Status Paper On ECONOMICS OF WHITE SUGAR PRODUCTION IN PAKISTAN

Dr. Muhammad Sharif

Social Sciences Division Pakistan Agricultural Research Council Islamabad October !"#$

%able of Contents
S.No. #. !. $. Description Introduction Methodolog& Cost of 'hite Sugar Production in Pakistan $. Ra' Material (Cane) # $.#.# Sugarcane and sugar *roduction $.#.! Su**ort *rice of sugarcane $.#.$ Cost of ra' material cane $. Manufacturing cost of sugar *roduction ! $. $ $. +. ,. .. %otal cost of sugar *roduction Profitabilit& of sugar *roduction ! $ $ + , , , / # ! ! ! Pa e No.

+ Su**l& of and demand for sugar in Pakistan Conclusion References

ECONOMICS OF WHITE SUGAR PRODUCTION IN PAKISTAN

!. Intro"uction %he sugar industr& is the second largest agro0based industr& after te1tile industr& in Pakistan. Pakistan is an im*ortant sugarcane *roducing countr& and is ranked fourth in 'orld sugarcane acreage and #,th in sugar *roduction. Sugarcane cro* occu*ies an im*ortant *osition in the national econom& in order to drive the large sugar industr& 'here it *rovides ra' material to cli*board *a*er and ethanol (2oP !"#$). Its share in value added of agriculture and 2DP is $.! *ercent and ".- *ercent res*ectivel&. Sugar sector constitutes +.! *ercent of manufacturing and em*lo&s #., million *eo*les including management e1*erts technologist engineers financial e1*erts skilled semi skilled and un0skilled 'orkers. At the time of inde*endence in #3+- there 'ere onl& t'o sugar factories in Pakistan. %he out*ut of these t'o factories 'as not sufficient to meet the domestic re4uirements. Countr& started to im*ort sugar from other countries and huge foreign e1change 'as s*ent on this item. %he first sugar mill 'as established at %ando Muhammad 5han in Sindh during #3.#. During the &ear #33-03/ there 'ere -, sugar mills in the countr& and it *roduces !.+ million metric ton of sugar. In !"#!0#$ sugarcane is gro'n on overall #.#!+ million hectares and *rovides the ra' material for Pakistan6s /# sugar mills. (%able #). Sugarcane is an im*ortant industrial and cash cro* in Pakistan and it *roduces neumorous valuable b& *roducts like alkohal used b& *harmaceutical industr& and ethanol used as a fuel and bagasse used for *a*er and fuel.
%able0#7 Profile of sugar industr& in Pakistan !"#!0#$ #. 8umber of sugar mills !. Contribution to econom& i. 2DP (9) ii. :m*lo&ment (million *eo*le) iii. Investment (Rs. In billion) $. Area under sugarcane (Million hectares !"#!0#$) +. ,. -. %otal cane *roduction (million ton) Average &ield (ton *er hectare) /# ".#., #"" #.#!# .!.-! ,,.3!

Crushing ca*acit& (tones *er da&) i. installed crushing ca*acit& +"3$ ii. crushing ca*acit& in !""/ Source# 5hushak et. al. (!""/) ; 2ain re*ort (!"#$) <SDA foreign agricultural services global agricultural information net'ork 2oP (!"#$a) and 2oP (!"#$b)

Sugar is a vital ingredient in most of our dail& consum*tion articles such as soft drinks =uices tea biscuits s'eetmeats baker& item deserts *harmaceutical industr&. 5ee*ing in the vie' the im*ortance of this *roduct and recogni>ing the need to u*0date the *roduction cost of 'hite sugar on the basis of recent data to com*lement the sugarcane su**ort *rice *rogram in the countr& the Chairman PARC assigned this task to Social Sciences Division on Se*tember #" !"#$.

