Sugar Crisis in Pakistan-compatible1

8/7/2019 Sugar Crisis in Pakistan-compatible1

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Group Project

Public Administration & Society in Pakistan

Topic: Sugar Crisis in Pakistan

Submitted to:

Ms. Ayesha Hanif

Submitted by:

Bushra Riaz MHRM-M-26

Muhammad Yasir Ummer MPA-A-10

Muhammad Ali Akram MHRM-A-25

Muhammad Kafait Hussain Kaifi MPA-M-07

Ali Zahid Dogar MPA-A-43

Shoaib Khalid MPA-M-25

Maria Imtiaz MHRM-M-10

Semester 1st

Section-A

Session: 2009-2011

DATED: 21st January, 2010

Institute of Administrative Sciences

University of the Punjab


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Contents: Page(s)

1. Description of Sugar Crisis in Pakistan 2-15

1.1. Pakistan & Sugar Production

1.2. Pakistan Sugarcane Area and Yield

1.3. Comparison of Sugar Cane Yield with other Countries

1.4. Consumption trends of Sugar in Pakistan

1.5. Pakistan Sugar Annual Report 2009

1.6. Production Policy by Government of Pakistan

1.7. Refined Sugar production, Supply and Demand

1.8. Export & Import of Sugar in Pakistan

1.9. Sugar Production Facts 2008-2009

1.10. Sugar Crisis in Pakistan

1.11. Current Scenario

1.12. Social Impact of Sugar Crisis

2. Reasons of Sugar Crisis 14-183. Solutions to Sugar Crisis in Pakistan 18-21

4. Political Influence, Crisis in Governments View &

Ground Reality 21-22

5. References 23


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Description of Sugar Crisis in Pakistan

Pakistan & Sugar Production:

The Pakistan is an agriculture country, and agriculture is backbone of

economy. Pakistan is also main producer of sugar in worldwide. Sugarcane isan important cash crop of Pakistan. It forms the basis for many important

industries like Gur, molasses, alcohol, sugar beverages, chipboard, paper,

confectionery and provides raw materials to mainly other industries such as

chemicals, plastics, paints, synthetics, fiber, insecticides, detergents etc.

According to Food and Agriculture Organization of The United Nations and

FAOSTAT, Pakistan is ranked fifth in world cane acreage and 15th in sugar

production. Pakistan is the 5th largest country in the world in terms of area

under sugar cane cultivation, 11th by production and 60th in; yield.

Pakistan Sugarcane Area and Yield:

The following table shows the production of sugar in Pakistan from year

2004-2009 in terms of area, production & yield. It is clearly evident from the

statistics shown below that though the production has increased across the

years but the yield has remained constant which shows the signs of

inefficiency of the production techniques. Another reason of this low yield is

according to Annual report 2009 of PSMA is that milling policies of the

current crushing season have provided strong disincentives to sugarcane

growers. Sugar mills reduced the price offered per 40 kilos by Rs 5.0 about

US$ 0.08 and continued the practice of taking large deductions to meettheir cane quality standards, causing cane growers to shift to more profitable

crops.

Sugar Industries Contribution in Pakistan:

The sugar industry in Pakistan is the 2nd largest agro based industry after

textiles comprising 81 sugar mills with annual crushing capacity of over 6.1


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million tones. Sugarcane farming and sugar manufacturing contribute

significantly to the national exchequer in the form of various taxes and

levies. The sugar sector constitutes 4.2 per cent of manufacturing and its

by-products have contributed significantly towards the foreign exchange

resources through import substitution. The Sugar industry employs over

75000 people, including management experts; technologists; engineers;

financial experts; skilled, semiskilled and unskilled workers. It contributes

around 4 billion rupees only under the head of excise duty and other levies

to the Government are also paramount significance.

Key facts are as under:

No. of Mills 81 (71-Operational, 2-Under Construction, 4-Completed)

Crushing Capacity 6.1 Million tones

Contribution to Economy 3.0 4.0 Million Tones

- Share in GDP 1.9%

- Employment 1.5 million (directly & indirectly)

- Total Investment PKR 100 Billion (Approx)

Average Yield per Hector 46.8 Tones

Total Cane Production 45.0 55.0 Million Tones

Cane Available 30-43 Million Tones

Average recovery of sugar 9.1 (vs. world avg. 10.6%)

Per Capita Consumption 25.8 kilograms per capita

Contribution to exchequer Rs. 12.16 Billion

Comparison of Sugar Cane Yield with other Countries:

Although, Pakistan happens to be the world's fifth largest grower of

sugarcane it has perhaps the lowest yield in the world. The average

sugarcane yields in Pakistan have remained between 40-45 tons per hectare

which is considerably less than those obtained in many other countries.

Average yield of sugarcane in the world is around: 65 metric tons per

hectare and Asia 65.4 while China 77.1, India 70.6, Pakistan 46.0, Philippines

92.6, Thailand 92.6, Australia 75.5 and Egypt 105 tons per hectare. The


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sugar recovery is 8.5 % against the obtainable recovery of 10.5%. Statistics

for the Sugar Cane Yield of World are shown below:

Country Cane Yield (T/ha) Sugar Recovery(%)

Sugar Yield (t/ha)

AustraliaEgyptBrazilUSA

ColombiaMexicoIndia

PakistanWorld Avg.

