Professional Documents
Culture Documents
SUBMITTED BY:
ABDUL WAHEED
mc060402263
SPRING 2008
DATE OF SUBMISSION 22-10-2008
VIRTUAL UNIVERSITY OF PAKISTAN
-1-
2.
DEDICATION
And all
-2-
3.
ACKNOWLEDGEMENT
First of all I much thankful to Almighty Allah who has been enable to prepare
shoulder to shoulder while preparing this internship report. And who provided help
-3-
4. EXECUTIVE SUMMARY
Pakistan’s sugar industry, considered to be one of the best organized industrial sectors
in the country, is also among the country’s leading economic enterprises, directly or
of Punjab, 32 in Sindh, 6 in the North West Frontier Province (NWFP), and one in
Azad Jammu and Kashmir (AJK), the industry produced nearly four million tones of
sugar during 2003-04 and has a full production capacity estimated at five million
tones, well exceeding the estimated domestic demand of 3.60 million tones (GOP
2002-03). Almost the entirety of the sugar output is used domestically while molasses,
mills also use part of the molasses to produce industrial alcohol (ethyl alcohol) a
carefully planned to minimize risks to health and environment. The sugar production
process is known to produce substantial levels of solid waste, water, and noise
pollution. The highly polluted wastewater from sugar mills, in particular, poses a
samples from a number of sugar mills around the country revealed the presence of
Standards (NEQS). The ensuing discussion and analysis explores the implications of
these results.
-4-
7.
-5-
13.2 Number of employees working in the Finance department 37
13.3 Finance Department operations 37
14 Function of the Marketing Department 39
14.1 Marketing strategies 39
14.2 Product planning, development & management 41
14.3 Pricing strategy 41
14.4 Distribution strategy 45
14.5 Promotional strategy 46
15 Critical analysis 46
15.1 Success & failure of different products of the organization 46
15.2 Major competitors of the organization 47
15.3 Future prospects of the organization 47
16 SWOT analysis of organization in the business sector 47
17 Conclusion & recommendations for improvement 53
18 Reference & Sources used 59
19 Annexes 59
-6-
8. INTRODUCTION OF THE ORGANIZATION
Indus Sugar Mills is a closely held public limited company. It is situated in Kot
Bahudar, District Rajan Pur, with its head office in Lahore. Since its inception in
1993 its management has been changed three times. Now a day its General Manager
is Mian Bashir Ahmad. Its designed capacity is 6000 ton sugar cane crushing daily,
while its present actual capacity is 8000 ton daily. Sugar manufacturing is a seasonal
Ownership break-up
Although the Mill is registered as Public limited company but its shares have never
been offered to general public. All the ownership is very closely held among four
Mr. Darashek and Mr. Ghulam Dastageer owned the initial project. In 1996, when
Izhar Construction Company reconstruct the building they bought 30% shares of the
company. In 1997, 10% shares were transferred to Mr. Bashir Chaudhary, because of
his expertise.
-7-
9. OVERVIEW OF THE ORGANIZATION.
It will be very interesting to know about the history of the Indus Sugar Mills. Sugar
industry is heavily affected by the political influence. In the first regime of Nawaz
Sharif Mr. Nassar-Ullah got an opportunity to construct a sugar mill in Rajan Pur.
The owners were not having any experience of such work. This inexperience results
construction and impure materials just after its first season in 1993, a major part of
factory building was demolished in 1994 causing a break down of operations. The
factory did not work at that year and the management was fired too. After
reconstruction of building a new management team was hired in next season. The
management, again this time, was not competent enough and uses Mal Practices.
