November 2015

JCR-VIS
SECTOR UPDATE
Sugar Sector
Sugarcane is one of the most important cash crops
of Pakistan; Pakistan belongs to the top 10 largest
sugar producers in the world...

S ugarcane is one of the most important cash crops of Pakistan; it is a

key input for sugar production along with paper and board industry.
Pakistan belongs to the top 10 largest sugar producers in the world. Over the
years, domestic sugar consumption has grown from 0.5m metric tons (MT)
in 1975 to 4.7m MT in 2015 on the back of population growth. Per capita
consumption of refined sugar in Pakistan was estimated at 25kg in FY15,
notably higher vis-à-vis other Asian countries such as India and Bangladesh1.
Demand is interlinked with growth in processed food sectors such as candy,
ice cream and soft drink manufacturers; they account for almost 60% of total
domestic sugar consumption2. Meanwhile, absence of major substitutes for
sugar results in inelastic demand for the commodity.
Crushing season in Sugar manufacturing comprises several procedures including cleaning,
slicing, extraction, evaporation and crystallization. On arrival of sugarcane
Pakistan generally
at mill yards, it is passed through water and combing drums. Following the
commences in first week cleaning process, a machine shreds the cane into pieces. The shredded pieces
of November and lasts move through a series of heavy-duty rollers which extract juice from the pulp.
around 100-120days. Lime and heat are used to remove impurities from the juice. Juice is then
During FY14, total evaporated through a vacuum resulting in a syrupy extract. About two-thirds
of water is removed through this evaporation. The syrup is then boiled at
sugarcane crushed
lower temperatures under vacuum and processed into crystals; it is sent to a
amounted to 56.5m tons centrifuge which spins and dries the crystals into raw sugar. Sugar crystals are
(FY13: 50.1m tons) re-purified for removal of molasses and other minerals. Lastly, evaporation
while sugar production and drying process is performed following which the final product is packaged
was reported at 5.5m and shipped.
tons (FY13: 5.0m tons), Major by-products of sugar production are molasses and bagasse fiber. Local
indicating a recovery rate sugar millers process molasses into ethanol through their own distillery
plants or sell it to local distilleries and exporters. Pakistan’s sugar sector
of about 9.9%. has the capacity to produce over 2.5m MT of molasses3. Moreover, sugar
manufacturers mainly utilize bagasse for paper and chip board manufacturing
and also as a raw material for in-house power generation.
Sugar production is primarily dependent upon its main raw material i.e.
sugarcane. In Pakistan, a few firms purchase sugarcane from their own farms
which may offer higher yields vis-à-vis national average. Moreover, sugar
can be produced using sugar beet plant. Sugar beet is currently grown in
Khyber Pakhtunkhwa (KP) and its area under cultivation as well as yield has
been continuously declining. However, with relatively higher yield compared
to sugarcane, sugar beet can be used as a substitute for domestic sugar
production.

1
Journal of Management and Social Sciences
2
The Lahore Chamber of Commerce & Industry (LCCI)
3
PSMA Annual Report

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 Sugar Sector
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Crushing season in Pakistan generally commences in first week of November and lasts around
100-120 days. During FY14, total sugarcane crushed amounted to 56.5m tons (FY13: 50.1m tons)
while sugar production was reported at 5.5m tons (FY13: 5.0m tons), indicating a recovery rate of
about 9.9%.
On a provincial basis, highest sugarcane production was contributed by Punjab followed by Sind
and KP during FY15. As per provisional data, total sugarcane production declined to 63.2m tons
(FY14: 67.4m tons).The decline was largely due to reduced cultivated area and flood damages
during the year in Northern zone. However, sugar production is projected to increase to 5.4m MT
(crushing season, 2014/15: 5.2m MT) during crushing season, 2015/16. Given the rise in output
levels, surplus situation in sugar is expected to continue with domestic demand projected to
witness a growth of 4.2% (FY15: 4.4%)in FY16. The table below depicts province-wise sugarcane
production:

Table 1: Sugarcane area and production by province

Area (000s Hectares) Production (000s Tons)
FY15 FY16 FY15 FY16
Province FY14 (provisional) (projected) FY14 (provisional) (provisional)
Punjab 756 700 750 43,710 41,000 43,000
Sindh 298 310 300 18,360 16,670 17,500
NWFP 117 119 117 5,360 5,500 4,940
Balochistan 1 1 1 30 30 30
Total 1,172 1,130 1,168 67,460 63,200 65,470
Source: Provincial Agricultural Departments and FAS/Islamabad

