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Sugarcane and sugar industry: problems and issues.

Sugarcane and Sugar Industry: Problems and Issues

Sugarcane is an important crop of Pakistan. It occupies about 4 per cent of the cropped area and contributes about 14 per cent to the value added by the crop sector in the gross domestic product. This crop is the main supplier of sweeteners to the country's population and is one of the major cash crop for the farmers. Except the southern zone, the other parts of the country are not ideally suited to the cultivation of sugarcane but it suits well in the crop rotations.

Sugarcane production has, since after independence been increasing at a rate which favourably matched with the growth rate of the population. However, during the decade ending 1989-90, its production has slowed down to about one per cent a year, on an average, against the population growth of 3 per cent per annum. It is, therefore, quite evident that the per capita production of sugarcane has been going down by about 2 per cent a year during this period. This is a matter which merits concern for the policy makers to review options in the matter. Should the domestic sugarcane production be increased or greater reliance be placed on the import of sugar? If local production is the option, should it be realised through accent on expansion in area or yield per acre? If the answer lies in the area, to what extent the area should be allowed to increase so that the areas under competing crops like cotton, rice and even wheat and oilseeds, which are also important in their own rights, are not adversely effected? If only the yield per acre is to be raised, what measures are necessary to achieve this objective without allowing the mis-allocation of area to take place if at, all this would be possible? In this article, an attempt is made to discuss and raise some of the issues that need careful attention of the policy makers in the national interest.

Notwithstanding the yearly fluctuations, it is estimated that of the total sugarcane production, about 10-15 per cent is used for seed, chewing and fodder. The rest of the production is crushed either by the sugar mills for manufacturing of white sugar, or by the farmers for making gur, shakkar or khandsari. With the production of sugarcane increasing at a much lower rate than the population growth, the per capital availability of domestically produced sweeteners has decreased. Meanwhile the demand for white sugar has increased which has lead the fast expansion of the sugar industry. The number of mills has gone up from 31 in 1979-80 to 45 in 1989-90, with the result that the production of sugar has increased to over 1.8 million tonnes from about 600 thousand tonnes during the same period. Consequently more and more sugarcane has been going to the mills for white sugar manufacturing thus leaving lesser quantities for the production of other sweeteners. So if the consumption of the sweeteners is to be kept at the present level, the country would need to import sweeteners at an increasing rate every year provided the domestic sugarcane production does not keep pace with the population growth. The import of gur, shakkar or khandsari is not practical because of their availability abraod, their keeping quality, distribution system, and the local demand. Therefore, the country has to resort to the import of white sugar to meet the local needs. Upto August 1985, sugar was rationed, the demand remained restricted and adjusted to the availability of sugar (domestic production plus imports). After the rationing system was abolished in August 1985, the demand of white sugar increased rapidly. According to one study, the per capita annual consumption of sugar which was about 14 kgs. in 1984-85, has reached the level of 20 kgs a year. Domestic sugar production being inadequate to meet the demand, the Government had to import to meet the national requirements. For example, the country imported 258 thousand tonnes in 1985-86, 750 thousand tonnes in 1986-87, about 210 thousand tonnes in 1987-88, and only about 25 thousand tonnes, an estimated for 1988-89, It is anticipated that during 1989-90, the imports would be over 50 thousand tonnes; the exact quantity to be imported would depend on the quantities domesitically produced during the current crushing season and the volume of stocks to be maintained.

With the fast expansion of the refined sugar industry, when sugarcane production was increasing only nominally, the availability of sugarcane for converting it to sugar, "shakkar" and khandsari has been decreasing. According to an estimate, the annual average availability of these three sweeteners has halved to about 10 kgs. per head as compared with about 20 kgs at the beginning of the decade. With the declining trend in the production of these sweeteners, the demand for white sugar is going up. To this, the added factor would be the increase in population as well as high elasticity (about 1.4) of sugar demand due to rising incomes. The solution obviously lies in: (a) increasing the production of sugarcane, preferably through improving the productivity of land, and (b) stepping up the production of sugar through (i) promoting the cultivation of a sugarcane varieties with high sucrose content, (ii) improving the efficiency of sugar mills to obtain high recoveries, (iii) setting up additional sugar mills and/or expanding the existing once, in the currently surplus sugarcane producing areas, and (iv) improving the efficiency of the cane crushers for better extraction of juice and of the gur/shakkar making processes. These points are discussed in the following sections:

Increasing sugarcane production: Sugarcane crop competes for the use of resources of land, water and labour mainly with cotton and rice and under certain conditions with wheat and oilseeds. Cotton and rice are the main foreign exchange earners while wheat is not only required to feed the population from domestic production to save foreign exchange but is also important from strategic point of view. Increased production of oilseeds is of paramount importance to reduce reliance on heavy annual imports of edible oils. Therefore, one has to see if any reduction in the area under cotton or rice, wheat or oilseeds and thus reduction in their production would help the country save more foreign exchange if the area taken away from any of these crops when sown to sugarcane to produce more sugar would reduce sugar imports. The studies carried out by the Agricultural Prices Commission in 1985 showed that the domestic resource cost (DRC) for sugarcane sown in spring, which is the main crop cultivated in the country, was above unity, In simple words, domestic resource cost is defined as the domestic resources used to produce a crop either to save one dollar or to earn one dollar of foreign exchange. If the DRC is above unity, it means that one the resources allocation to this crop is not efficient. Against more than DRC of sugarcane production, the DRC for basmati was found to be 0.41, Irri Sindh 0.49, cotton of the Punjab and Sindh each 0.53. These figures relate to the year 1982-83. Their updating will be useful to confirm their validity in the light of relative changes that might have since taken place. It is unlikely that much change in the relativity would be found.

Water requirements for sugarcane cultivation are 2.5 times that of competing crop cotton, 1.3 times of rice, three times of sunflower, and fourtimes than that of wheat. As water is a limiting factor in agriculture development in hte country, this scarce resource has to be seriously taken into account to be used in hte best interest of the country and its economy. In view of this and other factors, it would not be desirable from the national point of view to take policy measures which would encourage the area under sugarcane even if this is to be diverted from cotton, rice and other competing crops. It may be mentioned that the Seventh Five-Year Plan envisages an increase of 100 thousand hectares throughout its duration from 1987-88 to 1992-93 without mentioning the area assumed in the base period. Howerver, if the bench mark is taken to be around 860 thousand hectares, it would mean an increase of about 2 per cent a year. This increase is about the same as indicated by the National Commission on Agriculture. This expansion in area has been predicted because the immediate response to incentives given to the farmers to increase production is that they tend to explained the area of the crop generally at the cost of other ones. Except under communism system of Government there is control over the farmer's decision to the area to be sown and direct them to concentrate only on improving the yield per acre. It would therefore, need a careful consideration that when any incentive is given to increase the sugarcane production which would help raise farmers profit to the sugar mills, to what extent it would affect the production of other competing crops with the ultimate consequence on the foreign exchange resources arising from their exports/imports and whether such changes would be in the overall interest of the country? It should be clearly understood that a situation may be to advantage of individual farmers but may not always be so from the national point of view.

The emphasis on raising the sugarcane production should be on improving the yield per acre by adopting measures which should discourage expansion in area. Any increase in yields should be in terms of productivity which means that the cost of obtaining the additional yield should be lower than the incremental benefit derived by the use of inputs or adopting better cultural practices. It would be pertinent to mention that there exists considerable scope for improving the productivity of land as shown by a survey carried out by the Agricultural Prices Commission in connection with the cost of production of sugarcane. The results indicated that well managed farms using better technology (which may be called `Progressive' farmers without any regard to the size of the farms) can obtain almost double the yield than those who are not using the improving technology and are not managing the farms well termed as `tradition' farmers, and 50 per cent more than the `average' farmers i.e. between the `progressive' and `traditional farmers.