These practices although caused a good margin for owners but was very discouraging
for raw material suppliers. The results were very obvious. In the next season the mill
were facing a great problem of finding sugar cane. This problem became so much
severe that the factory has to close its operations and face losses. The effects went to
the next season and factory was almost closed in 1997. Management was once again
fired. In 1997 the directors took the matter very seriously. This time before hiring the
new management and especially G.M they neutrally analyze the whole industry. And
than appoint Mr. Ayaz Khan as GM. Another change, which came by, the mutual
consent of the owners, was addition of another owner with 10% shares of the
company. This new partner was Mr. Bashir Ch. (ICMA), and he got this share
This new man changes the whole philosophy of the organization. Previously the
owners were inexperienced and ill-educated persons but this man was competent
-8-
enough to run the organization on a profitable path. Soon after his arrival, he changed
the whole system of operation. He analyzed the failures; he found the lope holes and
then developed the strategies to over come these problems. It was the results of his
efforts that in next season of 1998-99 the factory worked at full capacity and
generates positive cash flows. In 1999-00 the company was again in better position,
although not in profits. In this season company is also showing the best performance,
in spite of a shortage of sugarcane in the whole region. Mr. Bashir has turn around
the whole organization and now he is considered as charismatic leader through out the
organization.
Sugarcane is the fourth largest cash crop growing in Pakistan, which contributes to the
agriculture economy a crop value of over Rs.48 billion. Its share in the large-scale
industry is 18% and 1.9% in GDP. Sugar industry’s contribution to the Government
Federal excise duty is 11.2%. Average yield of sugarcane is 44 tons against the world
average of 60 tons per hectare. Pakistan’s sugar mills crushing capacity is 58 million
tons of sugarcane capable to produce 5 million tons of refined sugar and 3 million
The industry employs more than 100,000 labor force while more than 9 million
people of rural population are involved in the production of sugarcane. The existing
mills are sufficient enough to produce the country’s requirement of sugar for the next
many years.
and majority of the sugar mills are set up with the help of DFIs normally trapped with
-9-
Loss of production of refined sugar due to excess quantity of raw cane diverted for
seed and Gur manufacturing (37% instead of 25%) works out to 482,269 tons that
could have made possible a total sugar production of 2,911,633 tons both from cane
and Beet. Under such avoidable circumstances, the country would have needed to
import only about 113,587 tons, which might result to save precious foreign exchange
of approximately $ 208.830 million. Advance planning to foresee the situation for the
previous year and control of proper utilization of cultivate sugarcane could have
The Government should take up cost studies at the growing sugarcane stage for the
purpose of fixing the support price for the growers. Cost studies for production of
refined sugar both in terms of variable cost and fixed cost of production in each sugar
The net amount of foreign exchange amounting to Rs.7.509 billion saved as result of
total exports of Rs.19.722 billion during the last six years from 1994 to 1999 has been
eaten away be the import of 900,000 tons during the year 1999-2000 estimated to
With the proper utilization of poor cane crop for the season 2000-01, the situation for
shortage of sugar may be reduced to 461,610 tons, which needs a foreign exchange of
US $ 114 million.
Since De-zoning, the incentive of sugar mills to direct resources for development of
good variety cane in its area has almost diminished because the growers who have
borrowed money from a sugar mill for development are free to take their sugarcane to
any mill irrespective of which mill advanced the loan for development. It is also one
of the causes of sickness of sugar industry. Large interest of the growers of the area
- 10 -
and those associated with such project, which collapses due to non-availability of
cane, is badly affected. Closure of a sugar mill reduces GDP and increases poverty of
masses.
Balanced policy for cultivation of four major cash crops – with, cotton, rice and
provided to the growers for cultivation of sugarcane on 1.150 million hectares. Indian
verity of seed, which is total de-generated and diseased affects the production yield,
should be avoided.
- 11 -
c. BUSINESS VOLUME.
Cane Utilized by
28,151,434 27,352,918 41,062,268 42,994,911 28,982,711 32,000,000
Mills
No. of Mills 66 68 71 73 69 69
Cane + Beet
2,470,034 2,393,362 3,555,228 3,541,763 2,429,364
Production
- 12 -
Pakistan is a country with a population of about 170 million inhabitants, which
includes about 6 million immigrants (3.5 million Afghan refugees, 2 million illegal
every beverage of Pakistan which includes soft drinks, tea, cold drinks (sherbets,
lassi), tea, kehva etc. Sugar is also used in sweetmeats, bakery products, other
confectionary items and pharmaceutical industry, etc. In short Pakistanis are a sweet
tooth nation.
