Study Of The Sugar Industry In Pakistan Finance Essay

The sugar industry plays an of import function in the economic system of the state. It is the 2nd largest industry after fabrics. The sugar sector constitutes 4.2 per cent of fabrication. In size, the sugar sector about matches the cement sector[ 1 ], nevertheless, it ‘s many rearward ( sugarcane agriculturists ) and forward linkages ( nutrient processors ) in the economic system indicate that its indirect socio-economic impact in overall footings is significantly larger than its direct part to GDP.

At the clip of independency in 1947, there were merely two sugar mills in Pakistan. The end product of these mills was non sufficient for run intoing the domestic demands. The state started to import sugar from other states and immense foreign exchange was spent on this point. Need was felt to increase the production of sugar. Keeping in position the importance of sugar industry, the Government setup a committee in 1957 to border a strategy for the development of sugar industry. In this manner the first sugar factory was established at Tango Muhammad Khan in Sind state in the twelvemonth 1961.[ 2 ]

No. of Mills

Oppressing Capacity

6.1 Million tones

Contribution to Economy

Share in GDP

Employment

Entire Investing

3.0 – 4.0 Million Tones

1.9 %

1.5 million ( straight & A ; indirectly )

PKR 100 Billion ( Approx )

Average Output Per Hector

46.8 Tones

Entire Cane Production

45.0 – 55.0 Million Tones

Cane Available

30-43 Million Tones

Average recovery of sugar

9.1 ( vs. universe avg. 10.6 % )

Per Capita Consumption

25.8 kegs.

Contribution to exchequer

Rs. 12.16 Billion

Table: Cardinal Facts of Sugar industry of Pakistan, BOI Govt. of Pakistan

Presently Pakistan is the fifth largest state in the universe in footings of country under sugar cane cultivation, 11th by production and 60th in ; output. Sugarcane is the primary natural stuff for the production of sugar. The sugar industry in Pakistan is the 2nd largest agro based industry consisting 81 sugar Millss with one-year oppressing capacity of over 6.1 million tones.[ 3 ]Harmonizing to Ministry of Industries and Production ; entire suppression capacity of the Sugar Millss is about 505,000 dozenss per twenty-four hours. The mean capacity use of the sugar Millss during the last five old ages remained 70 % to 74 % .

The Sugar industry employs over 75000 people, including direction experts, engineers, applied scientists, and fiscal experts, skilled, semiskilled and unskilled workers. It contributes around 4 billion rupees merely under the caput of excise responsibility and other levies to the Government are besides overriding significance.

Sugar Production in Pakistan

The Pakistan is an agriculture state, and agribusiness is backbone of economic system. Pakistan is besides chief manufacturer of sugar in worldwide. Sugarcane is an of import hard currency harvest of Pakistan. It is an of import beginning of income and employment for the agriculture community throughout the twelvemonth. It forms the footing for many of import industries like Gur, molasses, intoxicant, sugar drinks, hardboard, paper, confectionery and provides natural stuffs to chiefly other industries such as chemicals, plastics, pigments, synthetics, fibre, insect powders, detergents etc.

Harmonizing to Food and Agriculture Organization of The United Nations and FAOSTAT, Pakistan is ranked 5th in universe cane land area and 15th in sugar production. Sugarcane is grown on over a million hectares and provides the natural stuff for Pakistan ‘s sugar Millss. Its portion in value added of agribusiness and GDP are 3.4 per centum and 0.7 per centum, severally. Although, Pakistan happens to be the universe ‘s 5th largest agriculturist of sugar cane it has possibly the lowest output in the universe. The mean sugar cane outputs in Pakistan have remained between 40-45 dozenss per hectare which is well less than those obtained in many other states. Average output of sugar cane in the universe is around: 65 metric dozenss 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 dozenss per hectare. The sugar recovery is 8.5 % against the gettable recovery of 10.5 % .[ 4 ]

Sugarcane production is cyclical as the involvements of husbandmans and industry is frequently at odds. Industry procurement patterns such as detaining the suppression season, purchasing cane at less than the support monetary value, short weight, false tax write-offs and delayed payments cut down returns to husbandmans. Sugar Millers complain that husbandmans grow unapproved assortments with low sucrose content, therefore ensuing in lower sugar production and recovery rates.[ 5 ]