There are, however, certain basic requirements which can help raise the yield per unit of land. First is the preparation of land (seed-bed) before sowing. Deep ploughing and the use of rotavators can help considerably in this respect. These operations help break the hard-span generally found in the sub-soil which in turn would help improve the efficiency of he use of fertilizers and water which otherwise is not the decline. Such machinery and implements are not within the purchasing power of every farmer. It is in this area where the Government could intervene to help the farmers by making funds available to them who either form associations or cooperatives, or to Union Councils so that these institutions could use the funds for the purchase of the necessary machinery for custom hiring to the farmers. It can also be done through the machinery organisations of the Provincial Agriculture Departments or encouraging the agro-business enterprises by providing them some concessions to take up such activities. It may be pointed out that the experience gained in providing funds by the Government for the purchase of sprayers to the farmers at subsidized rates to check the infestation of pests and diseases as in the case of cotton and rice, has been found to be very rewarding.

Equally important is the fact of earthing up the plants so that these could stand against lodging, which when happens due to strong winds especially after the field is irrigated, decreases the yields considerably. Control of weeds by the use of weedicides would be another factor which can help raise the yield. As weedicides are costly and their use has to be propagated amongst the farmers, the Government should consider the possibility of extending subsidy in the initial years for their use.

The efficiency of the use of fertilizers is reported to be declining. This is happening partly because of the hard pan which has developed in the sub-soil, as discussed above, partly because the use of balanced fertilizers is lacking, and partly because the sodicity and salinity in the soils is on the increase due to the use of saline tubewell water and even canal water. Also due to intensive cultivation overtime, the soils are getting depleted in elements in which these were rich enough earlier to support the cultivation of the crops. A balanced combination of nitrogenous, phosphatic and potassic fertilizers and their application at the appropriate time, as advised by the Agriculture Extension Staff, would help raise the land poductivity. The Government should consider the possibility of extending the scheme for supplying gypsum to the farmers at subsidized rates throughout the country as this would give high dividends in terms of yield increases. (b) Stepping up of sugar production by encouraging the cultivation of varieties having high sucrose content: Even if the area under sugarcane is not increased, but is sown with varieties having higher sucrose content, the production of sugar per acre can be stepped up without even increasing the quantitative production of cane.

Until the early 1980's, the Government fixed the price of sugarcane on a maund basis. It was paid by the sugar mills on the quantities of cane delivered to them by the farmers, and no distinction to them made between the sugarcane delivered having different sucrose content. Thus there was no incentive for the farmers to plant sugarcane of better quality and instead they preffered to grow varieties which could give higher maudage per unit of land. This practice, however, was and even is today, that the sugar mills kept a record of cane delivered by the growers during the crushing season and the mill, at the end of the season, declared the recovery obtained by it. Somewhere in mid 1970's. the Government while fixing the prices of sugarcane looked at the average recovery realised by the three sugarcane producing provinces viz. the Punjab, Sindh and the NWFP. The recoveries differed from one province to the other. It was considered to be 8.3 per cent in the NWFP, 8.5 per cent in the Punjab and 8.7 per cent in Sindh. The Government, therefore, fixed different prices fo the three provinces; the idea, a sound one, behind this being that higher the recovery attained in a province, higher the price be fixed for the cane for that province. The price per maund of sugarcane in the Punjab was less Paisas 15 than fixed for Sindh and Paisas 25 more than that fixed for the NWFP. These differentials in prices have been maintained during all these years to one or the other reason.

With the establishment in 1981, the Agricultural Prices Commission promoted the idea that the price of cane should be paid to the growers according to its quality measured in terms of sucrose content. As there were no arrangements to analyse the sample of each farmer's cane, the Government decided that on the basis of the average attained by a mill during a crushing season, each farmer who delivered cane to that mill should pay back to the farmers according to a given formula if the recovery of that mill exceeded the base recoveries mentioned above for the provinces. It was accordingly decided in 1981-82 that for an excess of 0.1 percent recovery over the base recovery, Paisas 3.5 should be paid back for every maund of cane delivered by a farmer to the mill.