The question to be asked is at what price is sugar affordable to the general public, at
what cost are the sugar millers producing the sugar per Kg, what is the international
bench mark of producing sugar per Kg, and how far is Pakistan away from it. To keep
our consumers happy and our sugar millers satisfied what kind of investment is
required to improve our processes and savings so that we can reap the benefits in the
future. The sugar industry is the second largest industry of Pakistan accounting for 8%
of the total value added in the large scale manufacturing industries and contributing
Rs 15-20 billion per annum in the shape of general sales tax (GST), federal, provincial
and local taxes. The direct employment in the sugar industry is about 120,000
managerial, skilled, semi skilled staff and in-direct employment is about 4 million
people1.
Pakistan stands at 5th position in terms of sugar cane production and 7th and 8th in
production per hectare stands still at a very low level of about 4 tonnes per hectare.
The sugarcane cultivation in Pakistan currently occupies 5% of the total cropped area
- 13 -
The sugar production in Pakistan follows a fluctuating trend which means that there
are some years when the sugar production meets the national demands and some
times create a shortage that results into heavy imports. The year 2005/06 was the year
when national production was closer to 2.7 tonnes against a demand of 3.9 million
tonnes. The government has to import more than 1 million tonnes of white sugar
through Trading Corporation of Pakistan (TCP) to fill the gap. Surprisingly during the
same time there were record high sugar prices observed in Pakistani market (Rs 35-40
per kg ) as the trend in the international market was higher in the history (white sugar
.The sugar production is estimated as 3.6 million metric tonnes during 2006/07
crushing season which is a 30% jump as compared to last year production of 2.7
million tonnes. This rise in production is because of higher yields and an increase in
sugarcane acreage triggered by high market prices during last season and due to
favorable weather conditions as a result of good rain fall. Total annual consumption
In Marketing Year 2007/08 sugar consumption is forecast to increase to 4.1 MMT due
to increase in population and strong economic growth for the last three years. Total
improved domestic supplies and strong demand. Retail sugar prices will continue to
hover around Rs. 32 per kilogram, which is about 20 percent below than prevailing
prices for last year. The government would like to keep the retail prices at the
2007).
54.8 million metric tons (MMT), an increase of 23 percent from the previous year due
- 14 -
to increases in both area and yield. Higher cane prices coupled with favorable weather
conditions and fewer pests and diseases helped achieve higher yields. Improved profit
margin for cane, compared to competing crops especially cotton, led to an increase in
cane area in the main cotton belt. Marketing Year 2007/08 sugarcane production is
forecasted at 56 MMT, an increase of 2.3 percent over the previous year due to an
expected increase in area and yield as a result of better prices and extension services
by the sugar mills. Due to overall sugar shortage in the country, growers were able to
manipulate the market to some extent and negotiated better prices for their produce.
Increased area due to price incentives, coupled with better management practices, will
determine the ultimate size of the crop for MY 2007/08. Sugar production in Pakistan
stood at 2.7 million tons as reported by 76 sugar mills in the financial year 2005-2006.
The table below shows the historic production data of the sugar.
- 15 -
Sugarcane and sugar production for the past three years has fallen short of
availability patterns do not favor crops with higher water requirements, especially
sugar cane. However, despite this problem, higher prices for sugar forecast to
convince the farmers to shift some acreage from competing crops, such as cotton and
rice, to cane.
According to MINFAL data there are 77 sugar mills with sugar production capacity of
7.1 million tons, basically obtained from 1 million hectares of sugar cane crop. The
self sufficiency in sugar production has not been achieved because of fluctuating
transactional mode between the sugar millers and the sugar cane producers. Despite
increase in sugar demand substantial stocks remain with the sugar millers, whose
production price according to them remains higher than the present value of wholesale
price.
Sugar Prices:
Provincial governments in 2006/07 increased the official cane purchase price for 40
kilograms to Rs. 60 for Punjab, Rs. 65 for NWFP, and Rs.60 for Sindh [$1 = Rs. 60].