For 2008-09, sugar cane has been sown in the country of 1029 1000 hectares, 17.1 per centum lower than last twelvemonth. Sugarcane production for the twelvemonth 2008-09 is estimated at 50.0 million dozenss, against 63.9 million dozenss last twelvemonth. This indicates important diminution of

21.7 per centum over the production of last twelvemonth. The chief grounds of lower production are deficit of irrigation H2O, switching of country to rice harvest less usage of DAP and non-payments of dues to husbandmans by the sugar Millss on clip for the last twelvemonth ‘s harvest.[ 6 ]

The following tabular array shows the country cultivated production and output for sugar cane production. In this besides we see the comparing of last five old ages ;

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

Harmonizing to Annual study 2009 of PSMA the ground is milling policies of the current suppression season have provided strong deterrences to sugarcane agriculturists. Sugar Millss reduced the monetary value offered per 40 kg by Rs 5.0 – about US $ 0.08 – and continued the pattern of taking big tax write-offs to run into their cane quality criterions, doing cane agriculturists to switch to more profitable harvests. For the twelvemonth 2009/10 sugar cane production is forecast at 53.6 MMT, an addition of 4 per centum over the old twelvemonth due to an expected addition in country and output. A deficit of cane supply during the current suppression season led to an addition in cane monetary values. This state of affairs benefitted agriculturists who received monetary values higher than the declarative monetary values announced by the Government. This development is expected to lend to an addition in sugarcane country and productiveness in the resulting twelvemonth. Furthermore, last twelvemonth ‘s higher production of rice and helianthus led to take down monetary values received by husbandmans, thereby promoting the switch back to sugar cane.[ 7 ]

Sugarcane production for twelvemonth 2009/10 was estimated at 53.6 MMT, which shows an addition of 4 per centum compared to that of old twelvemonth. This addition was due to an addition in country and output. A deficit of cane supply during that oppressing season led to an addition in its monetary values. This state of affairs benefitted agriculturists who received monetary values higher than the declarative monetary values announced by the Government. This development contributed to an addition in sugarcane country and productiveness in the resulting twelvemonth. Furthermore, a higher production of rice and helianthus 2008 led to take down monetary values received by husbandmans, thereby promoting the switch back to sugarcane.A

Consumption

In 2009/10 sugar ingestion is forecast at 4.35 MMT. Entire per capita refined sugar ingestion was estimated at 25 kgs, based on improved domestic supply and strong demand. Retail sugar monetary values were expected to increase 46 per centum above the last twelvemonth ‘s mean monetary values. Much of this addition of monetary value was currency devaluation followed by a rise in international monetary values. Furthermore, the stableness of retail monetary values depended upon timely imports and predominating monetary values in the international market.

REASONS OF CRISIS

Year 2009 saw a natural lessening in the production of sugar. One of the chief grounds being that husbandmans merely grow the merchandises giving them maximal benefit. In twelvemonth 2008 the authorities increased the monetary value of wheat to Rs. 950 in order to give husbandmans an inducement to turn wheat. This caused the non agriculturists to turn wheat. Similarly, sugar cane husbandmans besides switched to wheat production.

Other than this the production of sugar cane besides declined due to trouble faced in its production. These troubles included H2O deficit, behaviour of the factory ‘s direction, late payments, and increase in the input costs, diseases and rodent onslaught. Mill proprietors particularly got blamed for late or no payments to husbandmans and limited irrigation H2O. These two major factors caused the supply of sugar to diminish by 15 to 20 per centum as compared to its old twelvemonth.

Furthermore, the biggest sugar manufacturers, India and Brazil faced unfavourable conditions conditions for sugar cane growing. This decrease in planetary supply caused the monetary value of sugar to believably increase.