Gradually, this rate of re-imbursement has been, over the years, raised to Paisas 18 per maund of cane for every 0.1 per cent point excess recovery obtained by a sugar

This policy though benefited the growers located in the mill-zone areas but was that conducive of individual farmers to cultivate sugarcane having high sucrose content for individual farmers to cultivate sugarcane having high sucrose content as he was not paid according to the quality of cane he delivered but on the basis of the average recoveries of sugarcane delivered by all the farmers to the mill. After considering various approaches viz. Java Ratio and Commercial Cane Sugar (CCS) formulae to pay the price of sugarcane delivered to the mills by the farmers, the Government, on the alternative recommendation of the Agricultural Price Commission, decided that "Core-Samplers" be installed, one in each public mill in each province, as pilot projects. By this method, the samples of about 300-350 individual cane sellers to the sugar mill at its gate could be analysed to form the basis to pay the price according to its quality i.e. recoverable sugar. The Government also decided that each new sugar mill that is established must install a Core-Sampler. The first such Core-Sampler in the public sector mill was installed at Thatta sugar mills. In accordance with the results of the Core-Sample the mill was expected to pay substantially higher prices to the sellers than the Government fixed prices. The mill however, visualised that it would not be able to earn as much profits as were obtained prior to the "core-sample" approach was adopted. The mill therefore, did not on one pretext or the other find it possible to fulfil its obligation to pay the prices to the individual farmers according to the quality of their cane. The project for installing a similar "core-sampler" att Kamalia, a Punjab public sector mill, was also approved to be financed by the Federal Government but has not so far been implemented. A similar project for Khazana sugar mill in the public sector of the NWFP was also initiated but mad no progress.

In ordre to encourage the cultivation of varieties with high sucrose content, the farmers have to be encouraged to do so by paying premium for the better quality of their cane. This can be done only if all the sugar-mills install core-samplers for which purpose the Government can force them to do so by legal provision. It is, therefore, imperative that the Sugar Act, which is presently under revision, should provide legal coverage for the purpose. ii) Improving efficiency of the mills to obtain high recovery: If th efficiency of crushing by the sugar mills and their processing operations for sugar manufacture improves, the amount of sugar produced with the same quantity of sugarcane crushed would increase. Suppose that the recovery goes up by 1.0 per cent in the manufacturing of sugar by the mills, the additional quantity of sugar thus obtained during the 1988-89 crushing season would have been around 200 thousand tonnes from about 22 million tonnes of cane crushed in the year. It is disturbing, however, to note that the overall recovery of sugarcane in the country, instead of improving overtime, has been on the decline and so is the case with the two main sugar producing provinces viz. Sindh and the Punjab as is evident from the following. There could be a variety of factors responsible for this downward trend. One could be that as the Government introduced the policy of paying quality premium to the farmers i.e. if the recovery of a mill obtained is in excess of the base recovery set for the province, the mills should reimburse to the farmers at a given rate as prescribed by the Government from time to time. Therefore, the tendency of the mills could have been to register lower recoveries to avoid quality based premium payments to the farmers. It may be pointed out that the quality premium has been increased gradually since 1982 and stands at Paisas 19 for every 40 kgs. of cane delivered to the mill if the recovery of that mill exceeds by 0.1 per cent over the base recovery fixed by the Government for the province. Another reason which at times, is put forward by the farming community is because the mills have to pay excise duty of the order of Rs. 2,150 per tonne of sugar manufactured by them, the mills tend to show lower production which can be done by recording lower recovery.

Notwithstanding the above, the urgent need is that not only the declining trend should be arrested but it should also be reversed. There is need to investigate the precise reasons for this trend to mend the situation. One of the solutions which the Government may consider is the possibility of exempting the excise duty in varying degrees if a mill shows recovery above the base level by a certain percentage points provided the total sugar produced by that mills is not below the previous record or any agreed level of production of that mill. At one stage, such an idea was by the Agricultural Prices Commission but further action needs to be pursued.

