Pakistan's Sugar Economy: A facts based presentation Presented by: Pakistan Sugar Mills Association
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Pakistan’s Sugar Economy:
A facts based presentation
Presented by:
Pakistan Sugar Mills Association
2nd March, 2020
Sugar Cane – A high value cash crop
Average value of sugar cane crop
grown in Pakistan
PKR 300+ Billion
5%: Sugarcane area versus total cultivated land of Pakistan
Mn Ha Sugar Cane Plantation Area, Value of Crop Pkr Bn Area Under Cultivation
1.60 400
10%
1.40 350
1.20 300
1.00 250 25%
0.80 200
0.60 150 65%
0.40 100
0.20 50
- -
2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19
Punjab Sindh KPK
Area Value of Crop RHS
Source: PSMA, Economic surveys of PakistanPakistan Sugar Industry Highlights
Directly Employed: Direct and indirect taxes
100k+ Pkr50-60bn per year*
Indirectly
Dependent:
1+ Million
House holds
Average
Crushing
Capacity
7,300
TCD**
Source: PSMA, * estimated based on sugar production of 5.4mn tons for 2019 ,**based on 82 functional Sugar MillsPakistan sugar in global perspective
TOP 10 Sugar Producers 2018 TOP 10 Sugar Consumers 2018
(million metric tons) (million metric tons)
Australia Egypt, Arab Rep.
Mexico Mexico Ranked 8th in the
Russian Fed. Ranked 7th
in the Pakistan
World
Pakistan World Russian Fed.
USA Indonesia
China USA
Thailand Brazil
EU-28 China
Brazil EU-28
India India
0 5 10 15 20 25 30 35 40 0 5 10 15 20 25
TOP 10 Net-Exporters 2018 World Per Capita Consumption of
(million metric tons)
Sugar 2018
Ukraine 0.6 60
Consumption (kgs)
Colombia 0.6 50
India 0.9 Ranked 7th in the 40
Pakistan 1.2
Mexico 1.6
World 30
EU-28 20
1.6
Guatemala 1.6 10
Australia 3.1 0
Thailand 11.0
Brazil 21.3
- 5.0 10.0 15.0 20.0 25.0 30.0
Source: ISO Sugar Year Book 2019, Tables are on a calendar year basisThe journey to self-sufficiency
Domestic Sugar Production & Consumption
8
7 From 2010-11,
Pakistan is
6
consistently
5
producing surplus
Million Metric Tons
sugar
4
The export of this
3 surplus sugar
earned the country
2
roughly $2.3
1
billion in these 9
years by exporting
0 six million tons of
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
2015-16
2016-17
2017-18
2018-19
sugar to the world
Production Consumption
Source: PSMA, Economic Surveys of PakistanProgress but not at the cost of other crops
Area Under Important Crops (000 Ha)
From 2012-13 to 2018-19: Rice +501K, Cotton
-561K, Maize +258K, Sugarcane -27K
3500
Rice
3000 +585K
2500 Cotton
-421K
Area (Ha)
2000
Maize
1500
+383K
1000
Sugarcane
500 +2K
0
Cotton Sugarcane Rice Maize
Sugarcane has not contributed towards reduction in planted area of any other important crop of
Pakistan
Source: Economic Surveys of Pakistan 2018-19, (P) ProvisionalSugar cane compares well with other crops on water
Sugar Industry is net generator of water
Monthly Water Consumption By Crops
Paddy 325mm
Cotton 150mm
Soybean 150mm For every tonne
of cane crushed,
Sugar Cane 150mm 700Lts of water
is generated
Jowar 100mm
Water Required Per Kg of Output 500Lts is used in
factory sugar
Cotton 10,000Lts processing
Groundnut 3,100Lts
Rice 2,500-3,400Lts Remaining
200Lts is given
Sugar 1,500-2,000Lts back for
irrigation, after
due treatment
Total carbon and water footprint of sugarcane up to point of consumption
is much less than other crops that require further processing
