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Sugar Crisis in Pakistan

ECONOMIC ANALYSIS

“SUGAR CRISIS IN PAKISTAN”

Prepared by:

Noman (2706)
Rafay Mirza (4340)
Kaynan Qurban (4083)
Amir Muhammad (4442)

Submitted to: Dr. Abdul Waheed

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Sugar Crisis in Pakistan

Table of Content

Page

1. Introduction ……………………………………………………… 03

2. Sugar Industry in Pakistan ………………………………………. 04

3. Sugar Production ………………………………………………… 05

4. Consumption Trend of Sugar ……………………………………. 08

5. Sugar Crisis Reality ……………………………………………… 08

6. Social Impact of Sugar Crisis ……………………………………. 10

7. Sugar Sales Continuation ………………………………………… 11

8. Conclusion ………………………………………………………. 13

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Sugar Crisis in Pakistan

SUGAR CRISIS IN PAKISTAN

“The accouterments of [Pakistan's] state power and prestige ring hollow when people are dying
in their search for food”

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 1999-2000, and
further 17 per cent in 2000-01.

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.

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Sugar Crisis in Pakistan

Sugar Industry in Pakistan

The sugar industry plays an important role in the economy of the country. It is the second largest
industry after textiles. The sugar sector constitutes 4.2 per cent of manufacturing. In size, the
sugar sector almost matches the cement sector1, however, it’s many backward (sugarcane
growers) and forward linkages (food processors) in the economy indicate that its indirect socio-
economic impact in overall terms is significantly larger than its direct contribution to GDP.
At the time of independence in 1947, there were only two sugar factories in Pakistan. The
output of these factories was not sufficient for meeting the domestic requirements. The country
started to import sugar from other countries and huge foreign exchange was spent on this item.
Need was felt to increase the production of sugar. Keeping in view the importance of sugar
industry, the Government setup a commission in 1957 to frame a scheme for the development of
sugar industry. In this way the first sugar mill was established at Tando Muhammad Khan in
Sindh province in the year 1961.2

No. of Mills 81

Crushing Capacity 6.1 Milluion tones


Contribution to Economy 3.0 – 4.0 Million Tonnes
• Share in GDP 1.9%
• Employment 1.5 million (directly & indirectly)
• Total Investment PKR 100 Billion (Approx)
Average Yield Per Hector 46.8 Tonnes
Total Cane Production 45.0 – 55.0 Million Tonnes
Cane Available 30-43 Million Tonnes
Average recovery of sugar 9.1 (vs. world avg. 10.6%)
Per Capita Consumption 25.8 kgs.
Contribution to exchequer Rs. 12.16 Billion

Table 1: Key Facts of Sugar industry of Pakistan, BOI Govt. of Pakistan

1
Allaunddin Masood, “Impact of sugar crisis, how the “game” was played” Business and Finance Review Magzine,
24/8/2009
2
Aslam Memon, "Sugar Industry in Pakistan", Pak Economics, Sep 23 - 29, 2002

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Sugar Crisis in Pakistan

Currently 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. 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. 3 According to
Ministry of Industries and Production; total crushing capacity of the Sugar mills is about 505,000
tonnes per day. The average capacity utilization of the sugar mills during the last five years
remained 70% to 74%.
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.

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%.4

3
Board of Investment, “An Introduction to Pakistan’s Sugar Industry 2008”,Govt. of Pakistan
4
S.M. Alam, “Sugarcane production & sugar crisis” Economic Review; Nov, 2007

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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. 5
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 year’s crop.6

The following table shows the area cultivated production and yield for sugarcane production. In
this also we see the comparison of last five years;

Table 2: Area, Production and Yield of Sugarcane, Economic Survey of Pakistan 2008-09

70000
60000
50000
40000
Production
30000
20000
10000
0
2004-05 2005-06 2006-07 2007-08 2008-09

5
Pakistan Sugar Annual GAIN Report 2008, USDA Foreign Agricultural Service
6
Agriculture, Economic Survey of Pakistan 2008-09

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Sugar Crisis in Pakistan

According to Annual report 2009 of PSMA the reason is 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 meet their cane quality standards, causing cane growers to shift to more profitable
crops. For the year 2009/10 sugarcane 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.7

Total Area

1500

1000

500

0
2004-05 2005-06 2006-07 2007-08 2008-09
Area (Hectare) 966 907 1029 1241 1029

Consumption trends of Sugar

7
Pakistan Sugar Annual GAIN Report 2008, USDA Foreign Agricultural Service

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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.

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

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Sugar Crisis in Pakistan

demand.”8 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. 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 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 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.

However 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 November 2009. We have enough sugar to cater for our entire year's demand.”9 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. 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.
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
8
Anjum Ibrahim “Ownership of sugar mills” Business Recorder, 07/09/2009
9
Anjum Ibrahim “Ownership of sugar mills” Business Recorder, 07/09/2009

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Sugar Crisis in Pakistan

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 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, but reduced government revenue for the
year, a fact that may well raise the budget deficit, unless taxes under some other head are
raised.10

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 Malik11;

• 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
10
Anjum Ibrahim “Ownership of sugar mills” Business Recorder, 07/09/2009
11
Dr Adeel Malik “Sugar and society” Daily Jang 16/09/2009

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• 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”12. 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?

Sugar sale continues at Rs55 per kg


ISLAMABAD - Islamabad Capital Territory Administration (ACTA) could not ensure the
availability of sugar at Rs40 per kg to the consumers despite Supreme Court’s direction to the
government.

According to a press release, Islamabad Capital Territory Administration (ICTA) has decided
that sugar would be sold in the market at Rs40 per kg after holding a meeting with the sugar
dealers of the capital here on Sunday.

In the meeting, Deputy Commissioner Islamabad, Amer Ali Ahmed said that ICT Administration
would strictly ensure the sale of sugar in the city at Rs40 per kg and would not tolerate
overcharging by anyone adding that raids would be conducted in the markets to check and ensure
the implementation of rate.

The traders were informed that sugar millers would provide sugar to the dealers at Rs 37 per kg.
However, this scribe visited various markets in the city to check the rates of sugar but it was not

12
Dr Adeel Malik “Sugar and society” Daily Jang 16/09/2009

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being sold in the markets at the rate fixed by the government. Sugar was being sold at Rs 49-50
per kg in Sitara market, I-10 Markaz, G-11 Markaz, Karachi Company and other markets of the
capital. Even the commodity was being sold at the Rs48 per kg in all Sunday bazaars like
Peshawar Mor bazaar and Aabpara Market etc.

To a query, Ramzan, a shopkeeper in Sitara Market told that he was not intimated to sell sugar at
Rs 40 per kg by the authorities concerned.

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.

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Sugar Crisis in Pakistan

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
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. 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

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