$. Met%o"o&o ' ?or com*uting economics of sugar re4uires information and data on ra' material (cane) manufacturing cost of sugar (*rocessing material salaries 'ages benefits@ bonus consumable stores re*air and maintenances utilities) and financial e1*enses (interest insurance de*recation and administrative overhead).%he data on the cost of ra' material is derived from 2ain Re*ort (!"#$). %he data on the manufacturing and financial costs given in 5hushk et. al. (!""/) and information obtained tele*honicall& from Mir>a Sugar Mill for the &ear !"##0#!. %he data from 2oP (!"#$b) 5hushk et. al. (!""/) and data from the audit and account re*ort Mir>a Sugar Mill 'ere u*dated 'ith inflation rate and using *rices data for the &ear !"#$ from 2oP (!"#$b). %he data for sugarcane crushed and sugar and molasses made 'ere obtained PSMA (!"#!) and 2ain Re*ort (!"#$). %he data on sugarcane area cane *roduction and &ield 'ere taken from 2oP (!"#$a) and 2oP (!"#$b). %he data on the 'holesale *rice of sugar cane 'ere obtained from 2oP (!"#$b). <sing these data cost of *roduction of sugar 'as estimated and deducting it from the retail *rice of sugar the *rofitabilit& of sugar *roduction 'as com*uted for the &ear !"#!0#$. Aear starts from October # !"#! to Se*tember $" !"#$. (. Cost o) W%ite Su ar Pro"uction in Pa*istan %he determination of the e10factor& cost of *roduction of 'hit sugar is hel*ful in at least t'o 'a&s7 first because the government had decided that the gro'ers should be given a certain sugar 4uota b& the sugar mills at (the e10factor&) cost for s*ecified 4uantities of cane delivered b& them to the mills second because the calculation of e10factor& *roduction cost in needed if the mills are re4uired to com*lement the sugarcane su**ort *rice *rogram. Bhen the *rice of sugarcane tends to fall as a result of larger sugarcane *roduction and decline in the *rices of gur and sugar in the o*en market the mills ma& have to be asked b& the 2overnment to bu& sugarcane from the gro'ers at the su**ort *rice in order to save the latter from *ossible losses and it ma& become obligator& for the 2overnment to bu& sugar from the mills at the su**ort *rice level to *rotect the interest of the gro'ers (2oP #3/.). %he brief descri*tion on information for the cost of ra' material manufacturing cost and financial e1*enses are briefl& discussed in the follo'ing sub sections. (.! Ra+ Materia& ,Cane%o com*ute the cost of ra' material for *roducing sugar the information on sugarcane *roduction sugar *roduction and su**ort *rice of sugarcane is re4uired 'hich is briefl& discussed in the follo'ing sub0sections. (.!.! Su arcane an" Su ar Pro"uction

%he information on the area cane *roduction cane crushed and sugar made for the &ear !"#!0#$ is *resented in %able0!. During the &ear !"#!0#$ Sugarcane is gro'n on area of #.#!+ million hectare and *rovides the ra' material amounting to .!.+-! millions tonnes for Pakistani /# sugar mills. %he &ield of sugarcane 'as ,,.,/ tonnes *er hectare during

the &ear !"#!0#$. %he sugar *roduction b& utili>ing /! *ercent of sugar 'ith 3.-- tonnes sugarcane e4uals to # tonnes sugar the total sugar *roduction in Pakistan for the &ear !"#!0#$ is ,.!. million tones (%able !.) %able0!7 Area of sugarcane and cane sugar *roduction in Pakistan. Ite.s Pun/a0 Sin"% KPK 1a&uc%istan Pa*istan
Cane Area (""" hectares) Cane Production (""" tonnes) Cane Crushed C /! Percent (""" tonnes) Cane sugar Production (""" tonnes) Actual Sugarcane (tonnes) used to *roduce # ton of sugar
Source7 2oP (!"#$0b) Sugarcane Polic& Anal&sis for !"#$0#+ cro* API M@o 8ational ?ood Securit& and Research 2overnment of Pakistan Islamabad and PSMA (2012)

-." +$"#+ $,!-#., $,...$/ 3./3

!,$.#+3"/.#!!!,.# #!,-.-$ 3.-!

