As is true in many countries, the Government of Pakistan is heavily involved in the sugar industry, regulating mill construction, trade and prices, and influencing farmers' crop decisions in various ways. One reason for the large government involvement with sugar is the political importance of the crop. Sugar is also the second most important cash crop in Pakistan after cotton. Self-sufficiency in sugar is a goal, but one that to date has proven illusive. The major sugar crop is sugarcane, but there is a small sugarbeet industry in the cooler high elevations of the Northwest Frontier Province.

PRODUCTION

Pakistan grows about 1 million hectares of sugarcane, more than all other cane producing countries except Brazil, China, Cuba, India and Thailand. Cane is also used for non-centrifugal sugars and seed, so that the amount of land harvested for centrifugal sugar each year is only about two-thirds of the total.

The Punjab Province accounts for 60 to 65 percent or about 650 000 ha of the area under sugarcane. Rice, cotton, and sunflowers are major competitors for land use among farmers in that province. Other producing areas include the Sind Province which accounts for 25 to 30 percent of sugarcane land, the Northwest Frontier Province (NWFP) about 10 percent, and Baluchistan which accounts for less than 1 percent. In Sind Province, cotton, wheat, rice, and sunflower are alternative crops, and the growing of bananas is becoming more popular. Due to higher yields, the share of Sind Province in total sugar production is about 40 percent.

The harvesting period follows the pattern of many other northern hemisphere crops, beginning in November/December and ending in April/May. Planting can be done in autumn or spring, with autumn planting (September-October) providing better results due to a longer growing season. Punjab and NWFP mostly plant in spring, and harvest 8 to 10 months later. In the Sind Province most planting is in autumn, allowing growth for up to 16 months. Harvesting begins in October in Sind, November in Punjab and the NWFP, and continues until April or May.

Pakistan's sugarcane yield averages about 46 tonnes per hectare, well below the world average of above 60 tonnes, and below neighboring India's yield of 65 to 70 tonnes. However, yields are increasing over time, at a rate of between 0.5 and 1.0 tonne per hectare annually. Yields in the Punjab, were relatively constant at 37 tonnes per hectare for about 10 years and only recently started rising to over 45 tonnes per hectare. However, individual farmers have obtained yields of 120 tonnes per ha. Precipitation averages only 335 ml a year in the Punjab, so irrigation is crucial, but the total supply of water is limited. Yields in the Sind Province are above 50 tonnes per hectare, significantly higher than in Punjab. The growth rate in sugarcane production in Sind has exceeded Punjab in recent years. However, because of its larger area under sugarcane, the Punjab produces the major share of the national output, and for 1997/98 output in this province is forecast to increase by 10 percent to 29 million tonnes, while Sind is expected to produce 13 million tonnes, unchanged from 1996/97.

Sugar production first rose above 1 million tonnes in 1982. In 1989, output reached 2 million tonnes, and 3 million tonnes in 1994 and 1995 (Table 1). However, production fell to 2.7 million tonnes in 1996 due to a combination of bad weather, lower acreage, and diversion of cane to non-centrifugal sugar production, mostly gur. Production for 1997 is projected at about 3 million tonnes, as farmers respond to the higher prices received the previous year.

PROCESSING

The Pakistan milling sector has grown from 2 mills after World War II to the current 75. Milling capacity is 5 million tonnes of sugar, but the sector is operating at only about 60 percent. Difficulty in acquiring sufficient cane due to competition with non-centrifugal sugar producers (such as gur) is the major factor contributing to the underutilization. Given the sometimes overriding efforts of mills to acquire cane, security of supply for any one mill is low. The other associated problem is the low extraction rate mostly due to deterioration in cane quality. In seeking the highest price for their crops, some farmers are willing to engage middlemen who market their cane to the highest bidder. In certain cases, sugarcane is transported several hundred kilometers, and can be as much as several weeks old by the time it is milled. The poor condition of some roads, and vehicles, adds to this problem.

The issuing of licenses to build new mills is not done according to a set of specific criteria. Mill owners can sometimes get soft government loans to build new mills, and within each province mill ownership is relatively concentrated. With the current over-capacity, many mills are reported to be in financial difficulty, and in recent years some have ceased operating.

There is a waiver of the domestic excise tax for any sugar produced above the average of the previous 2-year period. However, the waiver only applies if the mill grinds continuously for at least 160 days. Mills react to this policy by starting early, running late, or running only part of each day to meet the criteria.

CONSUMPTION

Sugar consumption in Pakistan is growing with the expanding population, and in 1997 is expected to increase to 3.24 million tonnes. In the last 10 years consumption grew at an average of 110 000 tonnes yearly, or over 4 percent a year. In the previous decade (1977-87), consumption had grown much faster at over 10 percent a year when population growth was above 3 percent. In the last decade the population growth rate has declined to 2.3 percent. Per caput sugar consumption continues to rise, but its growth rate has also slowed down from earlier decades, and from 1987 to 1997 it increased only about 1 percent a year.