100.4110.868.480.2

80.579.566.949.064.4

13.811.514.511.7

11.511.69.99.210.6

13.8512.749.919.38

9.269.226.643.546.82

Consumption trends of Sugar in Pakistan:

The Pakistani nation is called obsessed for sweet and sugar consumption is

high. The statistics shows that the per capita consumption as well as overall

calorie intake has been rising. Daily Jang reports that The sweet obsessed

Pakistani nation consumes sugar worth of Rs 200 billion annually. USDA

Pakistan Annual Sugar Report states that total per capita refined sugar

consumption is estimated at 25 kilograms and it is based on improved supply

and strong demand. Falling behind Pakistan are other countries of the region

like India with 14 kg/person, China with 11 kg/person and Bangladesh with

10 kg/person. 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 risein 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 was

forecasted at over 4 million tons.

Pakistan Sugar Annual Report 2009


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Pakistan's MY 2009/10 sugar production is forecast at 3.65 million tonnes up

about three per cent from the current year estimate of 3.56 million tonnes,

according to the USDA Foreign Agricultural Service. Consumption is forecast

at 4.35 million tonnes and imports at 730,000 tonnes. Trial production of

sugar beet has proven successful but industry is reluctant to encourage

expanded production due to technical and administrative challenges.

Pakistans sugar industry produces more than half a million tons of ethanol

per annum from cane molasses, over 50 per cent of which is exported to

Europe, Far East and Middle East countries.

Production Policy by Government of Pakistan:

The Government of Pakistan (GOP) is striving to achieve self-sufficiency and

sustainability in sugar production by ensuring the availability of inputs andestablishing 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 sugarcaneprices with sugar recovery rates. This qualitative measure should improve

the production dynamics and profitability for both farmers and millers.

Refined Sugar production, Supply and Demand given in the Pakistan

Sugar Annual Report 2009:


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Export & Import of Sugar in Pakistan:

Market Year 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 state owned

Utility Stores Corporations. Consequently an increasing share of Pakistans

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


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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.

Monthly Average Retail Prices of Sugar:

Indicative Prices of Sugarcane by Province:

Sugar Production Facts 2008-2009:


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For 2008-09, sugarcane has been sown in the area of 1029 thousand

hectares, 17.1 percent lower than last year. Sugarcane production for the

year 2008-09 is estimated at 50.0 million tons, against 63.9 million tons last

year. This indicates significant decline of 21.7 percent over the production of

last year. The main reasons of lower production are shortage of irrigation

water, shifting of area to rice crop less use of DAP and non-payments of dues

to farmers by the sugar mills on time for the last years crop.

The price of sugarcane accounts for 85 per cent of the total cost of the

production of sugar. The total size of the sugarcane crop was 50 million tons

in 2008-09 as against a bumper crop of 63.9 million tons in the previous year

almost 14 million tons less. Accordingly, sugar production was expected to

be 3.2 million tons as against 4.7 million tons last year 1.5 million tons less.

Pakistan's total consumption was estimated at 4.2 million tons. Hence, the

current year's (November 2008 to October 2009) sugar production was

expected to be one million tons short of the consumption requirement.

However, the country had a carry-over stock of 800,000 tons from the

previous year. Therefore, the estimated shortfall for the current year was

200,000 tons. It has, however, been a common practice to begin the new

crushing season with a carry-over stock of at least 400,000 tons in order to

keep the price of sugar stable. Accordingly, the estimated shortfall was

600,000 tons assuming a carry-over stock of 400,000 tons.

Sugar Crisis in Pakistan:

The recent sugar crisis in Pakistan materialized because of the shortage in

supply. There are two kinds of supply shortagesNatural or Artificial. Natural

shortage include i) unfavorable weather conditions that reduce supplies, ii)

adverse market structure that leads to decrease in production over a period

of time and iii) change in government policies that negatively impact

production. Meanwhile, artificial shortfall means to deliberately withhold

supplies to create a shortage for profit. The current on going crisis is

artificially created in order to maximize the rate of profits. It is also

surprisingly that before Ramadan there was no signs of crisis rather reports

tells that we have enough sugar to meet the demand. On May 4 2009,Iskandar Khan, Chairman, PSMA, stated for the record, that "at present,

sugar mills and TCP have sugar stocks of 2,226,531 tons, and 321,035 tons

respectively, totaling 2,547,566 tons. Besides this, there is always a stock of

400,000 to 500,000 tons in the domestic market and pipeline. Based on the

current consumption level, this stock will last for over nine months i.e. up to

December 2009, while the next crushing season would commence in


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November 2009. We have enough sugar to cater for our entire year's

demand.

It is a well-known fact that the sugar consumption rises during Ramadan.

Therefore, before the beginning of this month, that is, early August, the price

of sugar started rising and averaged to Rs52.5/kg from Rs47.2/kg in July. On26 July, the Government of Pakistan imposed a ban on the export of sugar

and removed the sugar import duty in an attempt to avert a potential sugar

crisis. Now what we see is that hoarding and storage of Sugar in order to

raise the price. Along with private Sugar mills owners, Trading Corporation of

Pakistan is also having adequate supplies of sugar. TCP chairman Saeed

Ahmed Khan at a news briefing in his office stated that TCP is also holding

stocks of 75,000 tons imported sugar and expects another 50,000 tons to

reach Karachi by the end of this month which would take total stocks of

imported sugar to 125,000 tons. The many players are in this dirty game.

