Large sugar surplus and scope for increasing export

Mohammed Arifeen

Pakistan's sugar industry is the second largest agro-based industry in the country after textiles.  At present it is   diversifying into power generation, food and wood-making business in order to boost profits.
Global prices substantial protection against imported sugar and export subsidy during the last two harvests are among the factors that have helped attract investors to sugar stocks over the past year.
In the past several years, companies have enhanced output, improved sucrose recovery, developed in-house distilleries for ethanol production.
  They have well diversified into the baggasse-based power generation and wood-making business. A few have also expanded into solar and wind.
Pakistan is the fifth largest sugarcane grower and seventh biggest refined sugar producer in the world. Annual domestic consumption estimated at 4.9million tonne makes it the eighth largest consumer of refined sugar.
 Sugar industry is important for the Pakistan's economy, owing to its impact on agriculture and large scale manufacturing growth. 
 It directly and indirectly employs over a million people. It pushed last year    Rs230 billion into the rural economy. This year, there will be payment around Rs250 billion to growers besides saving $2.5billion in import substitution.
Pakistan has become a net exporter of raw and refined sugar due to the generous export subsidy allowed by the government to stabilize domestic prices amid bumper harvests during 2014-2015 and 2015-16. 
The government has so far allowed export of 0.225 million tonne sugar this year against an estimated surplus of 1.5 million tonne.
 It is estimated that at least half of this surplus quantity will be available for exports even after setting aside the other half for building a strategic reserve to protect domestic consumers.
Pakistan's domestic market has remained overpriced owing to rising sugarcane prices because of the government's minimum support price for protecting growers. 
An overpriced domestic market has helped the government build up the necessary reserves as a buffer against global price shocks and for years of shortage.
The price of sugar has continued to go higher despite huge stocks. The wholesale price of sugar, which was Rs57 a kilogram when sugarcane crushing began in November 2016, has now risen to over Rs62 per kg.
The decision of the Economic Coordination Committee (ECC) taken in the last week of December 2016 of allowing sugar exports of 225,000 tonnes has put extra pressure on sugar prices.
Retailers, blaming rising wholesale prices, have pushed up the commodity's price to Rs64-65 per kg from Rs62.
The government allowed sugar export from the surplus available after ascertaining that there would be 1.23 million tonnes of surplus stocks available in the country. 
With a monthly consumption of around 400,000 tonnes, the available stocks are enough to meet consumers' demand till March.
Sugar exports in July-November 2016 remained nil as compared to 20,117 tonnes (fetching $9 million) in the same period of 2015.
Sugar imports fell to 5,048 tonnes ($22) in July-November 2016 as compared to 7,008 tonnes ($3.66m) a year earlier.
According to the Sugar Advisory Board (SAB), the total area under cultivation and crop productivity of sugarcane has seen an increase. 
The cultivation area has grown from 1, 13,000 to 1, 22,700 hectares while crop productivity by 10 percent to 71 million tons from 64 million tons previously. 
Punjab has produced 3.4 million tons of sugar, followed by Sindh about 1.8 million and KPK 0.388 million.
Sugarcane production was forecast to be in excess of 71 million tons as area under cultivation increased due to timely payments made to sugarcane growers. 
Sugarcane yield has also shown an improvement compared to preceding years, resultantly, the sugar industry foresees a record sugarcane production during the current crushing season.
The industry has also stated that mills' utilization of sugarcane is around 80 per cent which means 56.8 million tons of sugar will be crushed to produce sugar. 
The average sucrose recovery on all Pakistan bases is about 10 percent hence sugar industry safely assumes a total production of about 5.68 million tons of sugar.
 It is expected that Punjab will have 3.8 million tons of sugar at the end of crushing season, followed by Sindh 1.9 million and KPK 0.425 million tons.
The ECC also decided that the Ministry of Commerce should ensure that there are adequate checks and balances available to maintain the price stability in the domestic market at the current level.
 Sugar industry is seeking permission to export additional quantity of 0.5 million tons of sugar without any rebate to avert default in payments to growers and dispose off surplus commodity at attractive prices in the international market.
