Annual Review 2015

Review 2014-15
The Pakistan Sugar Mills Association is pleased to share with you a review of the challenges, the industry experienced during the preceding year as well as an outlook for the coming season. The year under review has been a tough in terms of persistent tumbling sugar prices caused by the floating sugar stock in the domestic as well as in the international market coupled with a sugar production in 2014-15 that once again surpassed the domestic requirements making the situation untenable for the industry that has already been reeling from the declining sugar prices in the international sugar market. It gave tough time to the industry to dispose of the surplus sugar stock in the wake of low sugar prices. The high price of sugarcane and the price disparity among the federating units has been a serious concern for the industry added by the apathy of the Provincial Governments.

During the year under review, the major challenge before the PSMA was to offload the surplus stock, and to pay the growers dues of more than Rs. 225 billion.  In this regard several meetings were held with the Federal Governments to get an export quota with reasonable incentives in order to compete in the world market. Thanks to the Federal Government supportive attitude, the industry has been able to achieve stability.

PRODUCTION 2014-15

Sugar Export

Sugar production in 2014-15 was over & above the domestic consumption and this coupled with the carryover stock from the last year posed a major challenge to the mills. As a result, the most important task before the PSMA was to ensure sugar export to offload the surplus stock, improve the financial position of the sugar mills and to ensure timely payments to the growers amounting to Rs. 225 billion for the season, PSMA wrote several letters to Government of Pakistan and held several meetings with the concerned Ministries with regard to export the excess sugar stock. We are pleased that the GOP allowed in December 2014 a quantity of 650,000 tons of sugar for export. The export was not feasible as international market of Rs. 35-40 per kg whereas the Government had notified sugarcane price at Rs. 180/- rendering cost of production over and above the international prices. Therefore, the Government announced a cash subsidy of Rs 8/kg and inland freight subsidy of Rs. 2/kg and it was further decided by the ECC of the Cabinet that the total cost of subsidy would be borne by the Federal and respective Provincial Governments as per sugar mills location on 50:50 sharing basis. Punjab and Sindh honored the directives of ECC but Khyber Pakhtunkhwa Government failed to honor the same depriving the millers of their due payments.

The major impediment in the export of sugar was the high cost of sugarcane and export of allocated quota in the given time which created further hindrance in the smooth flow of export. To provide a congenial environment for export and to maintain a smooth flow of sugar export the issue of cutoff date was taken up with the Government of Pakistan and accordingly the date for export of 650,000 MT of sugar was extended from May 15, 2015 to July 15th, 2015.

Despite best efforts, sugar mills were not able to export 0.650 million tons of sugar in the allocated time and only 0.550 million tons were exported as GOP did not extend the deadline and as a result, surplus sugar stock could not be exported. I personally appreciate all the efforts of the member’s mills that in spite of tough global milieu, they were able to export sugar that helped in reduction of the leftover stock and enabled them to clear sugarcane farmer’s dues.

To improve the liquidity of the sugar mills, PSMA proposed to the Federal Government to direct TCP to purchase sugar from the mills to not only have its reserved strategic stock but to keep its supply line on for the public sector outlets as per ECC decision. Unfortunately, the proposal was not accepted by the Government. By the end of August, 2015, TCP had 2,291 MT of sugar in stock.

Sugarcane price

The Provincial Government every year fixes indicative price of sugarcane before the start of the crushing season. For 2014-15 the sugarcane prices were fixed at Rs.180/40kgs for Punjab and Khyber Pakhtunkhwa and Rs 182/40kgs for Sindh. However, the price in Sindh remained sub judicious till the end of the season with interim arrangement to pay the growers @ of Rs 172/40kg till the decision of the honorable Supreme Court of Pakistan and subsidy of Rs 12/- by the Provincial Government creating a major anomaly with the sugar mills in the provinces of Punjab and Khyber Pakhtunkhwa. For 2015-16, the Provincial Governments are yet to announce the sugarcane price. PSMA has been pushing for a uniform sugarcane price policy in line with the cost of sugar production or to link the sugarcane price with the quality of cane. It has long been the stance of PSMA that linking price with the quality of cane would benefit both the mills and the growers. The growers who plant quality cane varieties and do more efforts for a better yield and recovery would get rewarded compared to the farmers who rely on old cane varieties that has more weight compared to the sucrose contents.