They rage from top officials, ministers, politicians, capitalist and ruling elite.

On 17 August, Minister for Industries Manzoor Wattoo stated that 50,000

tons of imported sugar would arrive, in 3 days, at a much higher price.

Wattoo stepped in again on 19 August and agreed to an ex mill price of Rs

47 per kg, for Sindh, and Rs 49.75 per kg for the rest of the country, much to

the chagrin of the people. After much hue and cry, with allegations of

Wattoo's complicity with the PSMA being openly bandied about, the Prime

Minister decided to fix the price at Rs 45 per kg, by slashing GST by 50

percent. Thus the Prime Minister did not touch the influential mill owners, butreduced government revenue for the year, a fact that may well raise the

budget deficit, unless taxes under some other head are raised. 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. Multiple sources indicate that the mills owned by President Asif

Ali Zardaris family and the ruling PPP leaders include Ansari Sugar Mills,

Mirza Sugar Mills, Pangrio Sugar Mills, Sakrand Sugar Mills and Kiran Sugar

Mills. Ashraf Sugar mills are owned by PPP leader and incumbent ZTBL

President Ch Zaka Ashraf.

Following are the important news/events that took place in the context of

sugar crisis in Pakistan:

Sugar mills warn of another crisis next year: Sugar mills have warned

government against low sugar produce likely in the current year as

compared to the demand, and that Pakistan may face a more severe sugar


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crisis, if 900000 tonnes of raw sugar are not imported on time. The Pakistan

Sugar Mills Association (PSMA) sent a letter to Federal Ministry of Industry

and Production stating sugar shortage is again feared next year, so the

import of 900000 tonnes of sugar should be permitted. If timely measures

are not taken to import the raw sugar, the next year will witness a more

severe sugar crisis, the letter declares. (Geo News: August 27, 2009)

The government is all set to give a go-ahead to the private sector to set up a

sugar refinery at the Gwadar port to meet local demand in the wake of high

prices of the sweetener in the international market, official of the Ministry of

Industries and Production told The News. (September 16, 2009)

Sugar mills formed cartel, CCP tells Supreme Court: The Competition

Commission of Pakistan (CCP) claimed to have found initial signs of collusive

behavior and cartelization among sugar millers in the light of documents

discovered during the search and inspection of the Pakistan Sugar MillsAssociation (PSMA) Centre in Islamabad and PSMA Punjab Zone office in

Lahore. (THE NEWS: September 25, 2009)

Chairman of the Competition Commission of Pakistan Khalid Mirza has said

that show-cause notices may be issued to the association of sugar mills after

final evaluation of documents seized from their offices. Talking to Dawn on

Sunday, Mr. Mirza said the decision to issue notices to the Pakistan Sugar

Mills Association would be taken after proof of cartelization was obtained.

(Dawn: 28 Sept, 2009)

Supreme Court gave judgment to sell sugar at 40 rupees per kg but

Islamabad Capital Territory Administration (ACTA) could not ensure the

availability of sugar at Rs40 per kg to the consumers despite Supreme

Courts direction to the government & Sugar sale continued at Rs50 per kg.

(THE NATION: October 05, 2009)

Sugar goes extinct from markets:Even after Supreme Court of Pakistan

(SCP)s directives and governments orders to sell sugar at Rs40 per

kilogram all across country, people find it hard to buy sugar as it has

disappeared form markets in many cities. (Geo News: October 06, 2009)

Sugar crisis further intensified in country: People still continue to suffer for

having to buy sugar at exorbitant prices across the country, as the

commodity is available at Rs100/kg in some parts of the country. According

to sugar industry sources, the sugar mills have 450,000 tones of sugar,

whereas, the Trading Corporation of Pakistan (TCP) has at its godowns


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153,332 tones of imported sugar and 35,159 tones of locally purchased

sugar. (Geo News: October 27, 2009)

Over 2000 sugar bags recovered from Karachi: Police claimed to have seized

more than 2000 sacks of sugar from a godwon in Orangi Town locality in

Karachi. (Geo News: October 29, 2009)

Country-wide Sugar crisis continue: The sugar crisis continues all over the

country, as people are deprived of sugar, as sugar mill owners have plainly

refused to supply sugar on prescribed prices despite the government

announcements. In contrast to Supreme Court order, the government has

apparently failed to prompt sugar mill owners to supply sugar at Rs.36 per

kg to the wholesalers, whereas, shopkeepers and wholesalers have stopped

buying sugar at higher prices in order to evade police raids and fines, which

has created a severe dearth of sugar in the retail market. (Geo News:

October 30, 2009)

Sugar crisis worsened in Pakistan: People in most of the areas of the country

are still facing sugar shortage. Even after the announcement made by the

government the sugarcane crushing has yet not been started. Reports from

diverse areas say that the commodity is not available even at the utility

stores and sale points. Officially 40 sales centre and 200 sale points have

been set up in the city of Gujranwala, but the essential food item is not

available at these points. Like several other cities, Multan, Sialkot, Mianwali,

Sheikhupura, Hafizabad and Mandi Bahauddin are also facing scarcity of

sugar. In most of the towns and cities, shopkeepers are selling sugar up to

Rs80/kg, the reports added. (THE NEWS: November 16, 2009)