However, prices were a volatile issue between the growers and processors for much of
the season. The growers refused to sell the cane at the official price and millers in
some areas of Punjab and Sindh delayed the start of crushing season. As a result,
market prices for cane ranged from Rs. 70 to Rs. 90, depending on the region. Sources
predict sugar mills will enhance field extension activities to encourage increased
1593 to Rs 1655. The table shows the price of a 50 Kg bag in the four major cities of
- 16 -
The next table depicts the comprehensive details of the sugar and Gur prices in
Pakistan over the last 58 years. It is important to realize that the retail prices remained
stable or increased gradually from 1949 to 1978 owing to stable production in supply
and demand accordingly. The retail prices remained stable or increased gradually
from 1949 to 1978 owing to stable supply & demand situation. However instability
- 17 -
Average Retail Prices of Sugar and Gur
The sugar cane prices paid to the farmers have showed an annual growth rate of
closer to 20% from year 1995 to 2007. The sugar cane prices are mostly dependant on
the white sugar prices, but since last few years when there was a shortage of cane, the
mills raised their cane purchase prices as part of the sugar cane prices paid to the
farmers have showed an annual growth rate of closer to 20% from year 1995 to 2007.
The sugar cane prices are mostly dependant on the white sugar prices, but since last
few years when there was a shortage of cane, the mills raised their cane purchase
- 18 -
According to sugar mills survey carried out in April 2007, the sugar millers claim
production price of Rs 32/kg, while in May 2007, sugar is being retailed at Rs 30/kg.
This means that sugar industry production processes need to be upgraded; more
efficiency needs to be brought about in the production and usage of steam, along with
the need of weighing and saving of bagasse. This bagasse saved in future years could
be the fuel for the boilers working on the sugar beet processing.
The doctrine of unlimited duty free import of sugar to bring down market prices is not
a long run solution to the issue. This will leave the millers stocks as they are, blocking
their funds which are destined as interest payments to banks or payments to farmers
for the sugarcane crop already used up by the mills a few seasons ago. Because of the
sugarcane crop price going up to Rs 100/40 kg last season, this year a good volume of
crop is expected by the sugar millers. But sugar millers are of the view that the old
farmer’s trolleys do not keep on moving from factory to factory for a higher price.
The farmers would like to be protected by a parchi system (adant system), where they
are given a contract by the sugar millers of purchasing of sugarcane crop at a fixed
- 19 -
price on harvesting 11 to 15 months from planting period. The consultants are of the
view that sugar cane farmers and sugar millers should work in harmony in a co-
operative system. In this way regular crop for regular sugar cane crushing will be
available, provided the sugar millers ensure prompt payment to the farmers. The onus
of the sugar industry is now on the policy makers to devise a long term draft solution,
where farmers are given regular contracts from sugar mills on fixed bottom line
prices, farmers are paid promptly by the industry on delivery of sugar cane. That
sugar cane is priced not by its weight, but by its sugar content % age. There should be
a minimum price for certain fixed sugar contents and above that farmers should
receive a premium price, While the sugar industry sector is given access to improve
process technology generation, where through the help of experts they can improve on
their plants and processes, with bottom line being to drop the cost of producing sugar
per ton. This will also require improvement in the sugar cane crop being cultivated
and Investment in research for better sugar yielding varieties of sugar cane crop. The
large scale improvement in the yield of sugar cane crop with better sugar recoveries
The year 1995-96 was in sharp contrast with the previous years during which sugar
production was close to 3 million tonnes which dropped by a hefty 20% to 2.449
million tonnes from 2.983 million tonnes in 1994-95. That, necessity import of around
- 20 -
The magnitude of problems of the sugar industry can be gauged from the crushing
capacity utilization dropping to around 55% during 1995-96. With idle capacity at
45%, rarely could an industry break even, let alone expect a profitable run.
