Sugar Crisis in Pakistan

It is a question that in Pakistan who is the responsible for sugar crisis and inflation of prices in Pakistan? There are three terror tries involved in it but they are blaming each other. One is the Government who is striving to hide its Failure in Government, the second one is the owners of Sugar Mills, who are gaining benefit from the failure of Government, and third one are the public who are using sugar and sugar and they do open their eyes when doctor diagnoses them sugar, and they don't know either this diagnose is due to crisis or prices. Sugarcane is the second largest non-food crop after cotton and ranks fifth in respect of acreage. Prolonged drought and heat stress decreased its production by 22 per cent in 2004-2005, and further 17 per cent in 2007-08.

An Introduction to Pakistan’s Sugar Industry

Pakistan is the 5th largest country in the world in terms of area under sugar cane cultivation, 11th 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 81 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.

Sugar Production in Pakistan

The Pakistan is an agriculture country, and agriculture is backbone of economy. Pakistan is also main producer of sugar in worldwide. Sugarcane is an important cash crop of Pakistan. It is an important source of income and employment for the farming community throughout the year. 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. Sugarcane is grown on over a million hectares and provides the raw material for Pakistan’s sugar mills. Its share in value added of agriculture and GDP are 3.4 percent and 0.7 percent, respectively. 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 sugar recovery is 8.5 % against the obtainable recovery of 10.5%.

Sugarcane production is cyclical 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.

For 2009-10, sugarcane has been sown in the area of 1029 thousand hectares, 17.1 percent lower than last year. Sugarcane production for the year 2009-10 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 year’s crop.

Consumption trends of Sugar

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 .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.

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 at subsidies 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-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 people’s 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 passive indifference – 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. In the midst of such chronic food insecurity, the goodness of our elites is at its full display during Ramadan. Then we have the president and prime minister holding lavish if tar parties in their lawns. The episode does not stop here; these politicians 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, mudda’ii bhi, munsif bhikise 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 Zardari’s family and PPP leaders are 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. 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 Sugar Mills 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”

Sugar Crisis Reality!

The recent sugar crisis in Pakistan materialized because of this shortage in supply. There are two kinds of supply shortages—Natural 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 th

2010, 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 2010, while the next crushing season would commence in November 2010. 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 Rs68.5/kg from Rs55.2/kg in July. On 26 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. 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 2009-10 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 2009 to October 2010) 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 al 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.

. Now what we see is that hoarding and storage of Sugar in order to raise the price. Along with private Sugar mills owners, TCP 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. We have seen how the mismanaged by the government on this important issue. Again profit margins of capitalists not touched rather public expenses used. On 17 August, 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 62 per kg, for Sindh, and Rs 69.75 per kg for the rest of the country, much to the

chagring 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 75 per kg, by slashing out GST by 50 percent. Thus the Prime Minister did not touch the influential mill owners.

Causes of sugar crisis

Prolonged drought and heat stress decreased its production by 22 per cent in 2004-2005, and further 17 per cent in 2007-08.

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 crushing causes dissatisfaction as well as financial loss to both, farmers and millers. Other problems are stagnant cane yield, non-payment of dues to growers by mills, and low import parity prices.

A study it revealed that more than 65 per cent farmers have decreased the total area under cane production due to water shortage, behaviour of the mills’ management, late payments, increased input cost, and diseases and rodent attack.

Constraints faced by the growers are underweighting of cane at purchase centres and mill gates, undue deductions by mills up to 10 per cent, delays in payments, middleman, obtaining an indent, and the payment of premium.

The price structure is such that out of the sale price some 35 per cent of the cost goes to farmer and 24 per cent to the government in taxes etc., 21 per cent to mills with nine and six per cent to wholesalers and retailers respectively. The country exports sugar at low price and imports the same at high rates.

Transporters, particularly trolley-owners also exploit mill owners by demanding additional Rs600–800 per trolley during cane shortage, while a delay in unloading at the gate incurs an additional Rs1000 per day for trolley along with the provision of food and tea for trolley drivers etc by the mills.