Government facilitated manipulators during sugar crisis:The ministries of

commerce and industries have told the National Assembly Standing

Committee on Commerce they cancelled the Trading Corporation of

Pakistans third tender for import of 50,000 tons of sugar for building

strategic reserves either on the directives of secretaries committee or the

Economic Coordination Committee (ECC). Chairman Standing Committee on

Commerce, Khurram Dastagir, in his observation during a meeting said: The

government, instead of maintaining price equilibrium in the open market,

facilitated market manipulators. (THE NEWS: December 15, 2009)

Sugar crises surges again; price at Rs70/kg: New Year brought in its lap

further worries regarding burden of price hike for the poor masses, as not

only the tariffs of power and gas rocketed up but also the sugar reached to

level of Rs65 to 70 per kilo, Geo News reported Saturday. The profiteers are


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attributing the reason of price hike to low sugarcane yield this year. The

sugar price in Karachi rose to Rs65/kg, in Lahore Rs65 to 70/kg, Rs66 in

Peshawar and sugar touched highs at Rs62 to 67/kg in Quetta. According to

government statistics, the sugar mills in Sindh and Punjab have to purchase

sugarcane at Rs150 to 160 per mound; while, the government set its support

price at Rs102 to 103. The surging prices of sugarcane have paved the way

for the raise in sugar prices. The government decided to import one million

tones of sugar during the current year and it is being expected that the

stability in sugar prices would be seen after the imported sugar lands in the

local markets. (Geo News: January 02, 2010)

Current Scenario:

According to government statistics, the sugar mills in Sindh and Punjab have

to purchase sugarcane at Rs150 to 160 per mound; while, the government

set its support price at Rs102 to 103. The surging prices of sugarcane havepaved the way for the raise in sugar prices. The sugar price in Karachi rose

to Rs65/kg, in Lahore Rs65 to 70/kg, Rs66 in Peshawar and sugar touched

highs at Rs62 to 67/kg in Quetta.

To facilitate consumers, MOIP had announced to sell sugar at Rs 38/kg

through various branches of the Utility Stores Corporation (USC) across the

country, but it has failed to implement its own issued directives. The Utility

Stores Corporation outlets have increased the price of white refined sugar by

Rs 2 per kilo, without a formal notification from the Ministry of Industries and

Production (MOIP). In some USC outlets in the city, sugar was being black-

marketed at higher prices against the ones fixed by the government. The

managers at various stores put away the sacks of sugar at unknown places

from where it was black-marketed.

The ministries of commerce and industries have told the National

Assembly Standing Committee on Commerce the government cancelled the

Trading Corporation of Pakistans third tender for import of 50,000 tons of

sugar for building strategic reserves either on the directives of secretaries

committee or the Economic Coordination Committee (ECC). Chairman

Standing Committee on Commerce, Khurram Dastagir, in his observation

during a meeting said: The government, instead of maintaining price

equilibrium in the open market, facilitated market manipulators.

The Trading Corporation of Pakistan (TCP) has been directed to revise its

import schedule immediately so that the sweetener reaches Pakistan as

early as possible. "We have decided to complete white sugar import by April


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instead of June as was the earlier decision," said one of the top officials who

attended the meeting in the Finance Ministry. The meeting with the private

sector, including central and provincial chairmen of Pakistan Sugar Mills

Association (PSMA) will be held on Friday (January 7). The sources said the

meeting had also decided to raise sugar price to Rs 50 per kilogram at utility

stores mainly to minimize difference in the prices of retail market and utility

stores. The meeting also decided to allow import duty-free import of one

million tons of sugar (0.5 white+ 05 million tons raw) by the private sector.

The sources said the TCP had also requested the government to allow it to

import one million tons of white sugar duty-free. TCP Chairman Saeed Khan

explained that the TCP had ordered the import of 0.5 million tons of sugar,

which after landing in Pakistan, would cost around Rs 62-63 per kilogram.

The consensus was that the TCP had already tendered 0.5 million tons of

sugar which must reach the country by February 2010 while another 0.5

million tons would needed to be positioned inside the country before the end

of the crushing season. In addition 0.5 million tons would be imported for

maintaining strategic reserves/buffer stocks as already approved by the

Cabinet. The USC would be additionally procuring 0.5 million tons of sugar

for intervention in the market through its outlets for the low-income groups.

The sugar production could be even higher since better variety crops had

been sown in 2009-10 as compared to previous years. It was underscored

that comparison of daily 'sugar recovery' for 2008-09 and the ongoing

season of 2009-10 on the same days were significantly lower for the currentseason. Such a low recovery rate might lead to lower production of sugar is

an intriguing phenomenon.