Another job occurred when the jobbers and factory proprietors unnaturally created a deficit of sugar to increase its monetary values right before Ramadan. These factory proprietors buy sugarcane 3 to 5 months before manus. Further they limited the supply so that monetary values of sugar would travel up. The chief inducement of class was net income. These factory proprietors have a monopoly in the market and so they are able to command the monetary values. So wholly in all in order to pull strings monetary values, the supply of sugar was unnaturally reduced in Pakistan.

Sing the above stated ground, authorities misdirection and sugar industry profiteering are the chief ground for sugar crisis in Pakistan in the period 2008 – 2009.

Although the authorities did watch harvest production and was cognizant of the possible sugar deficit, A it failed to move seasonably. Assorted studies in December indicated that the entire production wasA 3.2 million dozenss while demand was betweenA 3.4 to 4.0 million dozenss. The authorities solution was to import responsibility free natural sugar ofA 300,000A dozenss so that the Millss could treat it. However, at that clip, the authorities feared that if they imported responsibility free altogether sugar, thenA factory proprietors would non purchase from the local market. Nevertheless, detaining the clip of purchase did non look to be a good thought particularly as international monetary value of sugar shot up and sugar was about twice every bit expensive to import.

Traveling on, the authorities was cognizant that sugar ingestion ever increases around Ramadan. It should hold been responsible for pull offing the deficit in an effectual mode. Unlike wheat and other harvests, sugar can be easy stored for a long period of clip. ButA the authorities did non keep a stock to forestall crisis.

Other than this, if factory proprietors and jobbers are pull stringsing to maximise net income so a rigorous action should hold been taken on the portion of authorities to halt them and do certain policies that secures the right of public to a trade good of day-to-day usage like sugar at a nominal monetary value at least when it is available. But the authorities did non react to this and remained indifferent.

Role of political figures in sugar industry Pakistan:

The sugar crisis remained at that place in the economic system of Pakistan for a long clip. At one point in clip the Finance Minister claimed that our authorities was unable to cover with the powerful sugar makers. The regulative organic structure had long warned about the anti-competitive and restrictive patterns of the sugar industry but no 1 paid attending to these warnings.

Sugar factory proprietors have ever been able to command the monetary value of sugar, one time once more, due to bad policies of some minions of the province.

Due to growing in population of Pakistan and increased industrial activity, the prognosis of sugar demand which was made for the 2009-10 was 4.2 million dozenss against a entire expected production of 3.5 million dozenss by the state ‘s 73 plus sugar Millss. It is in the cognition of Pakistan Sugar Mills Association ( PSMA ) , that a powerful anteroom stand foring the Millers involvement, has frequently made common cause against sugar cane agriculturists who have to by and large wait a batch to sell their harvest.

In malice of importing sugar, the Millers have been buttonholing for permission to run into the shortage by importing natural sugar and subsequently on by treating, they could treat it into refined sugar for sale in the local market. To compensate this scenario, the sugar cane agriculturists should besides be permitted to change over their harvest into ‘gur ‘ or natural sugar for sale either to the sugar Millss or in the local market.

When the thought of importing natural sugar was floated last twelvemonth, the sugar cane oppressing season was approximately to get down in November. At that clip, some circles felt that if the permission to import natural sugar was allowed instantly, the sugar mill-owners may non stay really enthusiastic about the procurance of sugar cane from the manufacturers. In the interim, the intelligence about the likely deficit of sugar in Pakistan reached the planetary community. Consequently, the monetary value of sugar, including brown sugar, started lifting in the international markets. Presently, natural sugar monetary value in the international market is vibrating about Rs. 52-54 per kg and when processed into refined sugar the cost may travel up to Rs. 60-62 per kg. Anyhow, the authorities has now allowed the Millers to import 300,000 dozenss of natural sugar to extenuate the impact of the current sugar crisis, which poses a serious political challenge to the authorities due to the fact that some political figures, largely in the resistance, have large bets in sugar Millss.

In Pakistan, the sugar sector constitutes 4.2 per cent of fabrication. Likewise, the Millss industry sugar for five months but have to let go of their stock uniformly over the twelvemonth. Stock stacking therefore becomes an issue. A survey on the sugar sector by the Competition Commission of Pakistan ( CCP ) reveals that “ restrictive patterns ” in this sector are widespread.

