Sugarcane ranks among Pakistan’s most valuable cash crops. It serves as a raw material for the whole sugar industry. Presently, the sugar industry is Pakistan’s second biggest agro-based industry. Production efficiency has become a vital determinant for the prospects of the sugar industry in Pakistan due to the diminishing competitiveness because of escalating imports, and high production costs. The improvement and adoption of novel production methods can significantly improve the efficiency of production. However, there seems to be some difficulties due to inadequate income and credit facilities to out growers (Raheman, Qayyum, Afza & Iqbal, 2009, p. 927). As a result, this industry can meliorate its operational efficiency using the currently available technology. Technical adjustment means technological progress not only in the physical sense of improved machinery, but innovations in knowledge as well. Improvements in the levels of technical efficiency derive from circumstances where resources can be utilized more effectively through the application of practices from the current pool of knowledge.
Overview of the Sugar Industry
Sugarcane constitutes an important cash crop in Pakistan, and the country ranks among the most important sugarcane producing nations, ranking fifth in terms of the net land under cultivation, fifteenth in terms of sugar production, and sixtieth in terms of yield. Sugarcane is cultivated on over one million hectares, and supplies raw material for the several sugar mills in Pakistan. The sugarcane sector comprises Pakistan’s second largest agro-based industry, after textile. During the 2007/2008 production season, sugar production was projected at 61.5 million metric tons, or MMT. This was an increase of twelve percent compared to the previous years because of increased yield and area under cultivation (Abid & Jayant, 2012, p. 171).
Read More: The Concept of Labor Turnover
The production of sugar was estimated to be 55 MMT during the 2008/2009 season, which represented a ten percent decline over the previous season. Pakistan’s annual sugar consumption oscillates between 3.6 and 4.2 million tons. However, industry experts have noted that there has been deterioration due to higher prices and a slowdown in the economy that caused reduced demand from consumers such as drink manufacturers. Studies indicate that the area under cultivation has slightly reduced. However, farmers anticipate better yields from the use of improved seed varieties. With this state of affairs, Pakistan must import sugar, which makes it vulnerable to shortage and the effects of rising world prices.
Corporate Milling Structure
In a sugar industry having characteristic such as those of Pakistan, corporate links are intricate and, very frequently, closely connected with the political dispensation and the power play by the state. The political power of a small clique of sugar industrialists, whose worth resulted not from being part of old, influential sugar families, but because they were part of earlier governments when political corruption thrived. The link between sugar and politics seems a very credible explanation for the unprecedented expansion in the processing capacity witnessed between the 1980s and 1990s (Aldosari, 2007, p. 424). The proliferation of sugar mills in prime sugar cultivation lands not only destabilizes the already existent arrangement in such areas, when the growers are obliged to send their produce to new mills. It is also because the setting up of the mills was done using expensive loans that were, in most instances, not repaid.
Forced to deal with this influential bloc, government agencies seem incapable and with inadequate resources. There have been ongoing condemnations, for example, that sugar cess (taxes) deducted and withheld by the millers hardly ever reach the government in the expected amounts and on time. The lack of effective and appropriate auditing system promotes the wrong use, and quite possibly, misappropriation of funds. The direct effect of this power seems to be on the efficiency of the mills, which entails the quantity of sucrose contained in the cane that is recovered by the milling process. There is a noticeable trend for the efficiency of mills to be less in the more politically and economically influential groups (Jasjit, 1990, p. 75). In addition, there is no structure by which growers can be able to keep an eye on cane processing and ensure that the due process is followed. This is because the millers are influential enough to preclude the growers’ participation in the milling process.
The production of sugarcane is projected to decline by three percent to 4.54 million metric tons in the 2013/2014 marketing year (MY), down from a projected production 4.67 million metric tonnes during the 2012/2013 season. The consumption of sugar in the 2013/2014 manufacturing year is forecast to be 4.5 million metric tons, and imports stand at 450,000 metric tons. Because of government intervention, sugar exports during the 2012/2013 manufacturing year were revised to one million tonnes, up from the earlier estimate of 300,000 tons. During the 2012/2-13 MY, the increase in imports is likely to eat into the closing stock to 610,000 tons. This is a fifty-five percent decrease compared to the 2011/2012 closing stock of 1.34 million tons. Experts expect that the closing stocks during the MY 2013/2014 will increase to 900,000 metric tons.