(Business Recorder January 07 2010)

Social Impact of Sugar Crisis:

The sugar crisis is economic problem but now it is becoming more political

problem also. Every day people have to scarify their whole day just to get

Sugar. Majority in country is living under shadows of poverty. Many

consumers are those who just need 2 kg of sugar but they are refused atsubsidies stores. Many questions are being raised on our society that in what

kind of society we are living. There are many stakeholders involved in

producing, distribution of Sugar. Important are Sugar mills which are founded

and sustained through public resources. While the cost of the sugar industry

is largely borne by society but profits are appropriated by a handful of sugar-


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mill owners. Here are the some ways how cost is born by society these are

highlighted by Dr Adeel Malik:

Subsidizing sugar mills through loan defaults and debt write-offs this

subsidy amount is taken from peoples taxes

Enabling the cultivation of sugar as one of the most water intensive

crops and by put ahead other agricultural possibilities

Paying higher prices for sugar in the retail market

Paying for the imports through scarce foreign exchange

Financing subsidized provision of sugar through public revenues.

He further writes that Pakistan's worsening food crisis exposes several

public actors, some for their active collusion and others for their passiveindifference or, shall I say, criminal silence.

The crisis shows that what are out ethical, religious, spiritual and moral

values. There is only thing is to maximize the profits without anything in the

view. The question which arise is still unanswered is; Can faith be defended

without protecting the livelihoods of vulnerable and oppressed masses?

Our political leadership and so-called Civil Society have shown its true

colors. It is perhaps the cruel indifference of our elites to this dilemma of the

poor that is most disturbing. The episode does not stop here; thesepoliticians have close political ties with the government. Some of politicians

directly own the Sugar mills which shows how hypocrite are our politicians.

Dawn newspaper (15/08/2009) states that these mill owners/wholesales

usually have strong political ties with the government (especially the PML N)

or are in the government and are able to avoid any legal action. Faiz Ahmed

Faiz, famous Urdu poet of Pakistan described the situation in his following

famous verses;

Banein hain ahl-e-hawas, muddaii bhi, munsif bhi

kise wakeel karein, kisse munsafi chahein

According to Daily Nation (23/08/2009) political leaders or their relatives or

partners owned more than 50 per cent of these sugar mills. In this news

report they give details of ownerships. The mills said to be owned by

President Asif Ali Zardaris family and PPP leaders are Ansari Sugar Mills,

Mirza Sugar Mills, Pangrio Sugar Mills, Sakrand Sugar Mills and Kiran Sugar


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Mills. Ashraf Sugar mills are owned by PPP leader and incumbent ZTBL

President Ch Zaka Ashraf.

The mills owned by Nawaz family and relatives are Abdullah Sugar Mills,

Brother Sugar Mills, Channar Sugar Mills, Chaudhry Sugar Mills, Haseeb

Waqas Sugar Mills, Ittefaq Sugar Mills, Kashmir Sugar Mills, Ramzan SugarMills and Yousaf Sugar Mills.

Kamalia Sugar Mills and Layyah Sugar Mills are also owned by PML-N leaders.

Former minister Abbas Sarfaraz is the owner of five out of six sugar mills in

the NWFP. Nasrullah Khan Dareshak owns Indus Sugar Mills while Jahangir

Khan Tareen has two sugar mills; JDW Sugar Mills and United Sugar Mills.

PML-Q leader Anwar Cheema owns National Sugar Mills while Chaudhrys

family is or was the owner of Pahrianwali Sugar Mills as it is being heard that

they have sold the said mills. Senator Haroon Akhtar Khan owns Tandianwala

Sugar Mills while Pattoki Sugar Mills is owned by Mian Mohammad Azhar,former Governor Punjab. Jeffrey Paige in his famous book Coffee and Power

illustrates the picture in following words, unprecedented wealth for the few

at the expense of the general impoverishment of the many.

Reasons of Sugar Crisis in Pakistan

A man made crisis, which in fact is a monopoly to earn maximum profit

during peak consumption. Withholding supplies and increasing prices formaximum profit has become a popular tactic. Pakistan, the world's largest

consumer of sugar, is facing a crisis because of a massive fall in domestic

production and a sharp increase in the price of raw sugar worldwide.

Growing Unapproved Sucrose

Sugar millers complain that farmers grow unapproved varieties sucrose

content thus resulting in lower sugar production and recovery rates. The

farmers have reportedly blamed the mill owners of not providing adequate

payments. Records state that the payments to the growers were delayed for

more than eight to ten months. This discouraged farmers from sowing sugar

cane and opt for growing wheat instead to avail attractive incentives.

Shortage of Irrigation Water:

The main reason of lower production of shortage of irrigation water shifting

of area to rice crop less use of DAP and non payment of dues to farmers on


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time for last year crop. A study it revealed that more than 65 per cent

farmers have decreased the total area under cane production due to water

shortage, behavior of the mills management, late payments, increased input

cost, and diseases and rodent atta.

Most of the Sugar Mills are owned by Politicians:

Because the genesis of Pakistan's recurring sugar crises is essentially

political. If there is one industry that best reflects the underlying power

structure in Pakistan, it is sugar. The role of politics is central; from the

sanctioning of a sugar mill to its financing and operation. It is instructive to

take a look at the ownership structure.

Of the nearly 78 sugar mills, at least 50 per cent are owned by politicians or

their family members. They sit on all sides of the political divide, represented

in cabinet, treasury and opposition benches.

Confrontation between Growers and Millers:

Of late, there has been confrontation between growers and millers over

price. Growers demand higher price for their raw material and millers

complain about increase in production cost and imports.