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, 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.

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.

Sugar mills, producing in excess to market’s demand are portrayed as going through a difficult period and in need of the state support. Thus many are provided the government’s assistance in a situation that is not the responsibility of the state.

It is a case of state backing a resourceful segment for the exploitation of national resources and rake off operations against the general public. Mills owners are one factor in building the sugar crisis- their reluctance to pay growers the right price promptly.

The purchasing of excess stocks from mills and delayed payments to growers, and delay in crushing are bad aspects for the industry.

Another aspect of delay in crushing causes a negative impact on wheat crop that replaces it in many fields across the country.

These factors create shortage thus increasing the price of the commodity. These factors are manoeuvred towards a specific end by a plan jointly managed by the elements that should have been working to control the price escalation and meet the shortage.

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 public.The Utility Stores are selling one kg of sugar for Rs70/kg, while in the market it is available at Rs100-115/kg. A price difference of Rs40 is unheard of and, to the say least, is not natural.

There is an upward trend in sugar price in the international market but the almost double domestic rate is simply not justifiable. The shortfall of up to one million tons could be eased if the buffer stock available with the Trading Corporation of Pakistan (TCP) is utilised. The stock has cost the TCP Rs18 per kg.

Policymakers have failed to realise 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.

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.

Arguments by Sugar Mills owners and PSMA

The Mill owners demand the government should take steps to curb sugar smuggling to Afghanistan in disguise of Gur export if the government wants to control the prices of sugar in the country, mills representatives said this in a meeting of Sugar Advisory Board held on Tuesday. The price of sugar in Afghanistan is from Rs 85-95 per kg. The price of sugar in Pakistan is Rs 65-70 per kg. The price difference gives smugglers a chance to smuggle sugar, on the other hand 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 sugarcane and opt for growing wheat instead to avail attractive incentives. Now comes time for manipulations by the mill owners. Not only are the mill owners accused of delaying payments causing a decrease in supply of about 15 to 20 percent as compared to last year, they have also hoarded large amounts of supplies. These supplies have been hoarded (conveniently) in order to create an artificial shortage in the market. The shortage then allows them to release stock as they wish with prices that give them maximum profit. A man made crisis, which in fact is a monopoly to earn maximum profit during peak consumption. Withholding supplies and increasing prices for maximum profit has become a popular tactic. Previously during the wheat crisis reports of

withholding stocks kept surfacing According to a press release by Pakistan Sugar Mills Association, dated July 23, 2009; Sugar mills have stocks of 1.74 million tonnes white sugar, which are sufficient to cater to the domestic requirement as of June 30, 2009 until the start of next crushing season in November, said Pakistan Sugar Mills Association, Punjab Zone Chairman, Javed Kayani. He said keeping in view of the sugar stocks and consumption pattern of the country we can assure that there is hardly any possibility of shortage of the commodity in the current calendar year. Replying to a question, Javed Kayani said cancellation of sugar import tenders by Trading Corporation of Pakistan (TCP) was a step taken in the right direction. As a result of this decision, government has saved huge amount of foreign exchange, as price of the commodity has increased manifold in the international market. He said last year well before start of crushing season 2009-2010, PSMA had proposed to the government that raw sugar may be allowed to be imported to maintain strategic buffer stock and to keep the price of sugarcane and sugar under control. So On 23rd of July 2009, the PSMA Zonal Chairman could not expect a shortage, they also canceled the import and right after a few days there is a shortage. How can we expect that.