The Efficiency Analysis
The sugar industry in Pakistan remains a focal point for the socio-economic development, more so in the rural area. This is because it mobilizes the rural resources, creates employment, provides a source of income, and creates the necessary transport and communication infrastructure. The industry offers employment to nearly a quarter million people, while more than ten million rural folks are involved in sugarcane production (International Monetary Fund & Pakistan, 2004, p. 137). The sugar industry in Pakistan is largely controlled by political personalities. Many of the sugar mills were established though the help of Development Financial Institutions, or the DFIs, usually ensnared with the working capital predicament. As a result, some of the mills closed down, and some have been underperforming and are facing closure.
A collapse of the sugar industry will translate into loss of national assets, reduced tax revenues, and an increase in unemployment. The main reason for the poor performance of the mills is due to poor working conditions of the workers. Since former power brokers control the sugar industry, a culture of impunity was deeply entrenched in the industry. In a bid to maximize gains, these influential individuals forced the workers to work for longer hours, but with little pay. Without a doubt, low wages reduces the productivity of the workforce. A decrease in the wage levels mean that the millers are able to hire more labourers, while the output remains unchanged (International Monetary Fund & Pakistan, 2004, p. 137). Limitations in the benefit system are an encouragement for people to find jobs. However, the workforce also has little power in protecting the wage levels. This results in a drastic decline in the labor productivity. The magnitude of the decline in productivity, and the extent of its permanence are important concerns for policy makers.
Sugarcane is an important cash crop in Pakistan. It acts as a raw material in the production of sugar and, currently, it is the second largest agro-based industry in Pakistan. Production efficiency is an important determinant for the opportunities for Pakistan’s sugar industry because of the declining competitiveness. This has been occasioned by increasing imports and high production costs. Poor motivation of workers and the dismal working conditions is also to blame. Improved production methods and the adoption of new technology can appreciably improve the production efficiency. Nonetheless, there appears to be difficulties because of too little income and credit facilities to out growers.
The industry can however improve its production efficiency by offering competitive terms to the workforce and through the application of modern technology. This does not mean investment only in improved machinery, but also in the labor force and innovation. Improvements in the technical efficiency derive from the efficient utilization of resources through the application of the existent stock of knowledge. Because the link between politics and sugar production has been viewed as possible explanation for the plummeting performance of the sugar sector, the government can take bold steps in ensuring that it restructures the industry (Draycott, 2006, p. 19). This will enable equitable participation and ensure that the needs of the workforce and out growers are addressed adequately. As a matter of policy, the government should come up with structures by which out growers can participate in cane processing and ensure that the millers follow the right process. It should also curtail the influence that the millers have enjoyed in an effort at ensuring that they play by prescribed the rules.
- Abid, H., & Jayant, K. R. (January 01, 2012). Status and factors of food security in Pakistan. International Journal of Development Issues, 11, 2, 164-185.
- Aldosari, A. (2007). Middle East, Western Asia, and Northern Africa. New York, NY: Marshall Cavendish.
- Draycott, A. P. (2006). Sugar Beet. Oxford, UK: Blackwell Pub.
- International Monetary Fund., & Pakistan. (2004). Pakistan: Poverty Reduction Strategy Paper. Washington, DC: International Monetary Fund.
- Jasjit, S. (1990). India and Pakistan: Crisis of Relationship. New Delhi, IN: Lancer Publishers in association with Institute for Defense Studies and Analyses.
- Raheman, A., Qayyum, A., Afza, T., & Iqbal, M. M. (December 01, 2009). Efficiency Dynamics of Sugar Industry of Pakistan [with Comments]. The Pakistan Development Review, 48, 4, 921-938.