Late Start of Crushing Season:

Late crushing causes dissatisfaction as well as financial loss to both farmers

and millers. Other problems are stagnant cane yield, non-payment of dues togrowers by mills, and low import parity price.

Constraints Faced by Growers:

Constraints faced by the growers are underweighting of cane at purchase

centers and mill gates, undue deductions by mills up to 10 per cent, delays

in payments, middleman, obtaining an indent, and the payment of premium.

Over Charging of Transporters:

Transporters, particularly trolley-owners also exploit mill owners bydemanding additional Rs250300 per trolley during cane shortage, while a

delay in unloading at the gate incurs an additional Rs100 per day for trolley

along with the provision of food and tea for trolley drivers etc. by the mills.

Issuing of Export Permit to Mills:


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The government intervenes by issuing export permits to mills, importing

sugar on public account and controlling retail distribution below the market

price through utility stores production. Sugar crisis persisted despite the fact

that some two million tons was produced and a huge quantity imported. The

countrys requirement is four million tons a year as against the supply of six

million tons produced by more than 70 sugar mills.

Effect of Uncontrolled Factors:

Consumption and demand play an important part as production depends

upon support price. The support prices of sugarcane affect the production

cost and uncontrolled factors such as weather and technology. The volume

of cane crushed is mainly related to production, milling capacity and prices

of cane and Gur.

Change in Price Elasticity:

Consumption relationship indicates the price elasticity for refined sugar as

four and income elasticity as eight in nominal terms. This implies that

relatively small change in cane supply causes more proportional increase in

sugar price. The purchasing of excess stocks from mills and delayed

payments to growers, and delay in crushing are bad aspects for the industry.

Failure of Policy Makers:

Another aspect of delay in crushing causes a negative impact on wheat crop

that replaces it in many fields across the country. Policymakers have failedto realize the gravity of the situation. Instead of checking the price hike, a

free hand has been given to hoarders and profiteers, operators of the utilities

stores for forcing consumers to buy other items if they sought sugar at

controlled price.

Lack of Agriculture Policy:

The government has failed in adopting a proper agriculture policy. There is

no planning at any level for important crops, including sugarcane, and no

monitoring system.

Although, the government intervention is limited in keeping the prices at a

reasonable level but maintaining self-sufficiency in sugar production, static

yield and weaknesses in existing regulations are few problems facing the

industry.


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An adequate supply to the TCP:

Sugar shortage was the main reasons that many sugar mills refused to sell

sugar to the TCP despite advance payments.

Chairman TCP Saeed Khan informed the committee that the agreement

made with the sugar mills in 2007 said that if the mills failed to providesugar to the TCP, they would pay back the original amount and a 25 per cent

penalty.

Lack of Government Strategies:

The fact that the issue is not new puts the blame falls entirely on the

incompetence of the Government. The lack of strategy to keep track of rising

prices .The failure of the Government to tackle the delayed payments and

hence less growth of sugar cane issue is to be blamed as well.

Despite the clear lack of strategy, the authorities seem to be more interested

in playing the blame game, instead of focusing on the problems. The Punjab

Government was the first to react after government announced an increase

sugar price, accusing the federal Government of not consulting the provincial

Government on the matter.

Burden of Tax on Sugar Mills Owners:

The Federal Board of Revenue (FBR) has decided to impose 16 per cent

General Sales Tax (GST) on ex-mill rate of sugar to bridge the gap of taxation

on per kg price. Punjab chief minister shahbaz shrarif appealed to federalgovernment to reduce the burden of sales and excise taxes on sugar

production.

Inadequate Accountability:

A ruthless accountability would make difference in having control over factor

resource their prudent distribution. Sugar industry and growers always stays

at odd relationship due to monopolistic behavior of mills owners rent seeking

behavior of hoarders which create powerful policies lobbies for huge profits.

Formation of Cartel among Mill Owners:

A cartel is a formal (explicit) agreement among competing firms. It is a

formal organization of producers that agree to coordinate prices; marketing

and production. Cartels usually occur in an oligopolistic industry, where there

are a small number of sellers and usually involve homogeneous products.

Cartel members may agree on such matters as price fixing, total industry
http://en.wikipedia.org/wiki/Oligopolyhttp://en.wikipedia.org/wiki/Homogeneous_productshttp://en.wikipedia.org/wiki/Price_fixinghttp://en.wikipedia.org/wiki/Oligopolyhttp://en.wikipedia.org/wiki/Homogeneous_productshttp://en.wikipedia.org/wiki/Price_fixing


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output, market shares, allocation of customers, allocation of territories, bid

rigging, establishment of common sales agencies, and the division of profits

or combination of these. The aim of such collusion is to increase individual

members' profits by reducing competition. Sugar mills owners make cartel in

order to maximize profit thats causes low supply of sugar in market.

Solutions to Sugar Crisis in Pakistan

Reduction of Sugar Consumption:

Pakistan is the Asias third-biggest user of sugar. Daily Jang reports that The

sweet obsessed Pakistani nation consumes sugar worth of Rs 200 billion

annually. Sugar crisis could diminish by reducing the consumption of the

sugar.