Initially the sugar mills in the country were established by the business community
but during the last 8 to 10 years establishment of sugar mills has become a prerogative
of people indulging in politics directly or indirectly. They were not only able to get
the permissions to establish sugar mills but to acquire huge credits from the financial
institutions as well. The cost of projects established after the mid-eighties was not
only very high but credits were disbursed at 80:20 resulting in very high financial
cost. All these new mills have been established in prime sugarcane growing areas
where the operating mills had spent resources to educate farmers in achieving better
yields and had arranged soft-term credits for the farmers for the procurement of seed,
enjoying political clout and power, the growers were forced to sell their produce to
these mills. During the last season, industry sources said, one of the politicians
owning sugar mills was instrumental in closure of a sugar mill as it was paying higher
Crushing capacity
over the years been responsible for persistent crisis in the industry which has been
deepening with each successive year. There has been a constant reduction in actual
sugarcane crushing.
- 21 -
During 1995-95 sugarcane crushing on countrywide basis dropped by 17.7% and
crushing in the Punjab came down by 19.6%. The sucrose percentage also dropped
compared to last year. In Sindh, sugarcane crushing fell down from 12.038 million
tonnes in the preceding year to 10.341 million tonnes. The production of sugar
declined from 1.108 million tonnes in 1994-95 to 1.008 million tonnes in the year
under review. However, there was an improvement in recovery which improved from
9.2% to 9.75%. The mills in NWFP suffered serious setback and production of sugar
in the province fell down to 65,682 tonnes only as against the preceding year's
Cost of production
coupled with regular enhancement in its support price fixed by the government, has
been factors responsible for the increase in cost of production of sugar. Since the
nature of production is seasonal and consumption continues throughout the year, the
financial cost incurred on carrying for over six months squeezes profit margins or
increases accumulated losses of the mills. Not only the government has been
increasing sugarcane support price, the growers have also started demanding prices
higher than those fixed by the government. Knowing the limited availability of
sugarcane, the growers either completely stop the supplies or curtail them to a large
extent.
Succumbing to pressure from the growers, the mills are forced to pay price for
sugarcane much higher than those fixed by the government. The situation further
- 22 -
aggravates the mills' position as they are not in a position to recover even the season's
variable cost which affects repayment of loan installments and interest charges to the
financial institutions.
Over the years many factors have been responsible for shortfall in sugarcane supply.
They include increased consumption by the mills and failure of the growers to
area under sugarcane cultivation or more importantly by improving the yield per acre
and Pakistan prepared by the Pakistan Sugar Mills Association indicates that Pakistan
is far behind India. While in Pakistani Punjab farmers are able to get a yield of only
43 tonnes per acre, in the Indian Punjab the yield is over 63 tonnes per acre. The
Similarly, the average yield and recovery in Indian Gujrat is 89.6 tonnes per acre and
11.34% respectively as compared to 57.3 tonnes per acre and 9% recovery in Sindh.
In both the provinces, Sindh and Punjab, the sugarcane cultivation directly competes
with cotton. If the prices of cotton are better, the farmers switch over to it, or vice
versa. When the CLV attacks on cotton were common, a large number of farmers,
originally growing cotton, switched over to sugarcane cultivation. But with the
improvement in cotton prices and availability of virus resistant varieties, the farmers
- 23 -
The area as well as production of sugarcane shrank by 5 and 4 percent respectively in
In the past, the provincial governments used to ban production of 'gur ' during
sugarcane crushing season but lately its production has increased manifold. The
percentage of sugarcane consumed by the sugar mills in Sindh is still the highest as
compared to the other two provinces. 'gur' making has progressed without paying any
taxes and has therefore been consuming more sugarcane to the detriment of the sugar
highest - 76.93% in 1993-94 but has gone down during the last two years. In the
Punjab the maximum utilisation was 81.87% in the same year but came down to
63.22% during 1995-96. But the consumption of sugarcane by mills is NWFP was
reduced to only 17% in 1995-96. Contrary to this, Sindh has the highest sugarcane
Over the last few years most of the existing mills have enhanced their crushing
capacities 2- to 3-fold. They give two reasons for this: expansion is much cheaper as
compared to establishing new mills of equivalent size and they also want to achieve
better recovery by curtailing the number of crushing days. The recovery at the
beginning and at the tail-end of the season is low. Therefore it was considered to
restrict the crushing period to about 150 days to achieve a better rate of recovery and
- 24 -
Incidentally, the hypothesis got some proof last year. Delay in commencement of
crushing in Sindh has been instrumental in achieving a higher recovery rate. Mills in
Sindh are thinking about beginning the crushing in November rather than in October.