#"..+--".! $3##.,.+ +"#.#3 3.-,

".$#., !,./$ !.., 3.--

##!#.# .!-!+.+ ,#+$+."# ,!,3.#" 3.-/

(.!.$

Support Price o) Su arcane

2overnment of Pakistan is striving to achieve self0sufficienc& and sustainabilit& in sugar *roduction b& ensuring the availabilit& of in*uts and establishing a sugarcane su**ort *rice 'hich is acce*table of all stakeholders. %he sugar industr& is looking for value added b& *roducts as 'ell as reducing costs and *romoting cultivation of high sucrose cane. ?or the &ear !"#!0#$ the su**ort *rice 'as estimated b& Agriculture Polic& Institute and is Rs.#-" #-! and #-" for Pun=ab Sindh and 5P5 res*ectivel& (%able $). %able70$7 Su**ort *rice for sugarcane in Pakistan (Rs@+" kgs). Pro2inces $3!34!! $3!!!4!$ Pun=ab #!, #," Sindh #!#,! 5P5 #!, #," Pakistan (average) #!. #,# $3!$4!( #-" #-! #-" #-#

Source: GoP (2013-b) Sugarcane policy analysis for 2013-14 Crop Agricul!ure Policy "ns!i!u!e Minis!ry of #a!ional $ood Securi!y and %esearc& Go'ern(en! of Pa)is!an "sla(abad Augus! 2013 (AP" Series #o* 24+) and PSMA (2012)

(.!.(

Cost o) Ra+ Materia& ,Cane-

%he information on the ra' material cost of cane to *roduce sugar is *resented table +. Overall 3.-3 5gs sugarcane is used to *roduce #05g of sugar for the &ear !"#!0#$. %here is a small variation of ra' material *roducing sugar among the *rovinces. %he Pun=ab *rovince is used 3./3 kgs. of sugarcane *roduce #0kg of sugar 'here Sindh and 5h&ber Pakhtonkha' have used 3.-! and 3.-- 5gs of sugarcane for the &ear !"#!0#$. %he su**ort *rice of Sugarcane announced b& the 2overnment of Pakistan for Pun=ab Sindh and 5h&ber Pakhtonkha' is Rs. +.!, +.$ and +.!, *er 5g res*ectivel&. <sing this ,

su**ort *rice and cane used the cost of ra' material to *roduce #0kg of sugar is Rs.+#.-/ for Pakistan. %able0+7 Cost of ra' material (cane) to *roduce sugar Ite.s Pun/a0 Sin"% Sugarcane used (5gs.) to *roduced one 5g sugar %he su**ort *rice of cane (Rs.@5g) Cost of material (Cane) (Rs.@5g) (.$ 3./3 +.!, +!."$ 3.-! +.$ +#./" KPK 3.-+.!, +#.,! Pa*istan 3.-3 +.!/ +#.-/

Manu)acturin Cost o) Su ar Pro"uction

%he manufacturing of sugar *roduction includes cost of salaries 'ages benefits@ bounces and *rocess material consumable store re*air and maintenance utilities interest de*reciation insurance administrative overheads cost and *acking material. During the manufacturing of sugar the molasses are also *roduced 'hich are credit to manufacturing cost of sugar *roduction. %he information on the cost of these items is *resented in %able ,. %he estimated manufacturing cost of sugar is Rs. +.$3@kg in Pakistan. %here is slite variation on the manufacturing cost among the *rovinces. %able0,7 Manufacturing cost of sugar *roduction in Pakistan Ite.s Pun/a0 Sin"% Salaries 'ages and bonus@Denefits Process material Consumable store Re*air ; maintenance) <tilities De*reciation Interest Insurance Administrative overheads Packing material
%otal manufacturing cost Credit to Molasses Product Ealue %otal Manufacturing Cost

KPK #.33 ".+! "."! #."/ #..$ #.## ".," ".$! ".$".+! -./, $.$! +.,$

,Rs.5K Pa*istan #.3, ".+! "."! #.". #.. #."3 ".+3 ".$# ".$. ".+# -.-# $.$! +.$3

#.3! ".+# "."! #."+ #.,#."".+/ ".$# ".$. ".+" -.,/ $.$" +.!/

#.3, ".+! "."! #.". #.." #."/ ".+3 ".$# ".$. ".+# -.-" $.$+ +.$.