Agricultural Reforms:

There is need for seed treatment in sugarcane cultivation. Agencies such as

research and extension department should be directed to enhance the

knowledge of growers through expression. Other Reforms can also be helpful

like improved fertilizers, proper irrigation, latest pesticides & insecticides,

etc. This will bring improvement in cane yield per hectare and will increase

the sucrose content. Such varieties will raise the output of Sugar as well.

Provision of Pre-Requisites for Sugar Industry:

For the last three years the sugar industry in Pakistan and especially Sindh isfacing an unprecedented crisis. This crisis has affected the three factors of

production, raw material suppliers, employees and owners equally. The

growers complain of not getting price which they demand, delay in payment,

employees are not getting the benefits which they used to get and

shareholders equity has eroded and converted into negative. Liquidity

problem being faced by the mills is so acute that in most of the cases, the

mills are unable to clear their legal liabilities. The banks are reluctant to

advance to the sugar mills in view of the general situation. Nine units are

likely to be closed viz. Bachani, Thatta, Dadu, Kiran, Lakana, Tharparkar,

Thar, Pasrur and Qaud Ghar. The cause of closure of these mills may be

lacking of initial capital, which is imperative for transaction. These mills

should be financed by the banks for continuing the operations. This step can

increase the output of sugar.

Lowering the Sales Tax:
http://en.wikipedia.org/wiki/Market_sharehttp://en.wikipedia.org/wiki/Bid_rigginghttp://en.wikipedia.org/wiki/Bid_rigginghttp://en.wikipedia.org/wiki/Collusionhttp://en.wikipedia.org/wiki/Profit_(economics)http://en.wikipedia.org/wiki/Market_sharehttp://en.wikipedia.org/wiki/Bid_rigginghttp://en.wikipedia.org/wiki/Bid_rigginghttp://en.wikipedia.org/wiki/Collusionhttp://en.wikipedia.org/wiki/Profit_(economics)


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The government should consider high rate of sales tax on food items,

especially in view that it is resulting in miseries both for the mills and the

growers. Long-term measures could also be suggested. However, this is the

time when the patient is to be taken out from coma and vitamins could be

suggested later on.

Importing Sugar & Curbing Smuggling:

The government should import one million tons of sugar (0.5 million white

sugar & 0.5 million raw sugar) to supplement demand and supply in the

market (An experts view in Jang Economic Session). Also, Competition

Commission of Pakistans member proposed that law enforcement agencies

should take measures to curb smuggling through porous borders.

Start of Crushing Season in Time:

If the sugar mills start crushing season on fixed date, its shortage will not

intensify. Late crushing causes dissatisfaction as well as financial loss to

both, farmers and millers. The timely start of crushing season could enable

the growers to cultivate wheat in time. He said since a past few years the

sugar mills take their start too late, causing delay in cultivation of wheat

because the wheat is to be cultivated on same land after harvesting of

sugarcane and in case of delay in harvest of sugarcane the farmers sow the

wheat crop too late, which is causing flour crises in the country.

Facilitating Growers:

PPP MNA, Nawab Abdul Ghani Talpur said that the Prime Minister desires a

green revolution and for that purpose the government has launched

schemes like agriculture loans to farmers, free distribution of state land

among women peasants and Benazir Bhutto Tractor Scheme. These

schemes will facilitate the farmer rather it will motivate the farmer to grow

more & thus will most probably lower the sugar crisis. Also, Demonstration

plots should be organized by the Extension Wing of Agriculture Department

at least on village level to disseminate information among the farming

community in an effective manner.

Management/Administration & Policies:

The Punjab government has badly failed to overcome worst scarcity of white

refined sugar here in the open market due to the mismanagement in the

supply chain, as the domestic consumers have become rolling stone in

search of the commodity. Policymakers have failed to realize the significance


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of the situation. Instead of checking the price hike, a free hand has been

given to hoarders and profiteers, operators of the utilities stores for forcing

consumers to buy other items if they sought sugar at controlled price. The

government has failed in adopting a proper agriculture policy. There is no

planning at any level for important crops, including sugarcane, and no

monitoring system.

There is a need to appoint an investigating committee to investigate

the causes and suggest steps to revitalize the sugar sector. The committee

should consist of experts from the agriculture, marketing, pricing, industry,

sugar technology and the financial institutions.

The correct government policy would be to pave the way for boosting

agricultural and industrial production in the country and simultaneously

improve the marketing and distribution system, in order to ensure

availability of essential items to consumers at reasonable prices.

Role of Competition Commission of Pakistan:

The National Assembly Standing Committee for trade has said that the

current sugar crisis in the country is the result of collusion of ministry of

industries and production, trade and sugar mills owners. Also, the

Competition Commission of Pakistan (CCP) claimed to have found initial signs

of collusive behavior and cartelization among sugar millers in the light of

documents discovered during the search and inspection of the Pakistan

Sugar Mills Association (PSMA) Centre in Islamabad and PSMA Punjab Zoneoffice in Lahore the other day. The CCP has appointed two enquiry officers to

examine objectively all material/documents collected during search of PSMA

offices to determine as to whether or not there was cartel like behavior

and/or abuse of dominant position by the sugar mills owners and PSMA.

The CCP (Competition Commission of Pakistan) & the MCA (monopoly

control authority) can exercise their powers to stabilize the prices by

regulating the behavior of the firms that appear to form cartel (group of

firms acting in collusion to regulate the prices & production in the economy)

which might check sugar crisis.