Source: The Guardian , ISMA (Indian Sugar Mills Association, Paper titled “Sugar Industry is water efficient”Third largest export sector of Pakistan in 2017-18 & 2018-19
Export Revenues from Sugar and Ethanol only lagged behind Textiles and Rice in FY2017-18 and FY2018-19
Sugar Price – USD cents/kg
USD mn Ethanol Price – USD cents/Liter
1,000 90
895mn
900 80
800
70
700 387 629mn
619mn 601mn 60
600
576mn
90 50
500
441mn
313 254 40
406
400 352mn
30
300 280
529 508
188mn 220 20
200
287 322
100 159 223 10
132 161
- 28 -
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19
Sugar Ethanol Ethanol Avg Price RHS Sugar Avg Price RHS
Source: PSMA, SBPDepreciation of rupee has increased export potential of sugar
With a stronger rupee, Pakistan sugar was
Monthly International White Sugar Prices (US$/Ton) able to compete in global market only 60%
2006-2020 of the time. However, now we expect that it
will be competitive 90% of the time, if cane
850
prices are not increased
800
750 At cane price of Rs.190:
700 • Above US$375 (70% of evaluated
650 period), Pakistan is competitive in the
600 world market and the industry can
export in excess of 1.5 Million tons per
550
year if in surplus
500 Current
International
450 Price $396.6* • With international market between US$
400 Current cost $375 325-375 (22% of evaluated period),
350 Pakistan sugar is only competitive in
300
Afghanistan, due to freight advantages,
and China due to preferential tariffs. The
250
quantity expected is around half a
200 million tons and realized ex-mill price
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
around $375-$425
International Sugar Prices (US$/Ton)
• Below $325, it is not viable for Pakistan
Source: investing.com (London #5), *as of February 28, 2020 sugar mills to export to any marketRevolution in 8 years
Sugar Production in Pakistan • Most of the production growth has come
from increased sugar production per
hectare and only moderately from increase
2009-10 2016-17 Increase in area
Sugarcane Area 942,870 1,225,000 30% • Economics of the industry has improved
(Hectares) significantly due to:
Total Sugar
Production 3.14 7.05 125% − Sugar yield
(MMT)
− Ethanol (through molasses price)
Sugar Yield 3.33 5.79 74%
(Tons/Hectare) − Power cogeneration (through
Functional Sugar 80 82 3% bagasse price)
Mills
Avg. Sugar − Scale (Production of sugar per mill)
Production per 39,250 85,975 119% Capacity utilization has dramatically increased as
mill (Tons) increased cane supply has resulted in longer seasons
Source: Economic Survey of Pakistan, PSMAPotential for becoming a major sugar exporter
• Productivity is still low as compared to major
Pakistan’s Sugar Yields (2008-2019) sugar exporting countries but Pakistan’s
14 sugar industry has been on the right path
Australia’s Yield: 12.35 T/Ha X and there is still a lot of room to keep
12 improving if the economics remains positive
10
Brazil’s Yield: 9-10 T/Ha X Projected • Current export potential of sugar and
Trendline
ethanol is US$ 1 billion
Yield (Tons/Ha)
8
6
Potential in 5 Years:
4 Current
5.79 T/Ha Trendline Without any increase in historical acreage and
2 inputs usage, improving yields to 8 Tons/Ha,
3.05 T/Ha Pakistan can potentially raise sugar production
0 to 9mln tons, and if 2000MW of electricity
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
2015-16
2016-17
2017-18
2018-19
2019-20
2020-21
2021-22
2022-23
2023-24
export can be achieved, sugar industry can have
Year
a combined annual balance of trade impact of