The efficieincy in sugar production can also be improved if the time lag between the harvesting and crushing of sugarcane is minimised. This time lag is due to a number of factors. These are: (a) the farmers who take their cane to the mills have to wait for a long time, primarily because the crushing capacity of the mills is less than the supplies: (b) the mills issue indents for larger quantities of cane for a day than its crushing capacity or it could also be that the farmers bring more cane to the mills than the indents would permit; (c) sometimes farmers also bring cane without indents which is also a capacity related problem; and (d) farmers sell sugarcane to the purchase centres (as is the case in the Punjab) from where it is transported to the mills. All the above factors contribute to the delay which adversely affects the recovery. It may well be that some of the mills are out-dated and needs balancing, modernisation and replacement. This factor also affects adversely the processing efficiency and the sugar recovery. (iii) Setting up more sugar mills and or expanding the existing ones: In Sindh, out of the total sugarcane production, almost all except the quantities required to be retained for seed purposes, is crushed by the mills for sugar production. The profitability of the cultivation of sugarcane in that region due to climate and other factor has been such that the area has been expanding at a much faster rate than of any other crop and in other province. For example, during the last decade, the area under sugarcane in Sindh increased at the rate of almost 6 per cent a year, whereas the increase in the NWFP was only 0.5 per cent a year while in the Punjab it declined at the average rate of 1.8 per cent a year. Two questions arise under this situation. One: is the present capacity of the mills inadequate to crush the quantities of sugarcane produced? Apparently, it seems that this is not the case as the case it is felt that the crushing season has been generally extended beyond 160 days (which is generally believed to be the near-ideal crushing period) which not only reduces the recovery but also leads to mis-allocation of resources then there is some justification for expanding the present crushing capacity. Two: should the Government allow to further increase the area under sugarcane if it is at the cost of the competing crops viz. cotton and rice and even wheat and oilseed? As mentioned earlier, the water requirements of sugarcane are much higher than the competing crops and excess input of water in the soil will aggravate waterlogging and of salinity and would thus degrade the productivity of land. Also, the domestic resource-cost for producing sugarcane, as pointed out earlier, is higher and returns per acre of water used for sugarcane are lower as compared to other crops. Moreover, with the expansion of sugarcane cultivation, mono-crop system is developing in this province which has its own hazards and therefore should be avoided. Despite these factors, if it is still decided to encourage the cultivation of sugarcane on consideration (mainly political) other than technical, than that is a separate issue.

The case in the Punjab is different. It is only during the last few years that about 40 per cent of the cane produced has been crushed by the sugar mills. Assuming that about 15 per cent is retained for planting the following year's crop and for chewing or fodder purposes, the balance 45 per cent is crushed by the farmers themselves for making gur, shakkar or khandsari. As making these sweeteners is prone to some wastages as compared to mill sugar, there is justification for setting more sugar mill in this province.

In the NWFP, the position is similar to the Punjab. Depending on the relative profitability of converting sugarcane into gur and selling it to the mills, the percentage of sugarcane crushed to the total production has, however, varied from year to year. Over the few previous years, the trend of the farmers has been to sell more and more sugarcane to the mills. For example, it was as low as 7 per cent in 1979-80 but went as high as 39 per cent in 1987-88, however, during the last two years it has been around 34 per cent. In this province, although the sugarcane growers prefer to make gur for which there is a traditional market because of the local consumption pattern, the available quantities of sugarcane do indicate that there is a scope for setting up additional sugar mills in the NWFP.

