Group 5- Section 1- JDWS

8/19/2019 Group 5- Section 1- JDWS

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Industry Analysis- JDW Sugar MillsLtd

Group 5- Section 1

Maheena Achakzai

17110029

Hajra Habib

17110160

Abdullah !"ail

171101#5

M ra "ran


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&o"ern4ent Issues.....................................................................................1<

Pest and Diseases.......................................................................................1<

';5ort )onditions.......................................................................................1<

'. '9ono4i9 a9tors.....................................................................................11

Te9hnology..................................................................................................11

Interest *ate...............................................................................................11

In>ation......................................................................................................11

';9hange *ates ? Tari@s............................................................................12

Land se.....................................................................................................12. A55endi; A..............................................................................................1=

Pakistan Sugar Mills Asso9iationB..............................................................1$

W!*C )IT'D..................................................................................................10


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A&'he Su(ar ndu!tr$ o) *aki!tan+ An ,erie.

The Sugar Industry of Pakistan has 6e9o4e the se9ond largest industry of the

9ountry after the Te;tile Industry o"er the last 0< years. It is enor4ously

9ontri6uting to the e9ono4y of the 9ountry today Sugar Industry of Pakistan-An

A9ade4i9 *e5ort *a"i MagaEineB

Pakistan had only t#o sugar 4ills at the ti4e of inde5enden9e. These sugar 4ills

at *ah#ali and Takht6aiB had the 9a5a9ities of


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A lot of sugar 4ills in Pakistan are esta6lished in rural areas 6e9ause of #hi9h a

lot of e9ono4i9 de"elo54ents ha"e taken 5la9e in their "i9inities. There are a lotof fa9tors that a@e9t the health of this industry and so4e of the4 are intrinsi9

related to the nature of the industry itselfB. So4e of the4 are 6rie>y 4entioned

6elo# and #ill 6e e;5lained in detail in latter 5art of the re5ort.

HGH /*/% , A3 MA'A4

The sugar industry is highly de5endent on the ra# 4aterial i.e. sugar 9ane. This

4eans the 5rodu9tion and Guality of sugar 9ane is a 4aor 9ontri6uting fa9tor to

the 5rodu9tion of sugar in the 9ountry. CPC 4akes use of sugar 6eet instead of

sugar 9ane in the 5rodu9tion of sugar #hi9h 9onstitutes only u9tuates ea9h year #e had t#o e;5orting years after t#o

de9ades of i45orting sugar. )urrently the 5rodu9tion is not enough for fulFlling

the do4esti9 needs.

-*,/%'S ,8 SGA

!ne of the 6y-5rodu9ts of sugar is KMolasses. It is a 9o44on ingredient in6aking often used in 6aked goods su9h as ginger 6read 9ookies. In Pakistanaround 8


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nit I JDWSMLB lo9ated in *ahi4 /ar Chan has a 9rushing 9a5a9ity of 2


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Sugar Mills 9an 9o45ete on the 6asis of lo# 9osts and higher out5ut only. JDW

a99ording to Pakistan Sugar Mills Asso9iation has the highest sugar 9ane 9rushingand sugar 5rodu9tion in Sindh. As far as Puna6 is 9on9erned its (IT I and II 9an

6e 9ategoriEed in the to5 = in ter4s of 5rodu9tion.

'hreat )ro" Sub!titute!

The 9onsu45tion of Sugar has in9reased o"er the years so 4u9h that the

do4esti9 5rodu9e is not enough and it has to 6e i45orted to fulFll the needs of

the do4esti9 4arket. %o#e"er the t#o 9o44on su6stitutes of sugar are ArtiF9ial

S#eeteners and &urh. So4eti4es far4ers 5refer 4aking &urh out of their 9ro5 or

selling it at a higher 5ri9e to the &urh Makers 6e9ause of #hi9h the Sugar Mills

su@er. As far as the s#eeteners are 9on9erned so the gro#ing health 9on9ernsa4ong 5eo5le are indi9ating a rising trend in the use of these sugar free

s#eeteners in ti4es to 9o4e 6ut these #ill 6e li4ited to do4esti9 use only.

Da#nB

ar(ainin( *o.er o) Supplier!