US$ 3 billion
Tons of sugar per harvested hectare
• Including US$ 2 billion in direct exports
Source: PSMA, ASMCLocal sugar prices still lower than 9 years ago
Retail price trend of essential commodities in Pakistan
170
160
Net sugar price is
150 still below its retail
Percentage of Price Increase
140
price which was
prevalent 8-10 years
130
ago. In the
120 meanwhile,
110 sugarcane support
price has been more
100
than doubled by the
90 provincial
80 governments
70
2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19
Wheat Flour Veg. Ghee Sugar Fresh Milk Basmati Rice
Source: Economic Survey of Pakistan100
0
10
20
30
40
50
60
70
80
90
Rs/kg
Jan-10
May-10
Sep-10
Jan-11
May-11
Sep-11
Source: Pakistan Bureau of Statistics
Jan-12
May-12
Sep-12
Jan-13
May-13
Sep-13
Jan-14
May-14
Sep-14
Jan-15
May-15
Sep-15
Jan-16
May-16
Monthly sugar retail prices/kg
Sep-16
Jan-17
May-17
Sep-17
Jan-18
May-18
Sep-18
Jan-19
May-19
Sep-19
Jan-20
Sugar retail price 10 years range between Rs50/kg to Rs90/kg
0
10
20
30
40
50
60
70
80
90
100
Rs/kgSugar has been losing its importance in consumer budgets
wheat flour and gur retail prices/kg as a % of sugar retail prices/kg
180%
160%
140%
120%
100%
80%
60%
40%
20%
0%
Wheat Flour Gur (Sup. Qlty)
Source: Economic Survey of PakistanWeak Linkage between Cane and Sugar Prices
Over the years, ratio of sugar retail price as compared to cane minimum price has decreased considerably
From 2003-04 till 2011-12, sugar retail prices were 52% of cane minimum price on average
This ratio fell to between 30-35% in the surplus years
200 70%
63%
175 57% 57% 58% 60%
51%
150 48%
47% 50%
45%
125 40%
Retail prices are usually Rs.5 to 8 35% 36% 40%
100 more than ex-factory rates 31% 32% 32% 32%
30%
30%
75
20%
50
25 10%
0 0%
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19
Cane Min. Price (CMP)/40kg Sugar Avg. Retail Price/kg Retail Price % Of CMP (RHS)
Source: PSMA, Economic survey of Pakistan 2018-19 provisional dataIndustry Outlook – Balanced
Sugar in Pakistan • The return to a more balanced
(Million Metric Tons) situation in terms of demand and
supply is creating a viable
situation for farmers and industry
2016-17 2017-18 2018-19 2019-20
• 2019-20 production is expected to
Production 7.05 6.6 5.2 4.9* be lower by about 10% but
expected to rebound in 2020-21
Consumption 5.10 5.2 5.2 5.2* due to high cane prices prevailing
Export 0.50 1.95 0.8 0.0* • In a challenged economy, PSMA
expects demand for sugar to be
Carryover flat to negative
(at start of new
season) 1.66 1.3 0.5 0.2*
• If the government takes a prudent
view of the situation, Pakistan
Source: PSMA, *Estimates can return to being a regular
exporter of sugarCost of production of Sugar for 2019-20 season
Major Assumptions Unit Values
Installed capacity TCD 8,000
Capacity utilized %age 80%
Crushing days Days 100
Sugarcane price Rs./40 kg 190
Sucrose recovery %age 10.00%
Molasses recovery %age 4.25%
Molasses price Rs/ton 12,000
Cost Summary including net profit
margin Rs/Kg %age
Cost of sugarcane 48.48 58.0% 75%-80% of sugar
Overheads
Cost Summary net of allnetby-products
including profit margin 12.90%age15.4% production costs are
SalesCost of sugarcane
tax, income tax & withholding
Overheads net of all by-products
48.48
12.90
58.0%
15.4% determined directly by the
taxesSales tax, income tax & withholding taxes 15.20
15.20 18.2%
18.2%
WPPF & WWF 0.57 0.7% federal and provincial