Although CCP does non hold sound cogent evidence of a sugar trust in Pakistan, but there is sufficient grounds to propose about the being of “ parallel pricing ” in this sector.

Presently there are 79 sugar Millss runing presently in the state, amongst them 33 are owned by the celebrated political figures. Following paragraph provides the list.

Name

Appellation

( proprietor of ) : Sugar MILL NAME

Ch Zaka Ashraf

President ZTB Ltd

Ashraf Sugar Millss

Haseeb group

Cousions of Main Nawaz shareef

Brother Sugar Mills

Abdullah sugar Millss

Haseeb sugar Millss

Salman Shehbaz

Son of Mian Shehbaz sharif, CM Punjab

Ramzan Sugar Millss

Nawaz shareef

Ex premier curate

Chaudry Sugar Millss

Abdullah Yousaf Sugar Mills

Itefaq sugar Millss

Humayun Akhtar Khan

Former Commerce curate, leader of PML-Q

Faisalabad Tandlianwala Sugar Mills

Muzaffargarh Tandlianwala Sugar Mills

Dera Ismail Khan Tandlianwala Sugar Mills

Jehangir Tarin

cousin of Humayun Akhtar khan

( Two ) JDW Sugar Mills

United Sugar Mills

Amer Sultan Cheema

son-in-law of Ch Shujaat, President of PML-Q

National Sugar Mills Sargodha

Nasrullah Dareshk

Former federal curate

Indus Sugar Mills

Abbas Sarfraz

Former federal curate

Premier Group ( contains 4 Millss )

Saleem Altaf

former federal curate

Baba Farid Sugar Mills

Shakarganj Mills.

Fehmida mirza

Speaker national assembly

Mirza sugar Millss

The original proprietor of the Ansari and Sakrand Sugar Mills in Sindh is the top adult male of the state, but they said Millss are being run by others.

The web of political governments compelled the Federal Minister for Industries who is Mian Manzoor Ahmed watoo, to repair the ex-mill monetary value of sugar at Rs 48 per kilogram in the state Sindh and Rs 49.75 in Khaibar Pakhtoonkhuah ( NWFP ) and Punjab.Immediately after the Punjab authorities made a trade with sugar Millss, and harmonizing to that cover the ex-mill monetary value was set at Rs 45 alternatively of the aforesaid monetary values, the main executive of the state came into action and accorded blessing to Rs 45 as ex-mill monetary value across the state.

After much pandemonium in the state, the Ministry of Industries and Production and All-Pakistan Sugar Mills Association, eventually reached an understanding to sell sugar at ex-mill rate of Rs. 48 per kg in Sindh as mentioned earlier and Rs. 49.75 per kg in Punjab. As a followup to this understanding, Federal Minister for Industries and Production Mian Manzoor Ahmed Wattoo revealed in the recent twelvemonth of 2010 that the authorities has withdrawn instances which were registered against sugar factory proprietors in order to better sugar supply concatenation and to stabilise its monetary values.

Research has nevertheless shown that the input cost of the sugar stands at Rs 33.48 per kilogram which means that after cartelization and common understandings they have setup a high border and has been dishonest with the multitudes by selling sugar at Rs 50 to Rs 55 per kilogram still has the maximal border to pocket the net income of Rs 12 per kilogram when the ex-mill monetary value was fixed at Rs 45 per kilogram.

Khalid Mirza, who is the Chairman, Competition Commission, Pakistan. Made mulct to the cement industry Rs 6.23 billion after it was apparent the there is a trust among cement industries merely like in instance of Sugar. He resolved to move consequently, in the instance of sugar industry, and non acquire under force per unit area by the political participants.

There is dominant political anteroom of the self-interested sugar cane agriculturists and the sugar industry, which has ever made it possible to put the monetary values harmonizing to their vested involvements and hence deceive multitudes.

In November 2008 the Ministry of sugar Industries sent a drumhead study to the Economic Coordination Committee ( ECC ) , seeking permission of the import of natural sugar because of the deficit of sugar cane harvest by 14 million tones.

