costs for processing.

SUGARCANE

Production

Sugarcane is an important industrial and cash crop in Pakistan. Pakistan is an important cane producing country and is ranked fifth in world cane acreage and 15th in sugar production. Sugarcane is grown on over a million hectares and provides the raw material for Pakistan’s 84 sugar mills -- which comprise the country’s second largest agro-industry after textiles. In addition to sugar, sugarcane produces numerous valuable byproducts like, alcohol used by pharmaceutical industry, ethanol used as a fuel, bagasse used for paper and fuel, chip board manufacturing and as a rich source of organic matter for crop production. Sugarcane production is cyclic al as the interests of farmers and industry is often at odds. Industry procurement practices such as delaying the crushing season, buying cane at less than the support price, short weight, false deductions and delayed payments reduce returns to farmers. Sugar millers complain that farmers grow unapproved varieties with low sucrose content, thus resulting in lower sugar production and recovery rates.

MY 2008/09, sugarcane production is estimated at 51.5 MMT, a decrease of 19 percent over the previous year due to both a reduction in area harvested and yield. Milling policies and practices, coupled with attractive prices for alternative/competing crops (rice, cotton and sunflower) and insufficient irrigation supplies are major factors limiting crop expansion in the country.

MY 2009/10 sugarc ane production is forecast at 53.6 MMT, an increase of 4 percent over the previous year due to an expected increase in area and yield. A shortage of cane supply during the current crushing season led to an increase in cane prices. This situation benefitted growers who received prices higher than the indicative prices announced by the Government. This development is expected to contribute to an increase in sugarcane area and productivity in the ensuing year. Moreover, last year’s higher production of rice and sunflower led to lower prices received by farmers, thereby encouraging the switch back to sugarcane.

Table 1: Sugarcane Area and Production by Province

Production Policy

The Government of Pakistan (GOP) is striving to achieve self-sufficiency and sustainability in sugar production by ensuring the availability of inputs and establishing a sugarcane support price which is acceptable to all stakeholders. The sugar industry is looking for value added by-products, as well as reducing costs and promoting cultivation of high sucrose cane.

The Government supports cane production by setting an indicative price, which is announced either before or after planting. The Federal government generally does not procure cane, but authorizes Provincial governments to fix respective cane prices in consultation with representatives of both the sugar industry and farmer organizations. For MY 2009/10 the state Government of the Punjab has enhanced the cane purchase price by 25 percent over the previous year making it Rs.100 per 40 Kg ($31.25 per MT).

The Ministry of Food, Agriculture and Livestock (MINFAL) is in consultation with the Pakistan Sugar Mills Association (PSMA) in an effort to increase sugarcane productivity and to increase the capacity of sugar mills which are currently operating at 50 percent capacity level. The GOP is also looking to amend the Sugar Factory Control Act of 1950 in order to create a more conducive market environment for stakeholders. A technical committee has been appointed by the GOP to develop a methodology for linking sugarcane prices with sugar recovery rates. This qualitative measure should improve the production dynamics and profitability for both farmers and millers.

Table 2: Indicative Prices of Sugarcane by Province

SUGAR

Production

MY 2009/10 refined sugar production is forecast at 3.65 MMT, primarily due to an expected increase in both area and production of sugar cane. As the country’s requirement is 4.35 MMT, domestic production will be supplemented through imports. For MY 2008/09, refined sugar production is estimated at 3.542 MMT (raw value); mainly due to decrease in sugar cane area which was down more than 15 percent compared with the previous year.

The Agriculture Ministry and the Pakistan Sugar Mills Association have initiated a sugar crop development project. Punjab and Sindh Provinces have already conducted research in the cultivation of sugar beet and results have been encouraging. Industrial adoption and commercialization of sugar beet, however, requires additional research as well as comprehensive planning on the part of government, industry and the farm community to make cultivation of this potential crop a success. The sugar industry is reluctant to promote sugar beet cultivation as industry maintains it is not technically feasible to properly process sugar beet because if the beets are not processed immediately product to high temperatures at the time of harvest will damage the beets. Beet processing also requires more fuel, making it costlier as compared to cane processing.

Table 3: Refined Sugar production, Supply and Demand

Consumption

MY 2009/10 sugar consumption is forecast at 4.35 MMT. Total per capita refined sugar consumption is estimated at 25 kilograms, based on improved domestic supply and strong demand. Retail sugar prices are expected to continue to hover around Rs. 45 (US$ 0.56) per kilogram, which is 46 percent above the last year’s average prices. Much of the price hike is attributed to currency devaluation followed by a rise in international prices. The stability of retail prices will depend upon timely imports and prevailing prices in the international market.

Table 4: Monthly Average Retail Prices of Sugar

The GOP has recently included sugar in the compulsory list of items to monitor for quality. Previously, quality assurance was the responsibility of the manufacturer. However, samples of sugar produced from various mills were declared unfit for human consumption due to high levels of sulphur dioxide. The Pakistan Standards and Quality Control Authority (PSQCA), a regulatory body, is responsible for ensuring product quality and standards.

Trade

MY 2009/10 sugar imports are forecast at 730,000 MT, and MY 2008/09 sugar imports estimated at 700,000 MT. The government has traditionally imported sugar through the Trading Corporation of Pakistan (TCP) in an effort to moderate sugar prices. However, in January 2009, the government ended the sale of sugar at subsidized prices to the stateowned Utility Stores Corporations. Consequently an increasing share of Pakistan’s sugar imports is expected to be made up of private sector imports, expected to account for 100 percent of sugar imports in MY 2009/10.

Imports of raw sugar are subject to a 25 percent import duty, a 16 percent sales tax, a 10 percent regulatory duty, a 2 percent withholding tax, and a one percent central excise duty (total tax = 54 percent), where as imports of refined sugar may enter duty free (although still subject to a total tax rate of 29 percent). In anticipation of the rationalization of the Pakistan import regime for sugar, the PS&D includes estimates of raw sugar imports at 300,000 tons in MY2008/09 and 200,000 tons in MY 2009/10.

Stocks

MY 2009/10 stocks are forecast at 1.05 MMT, based on projected supply-demand scenarios and trade expectations.

ETHANOL

Production

The Pakistan sugar sector has the capacity to produce over 2.5 million metric tons (MMT) of molasses available for processing into ethanol. To maximize returns, the sugar industry processes molasses to produce anhydrous and hydrous ethanol. Countrywide, nineteen distillery units have an annual ethanol production capacity of over half a million tons. In 2007, Pakistan exported more then 273,000 tons of ethanol (hydrous plus fuel ethanol). Higher production and exports are expected in the ensuing years.

Export

Ethanol exports have risen steadily over the past five years, as distilleries convert larger volumes of molasses into value added ethanol. To date, there 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).

Table 5: Year Wise Molasses Production and Ethanol Export:

Further Reading

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April 2009