Required Report - public distribution

**Date:** 4/19/2004

**GAIN Report Number:** PK4005

PK4005

**Pakistan**

**Sugar**

**Annual**

**2004**

**Approved by:** Michael Henney, Regional Director![](media/image1.wmf)
U.S. Consulate, Dubai

**Prepared by:** Ikram Chaudhary, Ag Specialist U.S. Embassy, Islamabad

**Report Highlights:**

Pakistan\'s MY 2004/05 sugar production is forecast to decrease to 3.66
million metric tons (raw value) as a result of a corresponding decrease
in planted area. Due to declining returns, farmers are switching to
other short season high value crops. To off-load rising stocks the sugar
industry views exports as the solution. This will be possible only if
the Government provides an export subsidy, of US \$ 120-130 per metric
ton.

Includes PSD Changes: Yes

Includes Trade Matrix: No

Annual Report

Islamabad \[PK1\]

\[PK\]

> Table of Contents

[Executive Summary 3](#executive-summary)

[SUGARCANE 3](#sugarcane)

[Production 3](#production)

[Table 1: Sugarcane Area and Production by Province
4](#table-1-sugarcane-area-and-production-by-province)

[Production Policy 4](#production-policy)

[SUGAR 4](#sugar)

[Production 4](#production-1)

[Table 2. Refined Sugar Production, Supply and Demand
5](#table-2.-refined-sugar-production-supply-and-demand)

[Consumption 5](#consumption)

[Trade 5](#trade)

[Stocks 6](#stocks)

# Executive Summary

Pakistan's agriculture sector has recovered from a prolonged drought. As
a result, sugarcane yield levels and sucrose recovery is expected to
improve. Last year's good monsoon season coupled with about 30 percent
higher runoff from glacial and snow melt are the primary reasons for the
improved water supplies available for agricultural use. Since completion
of the national irrigation system in the 1970\'s, demand for water has
increased more than 50 percent while storage capacity has decreased by
one-third due to silting, leaving per capita availability at a fraction
of its original level. As a result, shortfalls in water supplies are
expected to play an increasingly important role in agriculture's ability
to meet future domestic requirements. In addition to the need to
increase storage capacity and to adopt new irrigation technology, many
observers believe Pakistan needs to alter cropping patterns
significantly. To conserve water resources that are becoming scarcer by
the year, producers will need to shift production away from
water-intensive crops such as sugar cane and rice to other crops.

MY 2004/05 sugarcane area is forecast to decrease about 10 percent due
mainly to:

\(i\) decreasing financial returns with the last cane crop (30 percent
reduction in offered cane price), coupled with marketing
problems/delayed payments to cane growers from sugar mills, (ii)
increasing financial returns from alternative crops, and (iii)
increasing costs for production inputs particularly, fertilizers,
electricity and diesel.

# SUGARCANE

## Production

MY 2004/05 sugarcane production is forecast at 47 million metric tons
(MMT), a decline of 10 percent from the previous year resulting mainly
to decreased acreage planted. Cane growers shifted acreage to select
other crops because of: (a) problems faced in the disposal of cane,
particularly due to late start of the crushing season by the sugar
industry, (b) a lower economic return for cane due to delayed payments
and a 30 percent lower price offered by sugar mills compared to previous
years, (c) improvement in profit margins in competing short season crops
like cotton, sunflower, corn and vegetables. Under political pressure by
the sugar industry provincial governments lowered the official 2003/04
cane purchase price for 40 Kilogram by two rupees (Rs) to Rs. 41 for
Sindh province and Rs. 40 for Punjab and NWFP as compared to last
season. Reports from the cane growing areas of Punjab and Sindh province
are that farmers are receiving Rs. 30 - 35 cash per 40 kilograms of cane
from middlemen. Greater water supplies and expected normal monsoon rains
should result in improved yield and sucrose levels with the 2004/05
sugarcane crop.

MY 2003/04 sugarcane production is estimated at 52 MMT despite an
estimated 5 percent decrease in planted area. Higher yields are the
basis for such optimism. Recent field surveys in principal sugarcane
growing areas in the Punjab and Sindh Provinces revealed crop
conditions/growth much better as compared to the previous year due to
greater availability of water for irrigation and the return of normal
monsoon season that by-passed the country the past few years.

## Table 1: Sugarcane Area and Production by Province

  ---------- ----------- ---------- ---------- ------------ ---------- ----------
  Province   Area                              Production              
             ('000\'                           ('000\' MT)             
             hectares)                                                 

             MY 2002/03  MY 2003/04 MY 2004/05 MY 2002/03   MY 2003/04 MY 2004/05

  Punjab     735.0       685.00     610.00     33,168       33,000     29,500

  Sindh      259.0       260.00     230.00     13,798       14,000     12,500

  NWFP       105.0       104.00     104.00     5,049        5,000      5,000

  Baluch     0.8         0.7        0.7        41           40         38

  Total      1,099.8     1,049.7    944.7      52,056       52,040     47,038
  ---------- ----------- ---------- ---------- ------------ ---------- ----------