Arguments by Govt. official

Recently Supreme court of Pakistan has taken notice and has advised to sell the sugar at Rs.45 per Kg. During the hearing of a case regarding sugar prices, Chief Justice Iftikhar Chaudhary said they should have implemented on the verdict of High Court, instead of challenging the high court’s verdict in the higher court. He faced the government officials and said, ‘You came here for the perpetuation of this cartel and that sugar be sold at Rs60/kg.’Minister for Industries Mian Manzoor Ahmad Wattoo said Tuesday that sugar millers should abide by High Court orders on sugar, if production cost falls below Rs40/kg whereas Sugar Mills Association President Sikander Khan said that High Court’s ruling is impracticable and they are willing to face the charges of the contempt of court in this regard. In a meeting of Senate Standing Committee on Food and Agriculture the Minister of Industries stated that High Court’s decision on sugar should be followed.” Government is taking care of the people, however sugar mills too belong to Pakistan and not to any hostile state.”Manzoor Wattoo said the Cabinet would hold a special meeting on sugar crisis, in which the Ministry of Industries will give a briefing on the issue. The

federal cabinet has allowed private sugar millers the import of 0.35 million tons of raw sugar before the start of crushing season in October or November as the food and agriculture ministry anticipates a sugar shortfall of 1.5 million tons in 2009-10. The first reaction to the federal government’s decision to increase sugar price came from the Punjab government saying Islamabad did not consult the provincial government over increasing the sugar price. The provincial government is determined to sell sugar at Rs40 in the province. The Punjab Chief Minister Shahbaz Sharif appealed to the federal government to relax sales tax and excise duty on sugar.The Punjab government alleged that the Federal Minister for Production Mian Manzur Ahmad Watto had unilaterally decided to raise the price of sugar without consulting Punjab. There are 82 sugar mills for crushing cane in the country but no sugar refinery for processing imported raw sugar for public consumption. Imported raw sugar is only processed by mixing it with cane juice during the crushing season. 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.Pakistan, Asia’s third-biggest user of sugar, bought 25,000 tons of white sugar from Dubai’s Al- Khaleej Sugar Co. to bolster supplies and reduce prices. Trading Corp. of Pakistan bought the sugar at $676 a ton, including freight costs, Pakistan may need to import as much as 1 million tons by December, the Pakistan Sugar Mills Association said on Aug. 19, 2010’

Conclusion

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 Zardari’s 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.The media reports also indicate Kamalia Sugar Mills and Layyah Sugar Mills are owned by PML-N leaders. Former minister Abbas Sarfaraz is the owner of five out of six sugar mills in the KPK. 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. PML-F leader Makhdoom Ahmad Mehmood owns Jamaldin Wali Sugar Mills. Chaudhry Muneer owns two mills in Rahimyar Khan District and Ch Pervaiz Elahi and former Minister of State for Foreign Affairs, Khusro Bakhtiar have shares in these mills.

According to Mr. Manzoor Wattoo “The Brother Sugar Mills owned by PML-N Quaid Nawaz Sharif and his family, has a stock of 10,000 tonnes, while the third mills is the Kashmir Sugar Mills with a stock of 5,000 tonnes,” .Just think who is responsible for this crisis; it has been created through a well planned. Apparently, government was showing to control the crisis, but failed completely and hopeful that government will accept higher price as per planned. Same had happened with wheat in past. Our opposition and our favorite political parties are doing nothing, not raising any voice for their vulnerable people in this crisis.

No doubt, they have their own interest either directly or indirectly. Our most MNAs and MPAs have their own sugar mills or have some sort of interest on other sugar mills (if they are not owner of any); they are all land lords and have no sympathy for their people. I believe sugar can be easily sold Rs.35 per kilo Ex-Mill, and if sold at Rs.40 in the Market yet they can earn Rs.5 per Kg which is the standard profit.

Sugar crisis persisted despite the fact that some two million tons was produced and a huge quantity imported. The country’s requirement is four million tons a year as against the supply of six million tons produced by more than 70 sugar mills.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.

There is a need to appoint an investigating committee to probe the causes and suggest steps to revitalise the sugar sector. The committee should consist of experts from the agriculture, marketing, pricing, industry, sugar technology and the financial institutions.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 demonstration.Sugar mills should be bound to arrange and distribute seeds of high yielding varieties on easy terms to enhance production and to reduce poverty.

Awareness among farmers on the balanced use of fertilizer be enhanced and the government should take necessary steps to increase its supply at reasonable rates and at proper time.Demonstration plots should be organised by the Extension Wing of Agriculture Department at least on village level to disseminate information among the farming community in an effective manner.