Liquidity crunch
The commercial banks were directed by the State Bank of Pakistan to adjust by
August 20, 1996, the balances of credit made available to the sugar industry against
sugar stocks. The action was based on information that the mills were hoarding the
stocks. Industry sources, however say that they prepare fortnightly reports pertaining
to sugar production, its lifting and stocks. Besides, the mills would never like to hoard
the stocks and their priority was to empty their godowns as quickly as possible as
Existing problems
Sugar mills in Sindh pay quality premium regularly - while the mills located in the
other two provinces do not pay such premium - and paid Rs. 733 million to the
Oblivious of the difficult situation faced by the sugar industry, federal, provincial and
local levels, persistently keep hanking for more revenue. Some of the revenue
measures imposed in Sindh lately are, imposition of market committee fee, road cess,
surcharge on sugarcane cess, varying rates of octroi, export tax and rawangi mahsool.
unconstitutional, bad in law and without authority, and the Supreme Court also
dismissed the appeal, yet the district councils recover this tax by a novel procedure.
- 25 -
New deterrents
The central excise division of the Central Board of Revenue vide SRO 329(I)96 dated
May 30, 1996 curtailed the period of sugar storage, without payment of duty, to six
months from the date of production. However, the collectorate has been given
The custom & central excise division of the CBR during June 1996 directed the sugar
the Association sources, stacking of sugar bags and clearance strictly on the
prescribed lines is not manageable and practical. The instructions seem to have been
issued by error of judgment and common sense. It looks as if the person who has
issued the directive has never visited a sugar mill and does not understand its
operation.
While sugar production is primarily confined to two provinces, Sindh and Punjab, and
a small quantity in the NWFP, the product is consumed in all the four provinces and
Azad Jammu and Kashmir. Every year a substantial quantity is smuggled to Iran and
Afghanistan and even goes as far as the newly- liberated Central Asian states.
Traditionally, Sindh has always had surplus production and fed Balochistan, lower
Punjab and at times supplies were made to the NWFP, upper Punjab and Azad
Kashmir. However, over the years Punjab has attained self-sufficiency. Since the price
of sugar is more or less uniform throughout the country, higher cost of freight
incurred on dispatches to far-flung areas squeezes the profit margins of mills located
in Sindh.
- 26 -
Imported sugar also enters Pakistan via Karachi, Sindh and since most of the quantity
is sold in the wholesale markets in Karachi, the prices remain subdued in the
province.
Although a number of new mills with large capacities have been established in the
Punjab the fact remains that cultivation of sugarcane and production of sugar in the
province involves higher costs. The yield per acre and recovery are also low. It is
mainly because the climatic conditions are not conducive for cultivation of sugarcane
in the province. The climate in Punjab is dry and the average temperature is high
Sugarcane needs high temperature and humid atmosphere. The conditions prevailing
in the lower Sindh are most conducive and therefore the yield per acre and average
The industry experts and agriculturists are strongly of the view that shift of sugar
production from Sindh to Punjab is one of the major reasons for increase in its cost of
Key players
The sugar mills in Punjab which produced over 60,000 tonnes of sugar in 1995-96
included the names of Brothers, Waqas, Shakarganj, Tandlianwal and Shahtaj. Waqas
crushed the highest quaintly of sugarcane and also produced the highest quantity of
sugar.
- 27 -
In Sindh, Dewan crushed the highest quantity of sugarcane and also produced the
largest quantity of sugar exceeding 100,000 tonnes. The other mills which produced
over 50,000 tonnes were Bawany, Faran, Habib, Shahmurad and Sindh Aabadgar.
Dewan Sugar Mills started sugarcane crushing on October 18 and ended April 14
during the last season. By crushing 983,489 tonnes sugarcane during the period with
report the directors' review expressed on the increase of sugarcane prices which
touched new heights as most of the mills entered into an open warfare for
procurement of sugarcane. Dewan has been declaring modest cash dividend in the
past in spite of persistent increase in the procurement prices of sugarcane. The mills
Habib Sugar Mills established in Nawabshah in 1963 has not only tripled its crushing
capacity using in-house expertise but is among the few sugar mills which have been
declaring handsome dividends in the past. During 143 days of crushing during 1995-
96 season it produced over 60,000 tonnes of sugar with an average recovery of 9.2%.