Source: Ministry of Food and Agriculture and FAS/Islamabad

## Production Policy

The Government of Pakistan (GOP) encourages cane production via a market
support price announced prior to planting. The support price, though
well above the world price, is set below the local domestic market
price. As a result, the government generally does not procure cane.
During the MY 2003/04, the Federal Government authorized the respective
provincial governments to fix the cane price in-consultation with the
representatives of the sugar industry and farmer organizations. As a
result of earlier discussions, MY 2003/04 cane prices were reduced by
two rupees to Rs. 40 per 40-kilograms for Punjab and NWFP and Rs. 41 per
40-kilograms for Sindh, both adjusted for sugar recovery levels (Rs.
57.75 = US\$1). The sugar industry has been facing rising stocks of
sugar, and now finds itself unable to pay farmers for the cane
purchased. The sugar industry has requested the GOP purchase at least
500,000 MT of surplus sugar from the market through the Trading
Corporation of Pakistan (TCP) for export. The GOP has constituted a high
level committee to suggest long term policy measures to resolve the
problems of the sugar industry and the cane growers on permanent basis.

# SUGAR

## Production

My 2004/05 refined sugar production is forecast to decrease 10 percent
to 3.66 MMT (raw value) due mainly to a decrease in cane plantings.
Although, sugarcane yields and sugar recovery is expected to increase
because of expected better irrigation supplies, monsoon rains and
planting of higher sucrose content varieties of sugarcane.

MY 2003/04 refined sugar production is estimated at 4.05 million metric
tons (raw value) in response to a higher sucrose recovery rate from the
cane processed. In recent years sugar mills have worked with producers
to introduce sugarcane varieties that produce higher levels of sucrose.
These varieties are starting to come on-line now in the Punjab and Sindh
provinces. Some cane in the NWFP is expected to divert to 'Gur'
production to meet demand for that product emanating from Afghanistan.

## Table 2. Refined Sugar Production, Supply and Demand

  --------------------- --------------- ---------- -------- ---------- -------- ----------
  **Commodity**         **Centrifugal                                  (1000    
                        Sugar**                                        MT)      

                        2003            Revised    2004     Revised    2005     Post

                        USDA            Estimate   USDA     Estimate   USDA     Forecast

  **Market Year Begin**                 10/2002             10/2003             10/2004

  Beginning Stocks      460             460        797      797        0        1030

  Beet Sugar Production 24              24         24       24         0        24

  Cane Sugar Production 3920            3920       4013     4023       0        3638

  TOTAL Sugar           3944            3944       4037     4047       0        3662
  Production                                                                    

  Raw Imports           0               0          0        0          0        0

  Refined Imp.(Raw Val) 0               0          0        0          0        0

  TOTAL Imports         0               0          0        0          0        0

  TOTAL SUPPLY          4404            4404       4834     4844       0        4692

  Raw Exports           0               0          0        0          0        0

  Refined Exp.(Raw Val) 107             107        324      214        0        214

  TOTAL EXPORTS         107             107        324      214        0        214

  Human Dom.            3500            3500       3550     3600       0        3650
  Consumption                                                                   

  Other Disappearance   0               0          0        0          0        0

  Total Disappearance   3607            3607       3874     3814       0        3864

  Ending Stocks         797             797        960      1030       0        828

  TOTAL DISTRIBUTION    4404            4404       4834     4844       0        4692
  --------------------- --------------- ---------- -------- ---------- -------- ----------

## Consumption

MY 2004/05 sugar consumption is forecast to increase to 3.65 MMT due
mainly to an increase in population. Retail sugar prices hover around
Rs. 19-20 per kilogram as stocks remain readily available. It is broadly
understood in the community that the GOP would like to see retail prices
maintained in the Rs. 20 or lower per kilogram.

## Trade

MY 2004/05 sugar exports (raw basis) are forecast at 214,000 MT. This
level is subject to the GOP decision to provide a subsidy of up to US \$
120-130 per metric ton on exports by the TCP. In absence of such a
subsidy it will be very difficult for the TCP to export sugar on
competitive prices in the international market.

MY 2003/04 sugar exports are estimated at 214,000 MT. In January 2004
the GOP authorized the TCP to procure 200,000 MT of sugar from the
industry to facilitate payments to cane growers. This sugar has been
sitting in stores of the sugar industry thus placing downward pressure
on sugar retail prices. TCP is facing difficulty in exporting this sugar
because of higher domestic costs and no financial support yet by the
GOP. The high level committee commissioned by the GOP to review the
surplus sugar situation, recommended an additional 300,000 MT of sugar
be procured from the industry this year. Retail sugar prices which at
the start of the crushing season were Rs. 20 per kilograms are now at
Rs. 18-19 per kilogram while industry stocks continue to accumulate.

During June 2003 the GOP imposed on imported refine sugar a 25 percent
duty and 15 percent sales tax. Mill owners' view this levy as necessary
to 'protect' the local industry, which's cost of production for refined
sugar makes it uncompetitive with imported counterpart.

## Stocks

MY 2004/05 stocks are forecast at 828,000 MT given projected
supply-demand scenarios and trade expectations. The sugar industry is of
the view that GOP may provide a subsidy of US \$ 120 to 130 per MT to
TCP on sugar exports to off load their rising stocks.