Figure 1 depicts the domestic sugar production and consumption pattern. Being the second biggest
agro-based industry, sugar industry employs more than 1.5m people as direct or indirect labor.
Employment is usually higher in
Figure 1: Sugar production and consumption (000s Tons)
the crushing season depending
on availability of sugarcane. In
addition, hundreds of indirect
opportunities are created in the
form of daily wage-based work
and transportation contracts.
A total of 86 sugar mills are
present in the country. Sugar mills
in Pakistan are pre-dominantly
owned by the private sector. Out
of 86 sugar mills, 44 mills are Source: USDA Foreign Agriculture Service
located in Punjab, 33 mills in Sind and remaining mills are located in KP. About 43% of sugar mills
in Pakistan are listed on Karachi Stock Exchange (KSE).
Given that prices for processed sugar are usually determined by market forces, government
control is more stringent in setting up support prices of sugarcane. However, the government may
also intervene in imposing trade controls over import and export of sugar and controlling sugar
supply either by purchasing or selling sugar. More than 20% of world demand is represented by
sugar trade. During FY15, sugar exports from Pakistan declined to 0.6m MT (FY14: 0.7m MT) while
imports remained low at 0.1m MT.
The regulated environment often results in a cost-price mismatch where increase in retail sugar

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prices is not commensurate with increase in raw material costs including sugarcane, energy, labor
etc. Over the past four years, sugarcane prices increased by CAGR of 7.5% while average retail sugar
price registered an overall decline. Given the slow pace of inventory turnover, sugar producers
generally experience a weak liquidity position to make timely payments to growers and banks,
thereby incurring additional finance cost. Some players in the sector are diversifying their revenue
base by initiating power projects, which would help in supporting margins.

Table 2: Comparison of sugarcane procurement prices (Rs.) by provinces

with average retail price of sugar (Rs.)
Avg. Sugar Retail
Year Punjab* Sindh KP price/Kg**
FY11 125 127 125 64.5
FY12 150 152 150 56.5
FY13 170 172 170 53.4
FY14 170 172 170 54.2
FY15 180 182 180 59.0***
* Price is per 40kg
** season average monthly retail prices
*** for the period Jan-Aug 2015
Source: USDA Foreign Agriculture Service

Variation in sucrose recovery rate in sugarcane across the country has a direct impact on cost of +

manufacturing and profit margins Figure 2: Comparison of average sugar monthly retail price with
amongst different producers. sugarcane indicative price
Recovery rate of sugar is primarily
dependent upon favorable weather,
availability of water, type of
sugarcane seed and soil conditions.
Given suitable conditions, Sindh
and Southern Punjab generally have
better recovery rates as compared to
other parts of the country. Despite
the recovery rates, all sugar mills
incur the same cost of raw material.
As a result, mills operating in high
recovery area have a competitive
advantage over others on account of differential in manufacturing cost per unit.
Going forward, sugar prices are Figure 3: Average sugar monthly domestic vs. international prices
largely expected to be determined during FY15 (Rs/Kg)
by competitive forces in the local
market. Government measures
including establishment of an
export quota and subsidy to support
additional exports could be rendered
ineffective in FY16 given the large gap
between domestic and international
sugar prices. Meanwhile, imposition
of 40% import tariff by Government
in June 2015 is likely to provide
support to domestic sugar millers.

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Pakistan is the world’s sixth largest producer of sugarcane in terms of acreage and the eighth
largest producer of sugar. However, per hectare yield of sugarcane in Pakistan is significantly low
vis-à-vis global averages. Recovery rate has also ranged between 9-10% over past couple of years
compared to developed countries where average recovery rate is over 10%. Trends in this respect
are tabulated in Table 3 below.

Table 3: Pakistan sugarcane production and Yield (000s)

Cane Area Cane Prod. Cane Yield World Avg. Sugar Yield Sugar
Year (Hec) (Tons) (Ton/Hec) Cane Yield (Ton/Hec) Recovery
FY13 1,111 59,240 53.3 70.6 5.4 9.7%
FY14 1,178 63,354 53.8 70.8 5.3 9.9%
FY15 1,101 58,800 53.4 70.9 - -
Source: USDA Foreign Agriculture Service

Analysts Contacts
Muniba Khan
Assistant Manager
muniba.khan@jcrvis.com.pk

Ibad Deshmukh
Assistant Manager
ibad.deshmukh@jcrvis.com.pk

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