At one stage, the Agricultural Prices Commission, had suggested that while deciding about the location of mills, the following criteria should be used: (i) areas that are lying outside the cotton belt and have adequate canal water supplies needed for the crop; (ii) sugarcane producing areas where productivity of land is quite high due to climatic and soil conditions but where either the production of sugarcane exceeds the capacity of the existing sugar mills or no mill at all exists; (iii) areas where water table is relatively high and does not permit the cultivation of crops like cotton and which therefore could be used for sugarcane; and (iv) with the above three conditions fulfilled, those areas should preference where poverty is prevalent. (iv) Improving the efficiency of cane-crushers and gur-making process: As mentioned earlier, about 45 per cent of the total sugarcane produced in the Punjab and about 50 per cent in the NWFP is used by the farmer themselves for gur and shakkar making. The crushing technology for juice extraction and processing it into gur has good potential for improvement. The Pakistan Council of Scientific and Industrial Research has improved the efficiency of the conventional cane crushers with the result that about 10-15 per cent more juice can be extracted. Such crushers suit the farmers conditions and can be manufactured locally with practically little increase in the cost. Similarly, improvements have been made in the furnaces for boiling the juice which enable better recovery of gur. Little attention to the improvement in the past has been given to these two areas which affects gur making industry. With proper encouragement by the Government to the crushing of sugarcane and processing for manufacturing of gur and shakkar, the availability of domestic sweeteners production can be increased substantially. This would reduce pressure on the import of sugar.

In Summary, sugarcane crop plays an important role in the country's economy and sugar is a politically strategic commodity. However, the annual production of sugurcane during the last decade in Pakistan has been outstripped by the growth in population. The per capita availability of sweeteners from domestic production, therefore, has declined. The continuance dependence on imports can have political connotations.

With the setting up of additional sugar mills, which now number 45, the annual sugar production has increased to around 1.9 million tonnes partly at the cost of other sweeteners viz. gur, shakkar and khandsari. With the derationing of sugar in August 1985 the effective demand of sugar has since rapidly increased necessitating sugar imports. Rapid increase in population particularly in the urban areas and the high elasticity of demand because of rising incomes, the demand would further increase.

There is, therefore, need to step up the production of sugar and other sweeteners to meet the growing requirements of the country if imports are to be minimised and eventually eliminated. This increase can come by producing more sugarcane having higher sucrose content and by improving the efficiency of the sugar mills and local cane-crushers and improving the gur processing techniques. The inadequately explored possibility of locally producing artificial sweeteners also deserves serious consideration. The use of Sodium Cyclamate, which is 30 times sweeter and has a tremendous scope for use in industries and direct consumption by weight conscious population is on the increase.

Because sugarcane competes for land and water with important crops (cotton, rice, wheat, oilseeds), policy measures should be such which should help increase the productivity of land rather than expansion in areas which would take place at the cost of competing crops, more analytical work is needed to see whether the additions area and water (as both these are scarce resources) that go to sugarcane would help save more foreign exchange as compared to the foreign exchange earning which their allocation to alternative crops would fetch.

The yield per unit of land can be increased significantly even with the existing varieties through better seed-bed preparation with deep ploughs and rotavators. As these are beyond the purchasing power of mostfarmers, the Government should make funds available either to machinery organisations of the Provincial Agriculture Departments, local agricultural associations or cooperatives of agro-business entrepreneurs who should rent out these machines to the farmers. Past experience of the Government help has proved a success when the funds were made available to the farmer for the purchase of sprayer to control cotton and rice pests. Weedicides should be promoted through subsidy for a few years as these are costly and cannot be purchased by most of the farmers. Earthing of the crop against lodging is essential to save it from yield fall. The balanced and timely use of different fertilizers and irrigation, has to be advocated. The use of gypsum against sodic soils needs to be propagated as it enhances the the productivity of the land. To accomplish these goals of informed farming, it is basic that the extension staff is made more active and thus more effective.

The production of sugar can be increased without area expansion. This can be done if high sucrose content varieties are promoted by paying the price of farmer's cane on the basis of quality. For this purpose, `core-samplers' should be installed in the new mills being set up as already decided by the Government, and later on by all the already existing mills too. For this purpose, Sugar Control Act would need to be amended accordingly. The efficiency of the existing sugar mills can be improved by modernisation and replacement of the old mills. The efficiency of cane-crushers and gur making process needs to be enhanced through improved cane crushers and boiling furnaces.
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Title Annotation:Pakistan's sugar industry
Author:Niaz, Shafi
Publication:Economic Review
Date:Nov 1, 1990
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