Sugar industry misfortunes

There is a reason Pakistan’s sugar industry is constantly riddled with crises. Startling as it may seem, ours is still an industry where price is not set in accordance with product quality. Rather, the government continues to stick to its novelty of deciding sugar cane price based on weight. That this arrangement often pushes farmers to opt for obsolete varieties, lower in quality yet of higher weightage, ought to surprise few familiar with intricacies of the unforgiving market mechanism. In this way, quality is compromised right at the outset, feeding into the entire product cycle, deliberately compromising efficiency and giving rise to bottlenecks that cramp production, consumption as well as exports.
Presently, Pakistan has a production capacity of approximately seven million tones annually, while total requirement of the domestic market is around 4.5 million tones, leaving an excess capacity of 2.5 million tones that should be judiciously utilised to prop up exports. Of course, that such an exercise can chip in an extra $2-3 billion in forex earnings, in addition to putting downward pressure on sugar price in the local market, should be a win-win situation. Also, Pakistan is ranked at number five among sugar growers in terms of cultivated area, yet yield wise we are at the bottom of the table, at number 15. The discrepancy speaks volumes about official misreading of sugar industry dynamics, turning a potential goldmine into an inefficient industry always avoiding pitfalls.
Despite hectic efforts spanning nearly a decade to convince those at the helm of the damage present policy is doing to the sugar industry, and subsequently the overall economy, I fail to see any shift in perception in Islamabad at least in the near future. And even after cabinet approval for proposed reforms, the official position continues to revolve around provincial governments announcing sugar cane price, leaving end sugar price to the mercy of market forces. Since mostly sugar is extracted from inferior quality cane, supply-demand forces are always shifting, toggling the sugar price that sometimes leaves mills winning at the cost of farmers, and sometimes the other way round.
The Shaukat Aziz government’s decision to install 13 new mills epitomised how Islamabad’s policy is akin to groping in the dark. When told that there was no need for new mills, since the present setup had enough production capacity for 40 years, and the funds were better spent on power plants to meet energy requirement for the industrial sector as a whole, no notice was taken of the advice. More than half a decade on, neither sugar nor power are worth writing home about.
In fact, the sugar industry is a classic example of natural endowment and comparative advantage being deliberately wasted at a time when the entire international financial order is reorienting with particular focus on trade earnings. The hangover of the great recession, and Asia’s emerging economies performing better than others, is leading to reprioritisation of trade agreements. Already our export base is minimal, and along with slow growth, stands at the heart of the economy’s inability to snap out of the painful cycle of stagflation. In sugar, we have a potential national winner. We boast enough growth and production capacity to feed our markets and earn valuable revenue. With the economy now in a desperate state, I find myself hopeful once again that neglect will make way to proactive posturing, removing unnecessary bottlenecks and improving efficiency. If we fail to tap this winner, we will have only our own official circles to blame, while the people on the street continue to suffer.

The writer is Group Director,
Priemer Group and former Chairman,
Pakistan Sugar Mills Association