WPPF & WWF
Net profit margin 0.57
6.44 7.7% 0.7%
83.59 100% governments
Net profit margin 6.44 7.7%
83.59 100%
Source: PSMACost of production of Sugar for 2019-20 season
Major Assumptions Unit Values Major Assumptions Unit Values
Installed capacity TCD 8,000 Installed capacity TCD 8,000
Capacity utilized %age 80% Capacity utilized %age 80%
Crushing days Days 100 Crushing days Days 90
Sugarcane price Rs./40 kg 190 Sugarcane price* Rs./40 kg 230
*Expected cost of
Sucrose recovery %age 10.00% Sucrose recovery %age 9.50% sugarcane for
Molasses recovery %age 4.25% Molasses recovery %age 4.25% season 2019-20
Molasses price Rs/ton 12,000 Molasses price Rs/ton 15,000
Cost Summary including net profit Cost Summary including net profit
margin Rs/Kg %age margin Rs/Kg %age
Cost of sugarcane 48.48 58.0% Cost of sugarcane 61.55 61.7%
Overheads
Cost Summary net of allnetby-products
including profit margin 12.90%age15.4% Overheads net of all by-products 13.91 13.9%
SalesCost of sugarcane
tax, income tax & withholding
Overheads net of all by-products
48.48
12.90
58.0%
15.4%
Sales tax, income tax & withholding
taxesSales tax, income tax & withholding taxes 15.20
15.20 18.2%
18.2% taxes 17.61 17.6%
WPPF & WWF 0.57 0.7%
WPPF & WWF
Net profit margin 0.57
6.44 7.7% 0.7% WPPF & WWF 0.54 0.5%
83.59 100%
Net profit margin 6.44 7.7% Net profit margin 6.20 6.2%
83.59 100% 99.81 100%
Source: PSMADespite highest % GST, Pakistan has lowest retail sugar price in the
region
Retail Sugar Prices/kg in different Countries as on Feb 07, 2020* GST on Sugar
Philipines 161 Pakistan 17%
Sri Lanka 15%
Indonesia 142
Bangladesh 15%
China 131
China 13%
Philipine 12%
Bangladesh 119 Indonesia 10%
Thailand 7%
Thailand 113
India 5%
India 87 By maintaining average correlation between cane Sugar Retail Prices are Converted into Pkr/kg
minimum price and sugar retail price i.e. 52%, from
2003-04 till 2011-12, Retail Sugar Prices in Pakistan *Currency Exchange rates as on Feb 07, 2020
Sri Lanka 86
should be 94Rs/kg that make us stand between Country Currency Pkr Equivalent
Philipine 1 Peso 3.05
India and Thailand Indonesia (April 4'19) 1 IDR 0.01
Pakistan 83 China 1 CNY 22.10
Sri Lanka 1 LKR 0.85
India 1 INR 2.16
Thailand (Dec 12'19) 1 BHT 5.14
- 50 100 150 200
Bangladesh (Jan 4'20) 1 BDT 1.83
Source: Business Recorder, SBP, sunsirs.com, chinimandi.com, USDA, cbsl.gov, dhakatribune.com, sra.gov.ph, globalprice.info, avalara.com, psa.gov.phMarket disruptions by the Federal and Provincial Governments
• Despite increasing prices but balanced to surplus supply, sugar sales have been slow since June 2019 given
the push by the Government to increase regulatory oversight of the economy:
I. CNIC Condition: The Government now requires sugar mills to obtain CNIC numbers of buyers.
Approximately 72% of sugar sales in the domestic market are made to unregistered parties i.e.
small traders, non-regulated segment of the economy who are not willing to provide their
identification (CNICs)
II. Axle Load Restrictions: The NHA has reduced Axle Load approximately by 50% which has
resulted in increased costs of transportation
III. Administrative actions by provincial governments: Since June 2018, Punjab Government
has consistently notified a sugar retail price which was Rs.5-10 below the market and used it as an
excuse to harass and arrest shopkeepers and wholesalers of sugar. Other provinces are starting to
follow suit.