The sugar millers are receiving a huge monetary incentive from the national kitty. The current government has provided over Rs10 billion in bailout packages on the export of sugar.
Price trends in the international and domestic markets shows that sugar rates had dropped from $597 per ton in September 2016 to $490 on December 20, 2016 in the world market.
Sugar prices had been regularly increased over the years despite virtually no change in sugarcane rates for the last three years. 
The Pakistan Sugar Mills Association claimed that their production cost had increased and it now stood at Rs64-65 per kg.
Rs230 billion worth of outstanding payments had been made to the sugarcane growers and foreign currency valuing $132 million was earned through sugar exports.
It was noted that in case sugar exports were allowed, domestic prices may further increase.
The government will review the entire scenario including price numbers and export numbers and international trends very soon as the earlier permission of 0.225 million tons export of sugar will expire on March 31, 2017. 
It is the wish that industry should export sugar but not at the cost of domestic consumers.
The Sugar Advisory Board had agreed on the production estimate of 5.4 million tons for crop year 2016-17 with carryover stocks of 0.996 million tons.
It recommended export of 0.3 million tons by March 13, 2017 while keeping 0.53 million tons in strategic reserves.
The ECC allowed sale of 225,000 tons overseas, setting aside fears of lower production and price increase in the domestic market.
Pakistan has exported 2.492 million metric tons of sugar during the last five years (2011-15)
According to official documents of the Economic Coordination Committee (ECC) of the Cabinet, the sugar industry has urged the government to devise long-term policies in order to create a permanent demand, as well as presence of Pakistani sugar in the international market. 
The industry exported 293,541 metric tons of the commodities during 2015-16 against the allowed quantity of 500,000 metric tons. The industry was unable to export the permitted quantity as the permission was granted after the crushing season. 
According to the SAB forecast, almost 5.4 million tons of sugar is likely to be produced in the ongoing sugarcane crushing season and if we add this year's surplus to it then a total of 6.6 million tons of sugar will be available in the stock. 
The total annual domestic consumption is around 5.1 million metric tons and the surplus will accumulate to 1.5 million tons.
The industry has sought permission to export 500,000 metric tons of sugar and suggested the government to review the decision of 225,000 metric tons after March 30, 2017.
The stakeholders believe it was due to the government's industry-friendly decisions the sugar prices remained stable as no volatility was recorded in the market during the last five years. 
The president of the Karachi Chamber has urged the government to refrain from allowing sugar exports because it will result in escalating the prices of this essential commodity in the local markets. 
Sugar exports will overburden the common man and affect a wide spectrum of industries at a time when the holy month of Ramazan is just a couple of months away.
 The sugar consumption touches the highest level during Ramazan as people buy plenty of juices, beverages, bakery items and sweets for Iftar. 
Any move to export sugar will raise its prices in the local markets and create problems for everyone.
This is not the right time to export sugar as the current prices in local market are higher compared to the international markets. 
Sugar in Pakistan has a sour history, often filled with political influence of sugar mills owners, calls from farmers to set up a higher support price for sugar cane, and government restrictions on domestic and external trade of sugar.
The sugar industry is closely monitored by the state. The industry is separated into zones, so that the crop from one zone's farmer cannot be sold to a sugar mill from another zone. 
By law, the support price for sugarcane is fixed by the provincial governments. The sugar mills are also legally required to purchase all the sugarcane produced in their own zone.
Farmers complain that sugar mills are unable to purchase their yield immediately. This delay causes a loss of moisture from the harvested crop, making it lighter and therefore less valuable.
It is claimed by the government that recently announced subsidies will also cover the loss exporters may incur due to the price differential. Producers believe otherwise.
This provision is only allowed to those mills, which have cleared their outstanding dues to farmers. The actual benefit to mill owners and fair use of taxpayer money needs to be assessed. 
The practices, policies and prevalent regulation of the sugar value chain are outdated and needs extensive amendment.
The main objective of this policy is to ensure supply of sugar at a competitive price to consumers while also address fairness for the producers and growers.