The go"ern4ent 5oli9ies in the sugar industry are su9h that sugar 4anufa9turers

are usually at disad"antage 6e9ause the sugar 5ri9e is not in9reased at the sa4e

rate as the sugar 9ane su55ort 5ri9e 6e9ause of #hi9h the su55liers 9an

so4eti4es 6e at an ad"antage. %o#e"er the sugar 9ane 5rodu9ers are usually

s4all far4 o#ners so fa"ora6le agree4ents #ith the4 9an redu9e their 5o#er.

ar(ainin( *o.er o) %on!u"er!

sually the de4and for 5ri9e is inelasti9 #hi9h li4its the 5o#er of the 6uyers of

sugar. The 5ri9es are regulated so the sugar Mills 9annot 9harge a6nor4ally high

5ri9es for sugar #hi9h 4eans the 6uy re4ains 5rote9ted des5ite ha"ing a lo#

6argaining 5o#er.

arrier! to ntr$

As 4entioned a6o"e the 6arriers to entry are "ery lo# in the industry 6e9ause of

lo# 9a5ital in"est4ent reGuired so the threat of ne# entrants is high in the sugarIndustry.

&eenue /rier! Just like other food 5rodu9ts the de4and for sugar is inelasti9 6ut there are fe#

key dri"ers #hi9h i45a9t the re"enue and gro#th of this industry and hen9e JDW

Sugar Mills Ltd.


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*opulation Gro.th

The 5o5ulation of Pakistan is 9urrently gro#ing at a rate of 1.$:H and e;5e9ted torea9h 1:2 4illion 6y the end of 2


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in9urs o"er the 9ourse of the year. These three 6road di"isions ha"e 6een

e;5lained in detail 6elo#.

Manu)acturin( %o!t!

Manufa9turing of Sugar is the 9ru; of the industry itself and it is the 4ain as5e9t

that deter4ines the o"erall o99urren9e of the re4aining 9osts that are in9urred.

• The 4anufa9turing 5ro9ess in itself is Guite e;tensi"e and has : ste5s that

need to 6e 9arried out #ith due 9are. The 5ro9ess in9ludes &ro#ing and

har"esting the 9ane itself 5re5aring the 9anes for 4illing 4illing

9lariF9ation e"a5oration 9rystalliEation 9entrifugation drying and reFning.

These 5ro9esses are dire9tly asso9iated to the 4anufa9turing 5ro9ess andthe 9ost for ea9h of these 5ro9esses >u9tuates 6et#een the 9o45anies

de5ending on the ty5e of eGui54ent they use and the logisti9al fra4e#ork

they follo# #hen it 9o4es to har"esting these 9anes. More often the 9ane

on9e gro#n and har"ested is 5ro9essed through a single 5lant that takes

9are of all these ste5s in a go. %o#e"er the 9ost of the 5lant is Guite

signiF9ant #hi9h does a9t as a 6arrier to entry for the ne# 4ills. The 9ost of

5rodu9ing the sugar9ane ho#e"er is the 4ost signiF9ant 9hunk and it

9o45rises a6out 2H of the total sugar 4anufa9turing 9osts. ';9e5t for

these 4aor 5ro9esses the 4anufa9turing 9osts also in9ul9ate the

additional 9osts of irrigation fertiliEers and the eGui54ent reGuired forhar"esting the 9ane itself.

• An i45ortant 9o45onent of 9osts is the 9ost of ra# 4aterial i.e. )ost of

sugar 9ane. This 9ost 4akes u5 a 4aor 5ortion of the total 4anufa9turing

9ost hen9e it 9an 6e re9ogniEed as a key 9ost dri"er. Sugar )ane

Produ9tion is su6e9ted to di@erent su6sidies 6ased on the 5oli9ies of

di@erent 5ro"in9ial go"ern4ents. or e;a45le the 5ri9e of sugar 9ane in

Sindh #as *s 1< 5er kg #hereas it #as *s 18< in Puna6 in !9to6er 2u9tuate the 9ost of ra# 4aterial is 6ound to "ary as #ell

agri9ornerB.

• The use of 4e9hani9al har"esters and 5ri4e 4o"er 9ane trans5ort syste4s

for har"esting and trans5orting 9ane fro4 far4 to 4ill on ti4ely 6asis has

redu9ed the trans5ortation 9ost as #ell as the ti4e taken to 5ro9ess the

9anes JDW Annual re5ort 2


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• Storage 9osts are dee4ed highly i45ortant too. The fa9t that sugar 9ane is

a 6ulky ite4 and needs to ha"e a safe storage 6efore 9rushing 4eansadditional 9osts for the 4ill o#ners sin9e they ha"e to ensure that the 9ro5

is safe fro4 5esti9ide and #ater in 9ase of >ooding.