Extinction of Middlemen ship:

Middlemen, who are actually agents or employees of the mill owners

purchase sugar cane from small growers before the maturity of crop at rates

less than the support price & make undue profits by selling the same to the

producers at high prices. PSMA (Pakistan Sugar Mills Association) has


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suggested the government of Punjab to bring a halt to the illegal, immoral &

unstructured involvement in the trade of sugar. It causes the price of sugar

to rise from 100 Rupees per mound to an unreasonable amount of 195

Rupees per mound.

Role of Trading Corporation of Pakistan:

The government's principal trading agency for sugar, the Trading

Corporation of Pakistan, should evaluate the domestic market situation

clearly in advance and advocate a policy for procurement, especially

regarding importing the stuff when our own millers get too petulant and

greedy; and if it receives clear instructions from the relevant cabinet

committee, it should necessarily have to comply.

Effective Governance:

Behind the crises of commodities, lies the crisis of system of governance in

Pakistan, which needs radical political power to change the system of

governance. There should be effective governance that is the hoarders when

deciding upon their course of action incorporate many factors, with the fear

of the law seeming to be nowhere amidst these.

Political Influence:

It is ironic that people are expecting the ongoing sugar crisis to be resolved

by the politicians who themselves are said to be the beneficiaries of this

situation since many of them own more than 50 per cent sugar mills of the

country. The Nation has reliably learnt that there were a total of 78 sugar

mills in the country and the political leaders or their relatives or partners

owned more than 50 per cent of these sugar mills.

Sugar Crisis in Governments View:

While responding to a question about the ongoing sugar, energy and atta

crises, President of Pakistan Asif Ali Zardari said: It is not in my purview andit is not the Presidents job to interfere in the affairs of the government of the

day. Its the job of The Parliament and the provincial government and all this

is a provincial subject. If there is a weakness in provincial set-up, I hope the

federal government; provincial governments will look into it.


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PPP leader and former finance minister Dr. Mubashir Hassan believed

that it was government of the rich people, by the rich and for the rich. Only a

peoples Government could solve crises of sugar, wheat, atta, electricity,

health and education, etc. He also said that government should set up sugar

mills in public sector to resolve sugar crisis on permanent basis. Dr.

Mubashir, who successfully tackled a similar sugar crisis in 1972 when he

was finance minister in ZA Bhuttos cabinet, also suggested that government

should take control of sugar production, and sell the commodity in open

market at reasonable rates. Tracing the history of previous sugar crises in

the country, the PPP leader said that a severe sugar crisis hit the country

when he was federal minister for finance. The then Government, he said,

build 14 sugar mills in public sector to end sugar crisis for decades to come

and for the future governments to sell these factories at cheap prices to put

Pakistan at permanent risk of sugar shortage.

Ground Reality:

Our government takes notice and made another committee as-usual. But like

other problems this committee has nothing to do. Till now they are doing 0%

in this regard. As the other bundle of problem this issue will also be there in

our Parliament with no solution, our leaders are delivering debates and

protest against this issue, but they do nothing to resolve this problem. It is

hard to say that when we overcome this problem. We have to pray to our

Allah that He should have mercy on us, and gives us a good leader, who can

solve our problems. At last I like to end with the quotation If Allah Almightygets angry with any nation, and then Allah appoints the bad leaders on

them. So it is not only our leadership, but we have to change ourselves as

well.


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References:

1. Causes of sugar crisis By: Dr Ali Muhammad Khushk and M. Ibrahim

Lashari

2. Sugar industry problems and solution By: M.A Siddiqui

3. Politicians, relatives own 50pc of countrys sugar factories By: Usman

Cheema

4. Allaunddin Masood, Impact of sugar crisis, how the game wasplayed Business and Finance Review Magzine, 24/8/2009

5. Board of Investment, An Introduction to Pakistans Sugar Industry2008,Govt. of Pakistan

6. S.M. Alam, Sugarcane production & sugar crisis Economic Review;Nov, 2007

7. Agriculture, Economic Survey of Pakistan 2008-098. Pakistan Sugar Annual GAIN Report 2008, USDA Foreign Agricultural

Service9. Anjum Ibrahim Ownership of sugar mills Business Recorder,

07/09/200910. Dr Adeel Malik Sugar and society Daily Jang 16/09/200911. Sugar mills appear to operate like cartel By: Kalbe Ali

Websites:

www.nation.com.pk

www.jang.com.pk

www.thenews.com.pk

www.brecorder.com

www.asianfoodworker.net

www.pakobserver.net

www.geo.tv

www.fas.usda.gov

www.dawn.com
http://www.nation.com.pk/http://www.jang.com.pk/http://www.thenews.com.pk/http://www.brecorder.com/http://www.asianfoodworker.net/http://www.pakobserver.net/http://www.geo.tv/http://www.fas.usda.gov/http://www.dawn.com/http://www.nation.com.pk/http://www.jang.com.pk/http://www.thenews.com.pk/http://www.brecorder.com/http://www.asianfoodworker.net/http://www.pakobserver.net/http://www.geo.tv/http://www.fas.usda.gov/http://www.dawn.com/


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