Sugar industry analysis Essay
Sugar industry analysis
Sugar manufacturing is the core business of the Group and is also renowned for support of innovative farming techniques which augment the core business. The Group takes immense pride in social responsibility activities (social mobilization, women enterprise development, support to technical and primary education, micro credit for the poor, infrastructure development, livestock development etc.) all aimed at ameliorating social and economic conditions of the poor people in rural areas. The group comprises of three sugar mill units JDW Unit-I (20,500 TCD), JDW Unit-II (8,500 TCD) and JDW Unit-III (11,000 TCD) in the districts of Rahim Yar Khan, Punjab and Ghotki, Sindh. With its combined crushing capacity of 40,000 TCD, it is one of the largest groups in the sugar sector and contributes approximately 9-10% of country’s sugar production. Introduction of JDW unit 1:
JDW Sugar Mills Limited (“the Company”) was incorporated in Pakistan on 31 May 1990 as a private limited company under the Companies Ordinance, 1984 and was subsequently converted into a public limited Company on 24 August 1991. Shares of the Company are listed on the Karachi and Lahore Stock Exchanges. Crushing capacity of this Unit is 20,500 TCD and is located in District Rahim Yar Khan. The principal activity of the Company is production and sale of crystalline sugar.
Introduction of Sugar Industry:
Pakistan is the 5th largest country in the world in terms of area under sugar cane cultivation, 11th by production and 60th in; yield. Sugarcane is the primary raw material for the production of sugar. Since independence, the area under cultivation has increased more rapidly than any other major crop. It is one of the major crops in Pakistan cultivated over an area of around one million hectares. The sugar industry in Pakistan is the 2nd largest agro based industry comprising 81 sugar mills with annual crushing capacity of over 6.1 million tones. Sugarcane farming and sugar manufacturing contribute significantly to the national exchequer in the form of various taxes and levies. Sugar manufacturing and its by-products have contributed significantly towards the foreign exchange resources through import substitution
Sugar industry is mostly located in the rural areas of Punjab and Sindh. A small percentage of total production is produced in the NWFP. Previously, Punjab was partly dependent on supply Of sugar from Sindh, but lately the establishment of some large scale units in Punjab has made the Province self sufficient in the commodity. Sugar production is seasonal activity. The mills, at an average operate for 150 days, and supplies are made throughout the year. As the industry now has large daily crushing capacity there are efforts to even further reduce.
In MY 2012/13, Pakistan’s sugarcane production is estimated at 61 million tons, up 4 percent over last year’s harvest of 58.6 million tons. The MY 2012/13 sugarcane crop benefitted from the excessive rains that hit the country especially in southern Punjab Province and Sindh Province. Source: http://www.thecropsite.com/reports/?id=2019#sthash.bHWK04Ee.dpuf In Pakistan, sugarcane’s production cycle lasts between 2-3 years. After three successive years of increases in sugar production (MY 2010/11 to MY 2012/13), production is likely to decrease in the ensuing year mainly due to
significant acreage of ratoon crop (older crop). MY 2013/14 sugarcane production is forecast at 59 million tons, a reduction of over 3 percent over the current year. MY 2013/14 sugarcane acreage is expected to decrease slightly to 995,000 hectares, due to mills late payments to cane growers. Trends that shaping the Sugar Industry:
Sugarcane crop showed a positive trend in area and production due to remunerative returns to growers. A total sugarcane production in 2011-12 was reported as 58.03 million tons, compared to 55.4 million tons for the year 2010-11. The sugar production from above crop was reported as 4.638 million tons by the close of crushing season, which has surpassed our conservative estimates of 4.4 million tons. Price Trend:
Since the beginning of the current year 2013, the international sugar prices have been on the increase. Global sugar markets have entered a period of radical structural change. The domestic sugar prices are not only linked with the supply of sugar but also have strong relation with the global demand and supply dynamics and the resulting international prices. The correlation between the two since 2000 is about 0.89. Despite economic and financial recession and decrease in major commodity prices across the globe in mid of FY2009, the prices of sugar has shown increasing trend reflecting the linkage with supply and demand dynamics. Recent increases in domestic prices of sugar are attributed to two main reasons; a) Currency devaluation followed by a rise in international prices; and b) production shortfall Consumption trend:
Sugar consumption in Pakistan has reached an astounding figure of 3.9 million tons approximately compared with 2.8 million in the year 1995/1996. Over the last 10 years, there has been a compound growth rate of almost 2.7 per cent and on the contrary per capita consumption has reached 25/kg approximately. http://beta.dawn.com/news/163612/trends-in-global-sugar-consumption
The political situation of Pakistan is not stable. Due to the rapid shifts in the Government; every government sets its own new trade policies. There must be the application of sustainable trading and manufacturing policies for the beneficial for the exporters and the investors as well. Corruption is the main and the biggest challenge to survive and sustain business is the corruption (starting from the lower to the upper most level), bribery etc. Corrupt leader or politicians, they place their personal causes or benefits in their professional life and it causes a lot to the business sectors. Pakistan has total 84 sugar mills and most of them owned by investors and politicians.