It also produces industrial alcohol. The modification in the distillery has helped to
streamline its operating efficiency. Shahtaj Sugar Mills worked for 157 days during
the last season and achieved the highest level of crushing and sugar production since
the unit was established. According to directors' report the company could have
crushed larger quantity had there been no shortage of sugarcane. The unit is located in
Punjab and also suffered from shortage of sugarcane and increase in sugarcane
support price.
Mirpurkhas Sugar Mills also suffered from the shortage of sugarcane and the number
of days it worked was reduced to 157 as against 178 days during the last season. The
- 28 -
company exported 14,600 tonnes of sugar from last year production and earned over
half a million dollars. Noon Sugar Mills produced lesser quantity of sugar mainly due
to limited availability of sugarcane and disruption of supplies for two weeks. The
company supplied 59,000 bags of 50 kg each to the government for sale through
Import of sugar
Import of sugar is a short-term measure to ensure availability and stabilize its price in
the domestic market. However, the recent experiment proved a futile effort. In spite of
import of sugar, the government failed in arresting the upward trend of sugar prices.
The industry experts have a valid point that increase in support price and quality
premium have failed in increasing yield per acre and recovery percentage but the cost
of sugarcane per tonnes has been increasing over the years pushing up the cost of
production of sugar. Therefore, the farmers should improve yield per acre or the
Since the industry has expanded its capacity to the present level - producing nearly
5.5 million tonnes of sugar per annum - the first suggested step is to ban the
establishment of new units and expansion of the existing units till such time as almost
all the mills achieve 90% capacity utilization. Since it is not possible to increase area
develop new varieties offering higher yield and recovery. This will result in higher
sugarcane production and better returns to the growers without increasing support
prices, improved capacity utilization by the mills, larger sugar production, reduction
- 29 -
in cost of production per kilogram of sugar, more revenue for the government, stable
prices for the consumers and better dividend to the shareholders of public limited
companies.
Although more than 40 companies are listed under 'sugar and allied' sector at the
Karachi Stock Exchange with a total paid-up capital of over 4.7 billion rupees; barring
only a few, all are sugar mills. Shares of most of the companies are quoted below par
and only a few were able to declare cash dividend. The list of companies declaring
regular dividend comprise Dewan, Mirpurkhas, Noon, Shahtaj and Thal industries.
negative fundamentals for the industry prevailing for nearly five years had kept the
investors away from this second largest agro-based industry. Individual, institutional,
local, mutual funds and foreign fund managers have neither shown interest nor are
interested in investing in scrips of sugar mills in general. In the past, though this
BY-PRODUCTS
The following are the major by-products of the sugar production process:
Bagasse: The remnant of the cane fiber, bagasse constitutes about 30% of the total
Sugarcane processed and contains approximately 50% moisture. The bagasse is used
as fuel in the mill, meeting more than 90% of the fuel requirements for boilers.
Bagasse can also be used for the production of pulp and paper.
- 30 -
Mud or filter cake: Solid precipitates collect in vacuum and press filters after
carbonation and clarification processes. The amount generated is about three per cent
of cane from processes using sulphitation and about 7 per cent from processes using
carbonation. Mud from the sulphitation process is mainly used as a fertilizer whereas
the disposal of carbonation press mud can be a problem. It is often used to fill low-
sugar cane wax, comprising 8-10% of the sulphitation mud (UN ESCAP, 1982).
Molasses: In Pakistan, around 150 to 180 000 tonnes per annum of molasses will be
produced. Several sugar mills running a distillery for industrial ethyl alcohol. Nearly
half of the production is going to export. Beet molasses can be used in the same way
for fermentation and also for export. For more information about carbohydrate content
Cane molasses is the main by-product of sugar production. In the past, large quantities
- 31 -
Since 2005/06, molasses has been used to produce ethanol due to its strong demand in
the international market. Export of ethanol from 2003 to 2005 has been shown below.