At that clip Pakistan produced 50 million dozenss less by 14 tones in comparing with the sugar cane production of 64 million dozenss in 2007. Pakistan produced sugar of 3.2 million out of 50 million tones sugarcane harvest nevertheless the demand was 4.2 million tones sugar.

The TCP paperss suggests that Pakistani authorities, few months subsequently, in February 2009, made an import of 25,000 dozenss of sugar at $ 451 per ton which is tantamount to PKR 51 per kilogram at Karachi sea port. few months subsequently in April they imported 50,000 dozenss at $ 474 per tones ( Rs 53 per kilogram ) at Karachi port once more and in the same month it once more imported 50,000 dozenss of sugar at monetary values of $ 494 per ton ( Rs 55 per kilogram ) and in the month of August 75,000 tones at $ 638 per ton, intending the entire cost of the sugar is at Rs 74 kilogram.

Scenario OF SUGAR INDUSTRY IN 2010:

The sugar industry in Pakistan continued to cover with uncertainness in 2009 due to diminishing sugar production and a deficiency of co-ordinated authorities policy.

This uncertainness has been seen in the current financial twelvemonth 2010.The sugar industry has been demoing changing tendencies in the current twelvemonth.

At July terminal, merely a two weeks before the coming of Ramadan, there was Rs.10 per kilogram addition in the monetary value of sugar sold at the public-service corporation shops. The aim of the move was to antagonize against stashing by profiteers during the holy month. The six-member ministerial commission one time once more relied on the Trading Corporation of Pakistan ( TCP ) to import 375,000 metric dozenss of sugar to refill supplies, which it had earlier held responsible for the failure to import 1.2 million metric dozenss of the trade good by June 30.Previously Economic Coordination Committee made attempts to better the sugar supply in the market, and it even authorized the commission to import sugar by either negotiating trades straight with the private sector or by tendering, whichever manner the sweetening reached the state quickest.

The six member commission was constituted after the TCP failed to import 1.2 million metric dozenss of sugar on the authorities directive to run into the deficit between production and ingestion. The authorities had estimated the deficit of over one million metric dozenss. At the last ECC meeting, it was told that official sugar stock was sufficient merely for 13 yearss.

At the meeting, the sugar monetary value was fixed at Rs55 per kilogram, up by Rs10 from the currently-pegged official rate of Rs45 per kilogram. The authorities took this determination to debar force per unit area from the public-service corporation shops after the trade good monetary values started witnessing an upward tendency in the runup to Ramazan. The new rates will take consequence from the first twenty-four hours of the holy month. After Ramazan, harmonizing to the commission determination, the difference between the unfastened market and public-service corporation shops would non be of more than Rs10 per kilogram. This stood as a wide intimation that the trade good monetary values would farther register a Rs5 per kilogram addition after Ramazan as the market rate is vibrating above Rs70 per kilogram.

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The commission besides recommended leting duty-free import of 500,000 metric ton of natural sugar boulder clay November 30, 2010 on a first semen, foremost served footing. The commission besides decided that with the completion of the current sugar import procedure the market forces will be allowed to predominate and the private sector would be encouraged to import sugar.

The crisis in the sugar industry prevailed in mid 2010 because of failure on portion of the cabinet to implement its determination of export of natural sugars and because the authorities failed to implement the recommendations of the regulator under the influence of vested involvements.

The latest October/November narrative of sugar industry includes stashing scenario and recovery of 35000 bags of sugar which has impaired the credibleness of Pakistan Sugar Mills Association.

Business recording equipment summarizes this narrative as: “ The foray at the Millss as reported in the imperativeness has tarnished the image of Pakistan Sugar Mills Association. Chairman Pakistan Sugar Mills Association in a imperativeness conference held on November 8 2010 had stated that sugar industry had already exhausted its stocks based on informations received from member Millss, including Hussein Sugar Mills Limited which reported 1.5 ton as staying balance as on October 31, 2010. The recovery of 35,000 bags by Administration has raised inquiries and grossly impaired the credibleness of PSMA. ”

The Punjab authorities on November 30th informed the Lahore High Court that delayed import of sugar by the federal authorities had caused deficit of sugar in the state and its sale on high monetary value. The latest October/November narrative of sugar industry includes stashing scenario and recovery of 35000 bags of sugar which has impaired the credibleness of Pakistan Sugar Mills Association.