Source7

5hushk et.al (!""/) Mir>a Sugar Mill (!"##0#!) and 2oP (!"#$0b).

(.(

Tota& Cost o) Su ar Pro"uction

%he total cost of sugar *roduction includes the cost on ra' material manufacturing cost e1cise dut& develo*ment cess and market committee fee. %he estimated total cost of sugar is arrived at Rs. ,".## *er 5g. in Pakistan (%able .). %able0.7 %otal cost of sugar *roduction in Pakistan Ite.s Pun/a0 Sin"% Ra' material (cane) 8et %otal Manufacturing cost :1cise dut& develo*ment cess and market committee fee %otal cost of sugar *roduction (.6 +!."$ +.!/ $.// ,".#3 +#./" +.$. $.3+ ,".# KPK +#.,! +.,$ +."# ,".". ,Rs5K Pa*istan +#.-/ +.$3 $.3+ ,".##

Pro)ita0i&it' o) Su ar Pro"uction

%he information on retail *rice of sugar is used to calculate the *rofitabilit& of sugar *roduction (%able -). %he data in the table revealed that &ear todate sugar *rices have remained stable in the domestic market. Fo'ever in March !"#$ the :conomic Coordination Committee the cabinet committee res*onsible for economic decisions issued a decreased in 'hich it 'ould allo' sugar e1*ort u*to #.! million tons 'hich if attained 'ould result in tight stocks that could lead to escalating domestic *rices in the later *art of the &ear. %able0-7 %he average retail *rice of sugar in Pakistan. Aear Average Retail Price(Rs@kg) !""/ $"./" !""3 +.... !"#" -"./" !"## ./.-+ !"#! ,$..+ !"#$ ,!.,/ Average retail *rice(<S@kg) ".$/ (<SGHRs./"@0) ".,- (<SGHRs./!@0) "./!(<SGHRs./.@0) ".-/(<SGHRs.//@0) ".,, (<SGHRs.3/@0) ".,"(<SGHRs.#",@0)

%he *rofitabilit& of sugar *roduction is estimated b& deducting the cost of *roduction of sugar from the average retail *rice of sugar in the countr& and is *resented in the table /. %he estimated *rofit of sugar *roduction is arrived at Rs. !.+- *er kg. in the countr&. %able0/7 Profitabilit& of sugar *roduction in Pakistan Ite.s Pun/a0 Sin"% KPK Pa*istan

Retail *rice of sugar (Rs@ kg) ,!.,/ ,!.,/ ,!.,/ ,!.,/ Cost of *roduction (Rs @ kg) ,".#3 ,".# ,".". ,".## Profit (Rs@kg) !.$3 !.+/ !.,! !.+Profit (Rs@+"05gs) 3,.. 33.! #""./ 3/./ Profit (Rs@ tonnes) !$3" !+/" !,!" !+-" %he com*arison of *rofitabilit& of sugar *roduction overtime is *resented in the table 3. %he data give in the table revealed that 5h&ber Pakhtonkha'a Province is has relativel&

more *rofitabilit& in sugar *roduction follo'ed b& Sindh and Pun=ab during the &ear #3/+0/, and &ear !"#!0#$ 'here it is lo'est during the &ear !""-0"/. %able037 Com*arison of *rofitabilit& of sugar *roduction over time in Pakistan ,Rs5* 7ears Pun/a0 Sin"% KPK Pa*istan #3/+0/, (2oP #3/,) !""-0"/ (5hushak et. al !""/) !"#!0#$ (Present e1ercise) ".$!.$. !.$3 ".+" !."# !.+/ ".+$ ".," !.,! ".$3 !.!$ !.+-