• Traders / investors / retailers have started to step back in large numbers from doing sugar business at a
time when sugar mills must sell sugar to pay to growers
• These administrative actions have contributed to a slowdown in sugar sales and also a reduction in the
amount of sugar in the pipeline. It is critical that Federal and Provincial Governments should take a
realistic view of market realities to ensure ample supply of sugar to the massesSuggested Way Forward – Near Term
1. Sales Tax
The imposition of sales tax at 17% on sugar is an extremely harsh act in a country where sugar is considered an essential
and sensitive food item. This is the highest rate ever imposed in the history of Pakistan.
PSMA requests that sales tax on sugar be brought down to zero in line with other essential food items such as
wheat flour, milk, vegetables and fruits. This will give relief of over Rs.11/Kg on price of sugar to the masses.
2. Mark up rates on financing for sugar mills
The industry crushes sugarcane for 3-4 months but has to hold and sell the sugar over 12 months. When coupled with
requirement of provincial governments to pay the farmers within 15 days of crushing cane, it can only be achieved by
heavy borrowing from the banks through pledge of sugar. Increased mark up rates have added roughly Rs.3 to Rs.4/Kg in
cost of sugar.
PSMA requests that being an agricultural industry, cost of long term borrowing should be set by the state bank
in line with LTFF on long term financing and for working capital it should be equal to export refinance.
3. Government should maintain strategic reserves of sugar
There is a natural cycle in agriculture where price changes lead to amplified production changes, exacerbating the
situation. Theory, logic and practice, all recommend that the government help reduce the volatility in essential food item
prices by keeping strategic reserves.
PSMA recommends that the Federal and Provincial Governments together hold about half a million tons of
sugar as strategic reserve. This previous practice was very valuable for price stabilization when Pakistan did
not have sufficient production in its history.Suggested Way Forward – Near Term
4. Cost of production model should be agreed between PSMA and Government
There are many misunderstandings at the Federal and Provincial Governments with respect to sugar production and its
costs. These misunderstandings have very detrimental impact when sugar retail prices or minimum cane support prices
are being determined at the Federal or Provincial levels.
PSMA requests that the effort initiated by the Sugar Advisory Board to determine a cost production model for
the Pakistani Sugar Industry be completed as soon as possible.Policy changes needed in the medium-term
Ministry of National Food Security/Ministry of Industries/Provinces
1. Rethinking archaic provincial rules and regulations regarding sugar industry:
The Sugar Cane Act (nearly 70 years old) as implemented in all the provinces is archaic and a complete misfit for the
needs of the time. Provincial Governments over time have stopped following the majority of provisions themselves and
often arbitrarily pick and choose from the Act as well as associated rules and procedures that have been amended
countless times. Often times businesses and farmers are not even clear on what applies to them and what doesn’t.
There is also an extremely important commercial aspect to this issue as a Minimum Cane Support Price based on the Act
is still being announced and enforced by the provincial governments without the necessary commercial aspects
(including price of sugar) addressed for the sugar industry.
Work needs to be urgently started on simplifying and modernizing the provincial rules and regulations
regarding the sugar industry by building consensus on deregulation with the provinces at the Federal levelPolicy changes needed in the medium term
Ministry of Power
1. Consistent Power Purchase Policy for Sugar Mills:
Currently only about 10 mills are selling about 200 MW to the national grid with pending agreements in the doldrums
for another 384 MW.
Benefits of Bagasse outweigh almost every other fuel possible for power generation as it is not only indigenous and
renewable fuel just like wind and solar but also additionally base load (available consistently), agriculture based (while
not taking away any area from a food crop) and well distributed across major load areas.
Bagasse should be made an essential part of the future energy policies of the country particularly the
upcoming Renewable and Alternative Energy Policy.
Furthermore, as surplus generation capacity exists in some sugar mills, CPP (Cogeneration Power Policy) at
appropriate tariffs should be continued for the benefit of the country
Given the right incentives, within 2-3 years sugar industry could cross 2000 MW in installed capacity. The benefits to the
economy of Pakistan, particularly the agriculture sector are innumerable. Particularly if the majority of the industry can
avail of this revenue stream, it will have a noticeable effect on reducing the price of sugar.Thank You
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