Per caput sugar consumption in Pakistan, at about 22 kilograms a year, is slightly above the world average and compares to India's per caput use of 15 kilograms. If the consumption of non-centrifugal sugars were added, apparent consumption would be much higher. In 1996/97 it was estimated that 32 percent of the sugarcane crop was diverted for the production of an estimated 1.4 million tonnes of gur. The consumption of gur is difficult to track since there is a large amount of unrecorded trade along the borders of Afghanistan and the Islamic Republic of Iran, where there is a preference for gur. There was a ban on gur before 1987, but now it is freely traded.

There is not much use of other sweeteners in Pakistan. There is a negative public image of saccharin, and many soft drink companies do not sell diet products. The appeal of diet products is limited since sugar is an important source of calories. Approval of Sucralose and/or acesufame-potassium are pending, but any influence on sugar use would mostly likely be only in the distant future. The largest industrial users of sugar are soft drink manufacturers.

TRADE

Pakistan has had brief periods of sugar surpluses, exporting 132 000 tonnes in 1994 and 343 000 tonnes in 1995. These surpluses were short-lived, however, and net imports in 1996 were 340 000 tonnes.

Exports have recently been banned, and imports are under the control of the Trading Corporation of Pakistan. Imports have come mostly from India, Brazil, China and Thailand, with China and Thailand especially being able to provide a type of large-grain sugar which some consumers prefer.

PRICES

The Agriculture Department calculates a detailed cost of production and sets a minimum price for sugarcane based on this calculation. However, in recent years these minimum prices have been lower than the prices which mills have actually paid, due to the shortages of cane. There have been occasional harvest stoppages such as in late 1995 and early 1996 when farmers refused to deliver cane at the minimum price which was being offered by mills. The production of gur provides an alternative outlet for cane.

The price of sugar itself is not directly controlled, though imports and exports are strictly regulated in ways to affect price. In 1996, average retail sugar prices in urban areas were around 18.5 rupees/kg (US 51.28 cents/kg). A less refined grade of sugar, sakria, was selling at 16 rupees (US 44.35 cents/kg), and gur at 14 rupees (US 38.8 cents/kg). The wholesale price of sugar was only slightly lower, at 18 rupees/kg (US 49.9 cents/kg). Outside the cities, sugar prices are generally slightly higher. Some amounts of low priced sugar are sold through government stores to the needy.

In 1997, retail prices rose significantly to 20 to 24 rupees/kg (US 55.4 to 66.5 cents/kg), indicating short domestic supplies. Also, the devaluation of the rupee against the dollar which was highest in 1996 contributed to the rise since sugar is traded internationally in US dollars. As imports have increased in the last 2 years, the rising price of imported sugar (in rupees) was also reflected in the rising domestic price. An import tariff of 10 percent was removed in mid-1997 so as not to contribute to increasing sugar prices.

A "cess" (tax) on sugarcane, half from farmer and half from mill, originally intended to support sugarcane research, is now being used for building feeder roads. The cess varies among the provinces. In 1995/96, the sugarcane development cess in the Punjab, Sind and NWFP were paisas 108, 100 and 53 per 40 kg (about US$ 3.0, 2.8 and 1.5 cents), respectively. The deduction from the sugarcane growers was 54, 25 and 27 paisas (US 1.50 0.69 and 0.75 cents), and from the mills 54, 75, and 27 (US 1.50, 2.08 and 0.75 cents), respectively. These different tax rates affect the net support price, and change the net relative prices received by farmers and mills in the different provinces.

In addition to the announced support price, a premium to be paid to growers who deliver high quality cane is announced each year by the Government. For 1996/97, the quality premium was to be paid if average recovery was higher than 8.5 percent in Punjab and NWFP Provinces, and 8.7 percent in Sind Province. The rate of payment was 0.32 rupees (US 0.89 cents) per 40 kilograms of cane for each 0.1 percent point recovery over the base level. For example, if a Punjab mill averaged 8.6 percent recovery, growers would be paid an extra 0.32 rupees (US 0.89 cents) per 40 kilograms of cane.

The maximum bound import tariff which Pakistan submitted in the Uruguay Round of the GATT was 150 percent ad valorem for both raw and refined sugar, which is at the higher end of the range for all developing countries.

FUTURE PROSPECTS

The Pakistan government influences the industry through the price of sugar, price of sugarcane, mill licensing, special types of taxation, and import and export controls (some direct, some indirect). Market-based policies are spreading in many parts of the world, and Pakistan is no exception, although the influence of this trend on sugar policies is not clear.

Pakistan is expected to reduce its sugar imports in the short run, as recent firm internal prices are likely to provide stimulus to domestic production, while constraining the growth of consumption. This would conform to long-stated self-sufficiency goals. However, with clear limits on irrigation water and production inputs, self-sufficiency for Pakistan in any one commodity, such as sugar, may come at the price of foregone production of other crops. The price of refined sugar in the world market in the last decade has been more stable than in earlier decades, and as world trade becomes based more on market-oriented policies, the world price may become a more clear "opportunity cost" against which to compare domestic prices. The currency devaluation which Pakistan has recently experienced provides a window of opportunity for Pakistan's sugar policy to be realized.

However, in the longer run, improved efficiency will be required to create the basis for a competitive industry. There are likely to be ongoing technical efficiency gains in the industry, and Pakistan appears to be well positioned to adopt technological improvements.