6. Supp&' o) an" "e.an" )or su ar in Pa*istan %he information on sugar su**l& and demand *roduction in the countr& for the &ear !"#!0#$ is *resented in %able0#". %he estimates of sugar *roduction are based on an /! *ercent crushing rate and 3.$ *ercent sugar recover& rate on average of all sugar mills in Pakistan. %he total su**l& of sugar is ...! million tonnes and demand for sugar is ,."# million tonnes in Pakistan and ga* is the sur*lus for e1*ort. %able0#"# Sugar *roduction im*ort e1*ort and net available in Pakistan. S.No Ite.s $3!$4!( #. !. $. +. ,. .. -. /. 3. #". ##. #!. #$. #+. #,. #.. Sugarcane *lantation (I"""6 hectares) Sugarcane *roduced (I"""6 %onnes) Sugarcane crushed ('ith /!9 utili>ation I"""6 tonnes) Sugar *roduce from cane (I"""6 tonnes) Sugar *roduced from sugar beet (I"""6 tonnes) %otal sugar *roduction O*ening stock on first October (!"#"; !"##) Supp&' o) su ar (I"""6 tonnes) Sugar refined from ra' Ra' im*orts Refined im*orts Ra' e1*orts Refined e1*orts (I"""6 tonnes) Closing stock on $" Se*tember !"## ; !"#! (I"""6 tonnes) 8et available sugar(/0#$0#+)@ "e.an" )or su ar Po*ulation (million) Per ca*ita availabilit& (consum*tion kg@*erson@&ear) Source7 8.
th

##!#.#" .! -!+.+ ,# +$+ , !,3.#" !" ,!/" #$+" ..!" " " " " $"" #$#" ,"#" #/+.$, !-.#/

2ain re*ort (!"#$) <SDA foreign agricultural services global agricultural information net'ork and *resent e1ercise.

Conc&usion

%he calculation of e10factor& *roduction cost of sugar is needed to com*lement the sugarcane su**ort *rice *rogram in the countr& because 'hen the *rice of sugarcane tends to fall as a result of larger sugarcane *roduction and decline in the *rices of gur and sugar in the o*en market the mills ma& have to be asked b& the 2overnment to bu& sugarcane from the gro'ers at the su**ort *rice in order to save the latter from *ossible losses and it ma& become obligator& for the 2overnment to bu& sugar from the mills at the su**ort *rice level to *rotect the interest of the gro'ers in the countr&. %he *resent e1ercise has been carried out due to recogni>ing the need to u*0date the *roduction cost of 'hite sugar on the basis of recent data in the countr&. %he estimated total cost of 'hite sugar *roduction is arrived at Rs. ,".## *er 5g. in Pakistan. %he estimated *rofit of 'hite sugar *roduction is arrived at Rs. !.+- *er kg. in the countr&. %he estimated su**l& of 'hite sugar and demand for are ...! and ,."# million tonnes res*ectivel&. %he *er ca*ita availabilit& (consum*tion kg@*erson@&ear) is !-.#/ in Pakistan.

9.

Re)erences

2oP (#3/,) Cost of Production of Bhite Sugar Agricultural Prices Commission Ministr& of ?ood Agriculture and Coo*eratives 2overnment of Pakistan Islamabad August #3/. (APCOM Series 8o. +/). 5hushk A.M. M. I. Jashari and A. Memon (!""/) Political :conom& of Sugar Industr& in Pakistan Pakistan Agricultural Research Council %echnolog& %ransfer institute %ando=am Sindh PSMJ (!"#!) Annual re*ort Pakistan Sugar Mill Association Se*tember !"#!. 2ain re*ort (!"#$) <SDA foreign agricultural services global agricultural information net'ork and *resent e1ercise. 2oP (!"#$0a) Pakistan economic surve& !"#!0#$ 2overnment of Pakistan ?inance Division economic Advisor6s 'ing Islamabad. 2oP (!"#$0b) Sugarcane *olic& anal&sis for !"#$0#+ Cro* Agriculture Polic& Institute Ministr& of 8ational ?ood Securit& and Research 2overnment of Pakistan Islamabad August !"#$ (API Series 8o. !+.).

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