,perational %o!t!

!5erational and Maintenan9e 9osts for the Sugar Industry are not that signiF9ant

6e9ause of go"ern4ent rela;ing the industry so that it is a6le to 9o45ete in the

foreign 4arket. %o#e"er these 9or5orations are su6e9t to a ta; on their

o5erating 5roFt at a rate of =2H and this does ha"e a signiF9ant i45a9t on the

o"erall 5roFta6ility and the 9ost stru9ture of the Fr4.

Ad"ini!tratie :pen!e!

Ad4inistrati"e e;5enses are Guite signiF9ant for the sugar industry and 4ore

often than not it the 4anage4ent of these e;5enses that deFne the le"els of

5roFta6ility di@erent Fr4s in the industry is a6le to a9hie"e. They in9lude #ages

salaries and de5re9iation a4ortiEation legal fees insuran9e et9. Wages

a4ounted to 1H of the total ad4inistrati"e 9ost in 2


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urther4ore Ministry of inan9e has not yet released funds of inland freight

su6sidy to Trade De"elo54ent Authority TDAPB hen9e 5ay4ent a4ounting toa55ro;. *s. =


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& cono"ic 8actor!

'echnolo($

&i"en that JWD sugar 4ills s5end a lot on resear9h and ha"e a lot of la6s set u5

for di@erent 5ur5oses like 5est 9ontrol and soil and #ater testing fa9ility it is

highly likely that they fa9e 5ri9e rises due to in>ation for their testing eGui54ent

and te9hnology. Intensi"e use of te9hnology 4eans that they #ill ha"e to s5end

further to kee5 their te9hnology u5dated and 4aintained.

ntere!t ate

Another i45ortant e9ono4i9 fa9tor is 9hanges in interest rates. An i45ortant

need for the industry is the a"aila6ility of #orking 9a5ital to run the 5rodu9tion5ro9esses. This 4eans that the Fr4s and 4ill o#ners ha"e to arrange for this

reGuired 4oney 9a5ital either 6y 5ro"iding eGuity 9a5ital or 6y taking loans fro4

6anks. They usually 5refer to 6orro# funds for this 5ur5ose. %o#e"er a 9onstraint

is the 5oor a"aila6ility of 9redit and the >u9tuation in interest rates #hi9h leads to

un9ertainty in the a"aila6ility of 9a5ital as #ell as the future e;5enses or 9ash

out>o#s.

n=ation

The 9ountry3s in>ation le"el has a dire9t link #ith all 9osts as these are 6ound to

6e a@e9ted. These in9lude #ages trans5ortation 9osts fuel ? 5o#er and otherfa9tors.

Moreo"er #ages 5aid to the #orkers and far4ers #orking in the Feld 4ay di@er

o"er ti4e o#ing to 4arket 9onditions #here6y the #orkers 4ay for4 la6or unions

to 9lai4 for #age rises. The go"ern4ent 9an i45ose a 4ini4u4 #age 5oli9y

4aking JWD 5ay higher #ages leading to rise in its e;5enses.

:chan(e ate! > 'ari?!

&o"ern4ents 5ro"ide su6sidies to the 4ill o#ners to hel5 redu9e their 9osts.

!ften e;5ort su6sidies are 5ro"ided to redu9e the 5ri9es of do4esti9 5rodu9einternationally and 5ro"ide the do4esti9 Fr4s a 9o45etiti"e edge in the

international 4arket. %o#e"er international e;5ort and i45ort 9an 6e hea"ily

a@e9ted 6y 9hanges in e;9hange rates either redu9ing 9osts in 9ase of rising

e;9hange rates 4aking i45orts 9hea5er #hile redu9ing re"enue as e;5orts

6e9o4e e;5ensi"e and "i9e "ersa. The industry is also lia6le to 5ay e;9ise duties

distri9t 9oun9il ta; and sales ta;. It 9ontri6utes around *s. 7$10 4illion to the

go"ern4ent sales ta; 5er season. This is an added 9ost to the Fr4.


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In 9ase of any sur5luses #ith the 4ill o#ners the go"ern4ent inter"enes again

and allo#s for e;5orts. An e;a45le is #hen the 4illers had a 9arryo"er sto9k of1.1 4illion in De9e46er 2


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8& Appendi: A


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Pakistan Sugar Mills Asso9iationB


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3,@ %'/

OSugar Industry of Pakistan- An A9ade4i9 *e5ort.O *a"i MagaEine.(.5. 0 May

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