For sugar cane producers, this year is no different from preceding years. Only six out of 38 sugar mills commenced crushing by Dec 11 as they said the price of Rs182 per 40 kilograms notified by the Sindh government was not viable.

Under Sugar Factories Control Act 1950, mills must start crushing no later than Nov 30. Sugar mills have once again challenged the price notification in the Sindh High Court (SHC). However, the court turned down their request to put the notification in abeyance.

The controversy over the sugar cane price is not new. It has been a regular feature of the crushing season for the last eight years. Until the early 2000s, no such controversy existed as sugar mills would abide by the price notification and start crushing by mid- or late October in line with the provisions of the 1950 Act.

Belated harvesting always panics sugar cane growers into selling their crop to mills or their middlemen at a lower than the official rate

The Act was amended in the last PPP government, which bound sugar mills to start crushing no later than Nov 30. Sugar factory owners follow the notification about neither the price nor the starting date for crushing. Over a dozen or so sugar mills are said to be owned by those in government. They exploit growers by buying their sugar cane at the lowest possible rate.

The sugar cane crop takes around 18 months to mature. It grows on around 320,000 hectares in the province, mostly in the lower Sindh region. But in the recent past, the sugar industry has flourished in upper Sindh as well. In Ghotki district alone, five sugar mills are operational, although it has otherwise been a rich cotton-growing area.

Is the sugar industry unviable?

There used to be 32 sugar mills in Sindh about eight to nine years back. But their number has increased to 38 now. Even former president Asif Ali Zardari — whose name is bracketed with the Omni Group that owns around a dozen sugar mills in lower Sindh and is also facing money laundering cases — recently said that some sick units were revitalised to create employment opportunities in those areas.

He is not wrong altogether.

Not only the number of mills has increased in Sindh, but also the per-day crushing capacity of several units has increased to 10,000-12,000 tonnes from 4,000-5,000 tonnes over the last 10 years, according to Syed Mahmood Nawaz Shah, a progressive farmer.

Given such growth in the sugar industry — primarily supported by banks’ financing — one can safely assume that the sugar business remains largely lucrative. Besides sugar cane, the crop produces a number of by-products. Some mills also produce electricity by burning bagasse.

Analysts say that if this industry was unprofitable, big industrialists like Jahangir Khan Tareen would not be expanding their businesses beyond Punjab and setting up mills in upper Sindh’s Ghotki district. Mr Tareen is known for paying the notified price of Rs182 per 40kg for the last few years. The Sindh chapter of the Pakistan Sugar Mills Association (PSMA) should explain why Mr Tareen’s mills comfortably pay growers the notified price in Sindh while other mills call the rate unaffordable.

Economist Dr Kaiser Bengali asserts that the sugar sector is structurally inefficient as it is quasi monopsony, which refers to a market structure in which a single buyer substantially controls the market as the major purchaser of goods and services offered by many would-be sellers. According to Dr Bengali, 38 men decide at which price they will buy sugar cane from farmers.

He believes that this industry will remain in crisis forever and that it is better for Pakistan to start importing sugar. “Being water-intensive, sugar cane is not Pakistan’s crop. We can import sugar, which will be cost effective,” Dr Bengali says, adding that sugar cane production is unviable for Sindh as much as apple production is unviable for Balochistan. He says that sugar prices remain on the lower side in the international market. “With surplus sugar in stock, sugar mills want to export them. They demand a subsidy, which also comes out of public purse.”

Why millers delay crushing

Sugar factory owners delay crushing for a number of factors that range from getting increased sucrose recovery to procuring the crop at an inadequate price from farmers. A delayed harvest of sugar cane increases sucrose content in the crop whereas farmers get the rate on the basis of crop weight. Belated harvesting always panics growers into selling their crop to mills or their middlemen. Growers have to use land under the sugar cane crop for the sowing of wheat for which the ideal time is November. Late sowing also leads to lower per-acre grain productivity.

According to Punjab-based Pakistan Agribusiness Forum representative Ibrahim Mughal, one per cent sucrose recovery in a maund translates into Rs18. “Sucrose recovery remains at 7.52pc in October, 9pc in November and 9-10.5pc in December. That’s why sugar mills tend to delay crushing to December for maximum recovery,” he says. He believes the government has declared sugar cane a ‘political crop’. “We will still be better off if 20 or so sugar mills are closed. We are producing around 0.6-0.7 million tonnes over and above consumption needs,” he says.

Sugarcane is apparently the only crop that is under some regulatory cover because of the 1950 Act. Yet its enforcement remains weak in view of the so-called nexus between wealthy industrialists and those in government.

Farmers have calculated their cost of production at Rs198 per 40kg, inclusive of 10pc profit, whereas a research paper by the Sindh government also puts it at Rs180 per 40kg.

Mr Shah points out that factory owners have been able to achieve their goals for the last several years. “They have held down prices, procured the crop through brokers and denied the price as directed by courts on the one hand while winning federal and provincial subsidies on the other,” he says.

Despite impressive sucrose recovery in Sindh — 10.46pc in the 2017-18 season — the sugar cane sector remains in crisis. It is time the government addressed the root cause of the recurring problem.

Published in Dawn, The Business and Finance Weekly, December 17th, 2018