Level of hypocrisy is that before Ramadan, they have started stocking sugar and its price from Rs.38 per kg jumped to Rs.54. Several authorities claim that it is due to the fact that the governmental policies and acts are self contradictory which causes the frequent shortage in supply and increased prices. It is a known fact that several political figures own the majority sugar mills and therefore they control how it is passed on to the middle men. This is one of the reasons which the sugar industry of the country is facing right at the moment.
The mill owners and large suppliers often hold large quantities and create an artificial shortfall. Then they set high prices for its release. The sugar industry which was already facing problems due to the increase in sugarcane prices was burdened further when the government announced to increase the sales tax from 3.50 per cent to 4 per cent. As a consequence of the increase in sugarcane price as well as the sales tax, the overall production cost has been increased a lot, while on the other hand, the import of sugar from India at relatively low price is posing a serious threat to the survival of the local sugar industry. To avoid recurrence of such crisis, the government of Sindh had assured to take appropriate measures against the middlemen in the sugarcane industry, ensuring a direct supply of sugarcane to the sugar mills from the growers. War on Terror
Next, War on Terror is the second most reason due to which there is no or little foreign investment in the country. Foreign investors are not willing or ready to invest in Pakistan just for the security, order and law situations. This has also declined the productivity and expansion of the sugar industry within the country. Energy and Gas Crisis:
When there comes the word Crises, in Pakistan means Energy and Gas crises. These have remained as the major crises in the country due to which all the business sectors (manufacturing or trading) have been affected for many years. Due to shortage of these two resources, actually not the shortage, it’s due to not full utilization of the resources and the wrong decisions taken by the corrupt politicians, the economy of the country declines since last three to four years. Whereas, Pakistan; is considered as having everything within it but we are not utilizing our resources hundred percent. Each and every industry of Pakistan is in alarming situation because of these issues. To avoid recurrence of such crisis, the government of Sindh had assured to take appropriate measures against the middlemen in the sugarcane industry, ensuring a direct supply of sugarcane to the sugar mills from the growers.
Fluctuation and Inflation
The current economy of the country is extremely fluctuating and inflation increasing day by day. There has been an increase in the prices of the sugarcane and other materials due to which the cost of production has been increased and the profit margins have been decreased. Next, the main competitors of Pakistan are China and India; they are offering their stuff at lower prices so that’s why investors are shifting from Pakistan towards China and India. Depreciation of Pakistani Currency
The value of Pakistani Currency is decreasing day by day. It is one of the main reasons of the economic instability and high inflation rate. China has taken the major share or part from the pie as compared to Pakistan due to strong economy and stable political systems. Pakistani currency is at the verge of collapse. According to the recent reports 20 MNCs decided to leave the Pakistan and this situation would spread unemployment.
5 to 10 percent crop was affected so far due to the heavy floods and final figures would come after the end of floods. The meeting also decided that private sector would import the sugar at zero rated duty from the next season, instead of Trading Corporation of Pakistan (TCP). Moreover it was not possible for the new sugar to enter the market before December 1, 2010 and supplement old stocks and as such 1.2 million tons of sugar import will be continued as planned. Source: http://www.agribusiness.com.pk/sugar-industry-in-pakistan/ The sugar crop was expected to produce about 3.8 million tons of white sugar before the floods struck. After The food ministry estimated the output at about 3 million tons against an annual demand of 4.2 million tons.
The government of Pakistan is considering a tax holiday for companies that process sugar beets. The government this week waived a 25 percent regulatory duty and allowed millers and traders to import as much raw sugar as they want. The state-run Trading Corporation of Pakistan (TCP) will have no role in raw sugar imports. Millers estimated output at 3.6 million tones and said the country does not need more than 500,000 tons of raw sugar to meet the shortfall. Social Situation:
The living style and eating habit of people of country has risen in the recent year. Many people become diet and health conscious they start to consume less quantity of sugar in their diet but this trend is just followed in urban areas of the country. In rural areas consumption of sugar is very high. Technological Situation:
It is a matter of great concern that despite having a strong industrial and agriculture base, the sugar industry is forced to operate below 70 per cent of its capacity mainly because of out dated technology used for the operations. The industry has constantly tried to take advantage of better production technologies since the early stages of development of sugar industry. The process of production include cane grinding to extract juice, boiling to crystallize, spinning in centrifuge and finally crystallizing, drying and packing of the product. The refining process requires chemicals.
The industry has capital intensive characteristics with less labor requirement. However, the technology used requires low maintenance and repair cost. Some technological advancement has also been observed in some mills in terms of cane juice extraction and processing. Technological progress over time in the industry has been very slow, mainly attributed to fluctuations in sugar production, under utilization of capacity.
Generate revenue for the industry because it is the 2nd largest industry of the country. Provide essential product to other industry. Sugar is vital ingredient in most of our daily consumption. Firms in the sugar industry should also strive to enter in the energy sector with the permission of the Govt. of Pakistan so that they can compete and reach to the particular goals by their own electricity and energy generation. They can also want to provide the electricity to the residential areas as well Threats:
Poor management and planning
Unable to meet domestic need
Lack of technology and modernization
Lack of education
Poor quality sugar
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Title Page, Intro, Executive summary, acknowledgements Tables, appendix’s etc are NOT included in the main body of the report