Outlook 2015-16

The Provincial Governments in their first estimate have indicated crop area for 2015-16 at 1.132 mln hectares compared to 1.149 mln hectares of the last year. The sugarcane production for 2015-16 is forecasted at 61.607 mln tonnes compared to 63.203 mln tonnes of the previous year. The decline in area has been reported in Sindh and Punjab over the corresponding period of last year by 1.3 % in Punjab and a marginal decrease in Sindh. Similarly the production in Punjab has declined by 2.74 % compared to last year and by almost 9 % from 2013-14. This may not have effect on the total sugar production in 2015-16 because of carry over stock against the domestic consumption of around 4.7 mln tonnes at 24 kg per capita for a population of 193.67mlns.ISO has projected Pakistan sugar production for 2015-16 at 5.2 mln tonnes almost at the level of 2014-15.

Global situation

The ISO in its report for August 2015 has reported world production for 2015 at 170.911 mln tonnes against the consumption of 173.398 mln tonnes thus creating a deficit of 2.487 mln tonnes. The import demand has been indicated at 56.45 mln tonnes versus 54.474 mln tonnes of last year and export availability of 56.549 mln tonnes versus 55.124 mln tonnes in the previous year.

It is further added that from 2010-11 to 2014-15, i.e. during the last five years, the world production surpasses the consumption but could not maintain the trend in 2015-16. As such it may have some impact on price of sugar in international market. India the 2nd largest producer in the world market in 2014-15 have produced sugar to a record level of 28.2 mln tonnes, i.e 3.8 mln tonnes up as compared to last year 2013-14. The surplus production bring down the prices to INR 20/kg versus cost of production of INR 30/kg. The prospects for the next season 2015-16 are mixed with huge cane arrears accumulated by mills but it is predicted that in 2015-16 sugar production may reduce by 2 million tonnes because of poor monsoon in the Maharashtra and Karnataka. The arrears of cane growers to the end of July remained to INR 140 bln despite the incentive package of loans of around INR 60 bln. The banks are also reluctant to advance working capital to the private sector fearing defaults and a rise of non-performing assets. ISO project India 2015-16 production at 27.7 mln tonnes and may face the sixth straight year of surplus.

World Sugar Balance
(mln tonnes, telquel)

Export and import figures may not match due to rounding and time lags between exports and imports
Source: ISO Quarterly Market outlook Aug 2015

International Sugar prices

Sugar prices show continuous downfall trend during the year under review. The sugar year 2014-15 started with the price of sugar in international market at around $ 429/tonne which continued to fall constantly during the year and reached at the lowest level of $ 341/tonne in August and went upward to $ 349/tonne in September 2015 (ISO white sugar price index)with the decrease of around 19% (Table 2). This created an unbalanced situation for our industry during the year under review due to surplus sugar stock.

Source: Monthly Market Reports ISO

Highlights

Five years of consecutive world sugar surpluses are expected to end in 2015/16. Global deficit is projected at 2.5 mln tonnes and world output is to decrease by 1.8 mln tonnes. World consumption is to grow by 2.4% or 3.6 mln tonnes. The start of 2015-16 is faced with world production of 170.911 mln tonnes as per ISO first full assessment with higher output projected for India, EU, Russia, Ukraine and smaller production anticipated in China, Brazil and Pakistan. World consumption for the upcoming year has been forecast to 173.398 mln tonnes (2.4% growth) thus creating a statistical deficit of 2.487 mln tonnes versus world production of 170.911 mln tonnes. This small deficit perhaps may not provide sufficient relief to the huge stocks accumulated over the past four seasons at domestic & international level, but still it may have some impact on the price of sugar in upward direction in the years to come.

The Pakistan Sugar Mills Association platform offers an opportunity to review various aspects of development over the past years, evaluate performance and agree on a policy beneficial for the future growth. Efforts are made to streamline the Association’s in prioritizing its short and long term objectives.

In the end, I would like to express my gratitude to the zonal Chairmen, Central and Zonal executive committees, all members of PSMA, and the Secretaries PSMA for their continued assistance and in-time support. I shall always be available to the PSMA management for guidance and support if need be so that the industry moves forward to meet the future challenges.