Business recording equipment summarizes this narrative as: “ The foray at the Millss as reported in the imperativeness has tarnished the image of Pakistan Sugar Mills Association. Chairman Pakistan Sugar Mills Association in a imperativeness conference held on November 8 2010 had stated that sugar industry had already exhausted its stocks based on informations received from member Millss, including Hussein Sugar Mills Limited which reported 1.5 ton as staying balance as on October 31, 2010. The recovery of 35,000 bags by Administration has raised inquiries and grossly impaired the credibleness of PSMA. ”

The Punjab authorities on November 30th informed the Lahore High Court that delayed import of sugar by the federal authorities had caused deficit of sugar in the state and its sale on high monetary value. The mean retail sugar monetary value in Karachi on November 30th was Rs 88 per kilogram, Rs 85 and Rs 88 in Peshawar and Quetta, severally. However, the retail merchants in Lahore and Islamabad were selling sugar at Rs 72 per kilogram, the monetary value officially announced by the authorities.

Industries and Production Secretary Abdul Ghaffar Soomro said the sugar monetary values were straight linked with the monetary value of sugar cane and the federal authorities had no control over that affair. He said the declarative rate announced by the Punjab authorities was Rs 125 per 40 kilogram, but the husbandmans were selling it at Rs 150 per 40 kilogram and in Sindh the Millss were purchasing sugar cane at Rs 160 per 40 kilogram against the declarative monetary value of Rs 217 per 40 kilogram.

The sugar crisis is expected to resurface following twelvemonth due to miss of coordination among assorted variety meats of the authorities and in the absence of any regulative organic structure to command sugar monetary values. Inadequate militias with the provincial sections led to a free manus to market operators, who bit by bit increased the monetary values to more than Rs 100 per kilogram a few yearss ago. The measure sanctioned to the states and the Islamabad district in Ramazan had non been lifted by them till now. There was no sugar deficit in the state instead there will be excess sugar in the approaching yearss because the sugar Millss had started their production and imports were besides in advancement.

Decision:

The major grounds for the sugar crisis brewing in 2009 and 2010 had been inability in bordering effectual steps by the provincial authoritiess to command billboard, failure to import sugar to run into deficit of sugar production in the state, and an overall deficiency of authorities policy. The operation of trusts as explained had played an inevitable function in declining the sugar crisis in the state.

Recommendations:

Tight regulative policies should be chalked out to forestall sugar billboard and appropriate surveillance steps should be implemented on a timely footing to look into for illegal activities like stashing carried in the sugar industry.

Effective steps should be adopted to import sugar without any hold to get the better of the sugar shortage in the state, and to avoid sugar monetary value hiking.

A prohibition should be placed on the formation of trusts to avoid sugar shortage and sugar monetary value hiking.

Sugar industries should be granted subsidies often to promote them to calculate the sugar demand accurately and to forestall billboard.

REFRENCES:

hypertext transfer protocol: //pkonweb.com/2010/11/sugar-cartel-politicians-behind-sugar-crisis-views-on-news-10-nov-2010/

hypertext transfer protocol: //www.nation.com.pk/pakistan-news-newspaper-daily-english-online/Politics/26-Sep-2009/Sugar-cartel-may-blackmail-growers

hypertext transfer protocol: //ibrahimsajidmalick.com/tag/sugar-crisis/

hypertext transfer protocol: //haroonhaider.com/category/sugar-shortage-in-pakistan/

hypertext transfer protocol: //www.scribd.com/doc/20276168/Sugar-Crisis-in-Pakistan-research-paper

hypertext transfer protocol: //www.nation.com.pk/pakistan-news-newspaper-daily-english-online/Business/06-Jan-2010/Sugar-crisis-may-deepen-further-in-coming-months

hypertext transfer protocol: //www.chowrangi.com/sugar-crisis-in-pakistan-is-there-any-other-name-for-a-thief.html