(IN TONNES)
- 32 -
10. ORGANIZATIONAL STRUCTURE.
General
Manager
DY. General
Manager General
Admin Finance
Technical Manager
Manager Manager
Cane
Chief
Technical Engineer Production DY. Admin Chief DY. Cane
Manager Electrical Manager Manager Accountant Manager
Chief Sr.
Engineer Engineer Chief
Mechanical Electrical Chemists
Management Hierarchy
The hierarchical structure of the company is Functional. The Board of directors heads
the organization, which is constituted by the owners of the mill. The functional head
of the company is General Manager. There are six main Departments of the mill and
six Managers, who are directly working under General Manager, head these
Departments. The hierarchy is more liked bureaucratic with six layers on average in
each department.
- 33 -
b. Number of employees
c. Main Offices
i) Cane
ii) Accounts
iii) Admin
iv) Electrical
v) Chemical
vi) Mechanical
Indus Sugar Mills has a very well define Organizational Structure. Each
Department has been supervised by the Manager of its own Department. Each
Manager of the Department then works under the jurisdiction of the worthy General
Manager of the Mill. Each Department has its own working staff. All the working
staff is well educated and hard working. They all help the trainee when and wherever
necessary.
accounting activities of the Indus Sugar Mills. They install software for accounting
system. They entered only figure data. They cannot use manual system. This
Department records the different accounts, payment, salaries, of employees, A/R, A/P
- 34 -
Revenue from sales cost on the sugar and calculates the profit of the organization. It
also maintain the finance that is required by mill to fulfill the requirement of the
c. The departments in which you got training and duration of your training
I got training in Accounts Department and Admin Department and the duration
of my training is 06 weeks.
i Cane department
Cane department is that department who purchase the sugar can from farmer.
Who provide the seeds fertilizer to the farmer who establish there purchasing center in
different places, who seek the field of sugar cane and give suggestion to the farmer.
After purchasing cane the transportation expenses beard by this department & cane is
entered in milling area. This department also responsible for completing the daily
requirement of crashing process. The fresh cane is purchased because the predictive of
There are different methods for purchasing the sugar cane. By issuing
passbooks or on the spot. The payment of sugar cane also the responsibility. If they
payment is less than 25000 than paid in cash other wise they issue chaque.
- 35 -
ii. Accounting department
Mills. They install software for accounting system. They entered only figure data.
They cannot use manual system. This Department records the different accounts,
payment, salaries, of employees, A/R, A/P Revenue from sales cost on the sugar and
calculates the profit of the organization. It also maintain the finance that is required by
mill to fulfill the requirement of the different departments, the Finance Manager is
control of the sugar mills. They introduced the new working methods. These methods
implemented in the production process to increase the production and decrease the per
unit cost. This department controls the other department and tries to increase the
efficiency of workers.
This department containing the Executive, Directors etc who guide the other
employees and make plans for future and using the information technology in
business.
in whole mills. All process of production run under this department and perform their
activities with better ways. The main aim of this department is to maximize the
- 36 -
v. Cost Department
In cost department they maintain the overall cost of the product. But they use
the process cost system in production of sugar. Process cost system the focal points in
Mills. They install software for accounting system. They entered only figure data.
They cannot use manual system. This Department records the different accounts,
payment, salaries, of employees, A/R, A/P Revenue from sales cost on the sugar and
calculates the profit of the organization. It also maintain the finance that is required by
mill to fulfill the requirement of the different departments, the Finance Manager is
a. Department hierarchy
The hierarchical structure of the company is Functional. The Board of
directors heads the organization, which is constituted by the owners of the mill. The
functional head of the company is General Manager. There are five main departments
of the mill and five managers, who are directly working under General Manager, head
these departments. The hierarchy is more liked bureaucratic with five layers on
i Shabbir Ahmad
Finance Manager
- 37 -
ii Abid Hussain
Chief Accountant
iii Fazal Hussain
Accountant
iv Mehbood Farid
Office Assistant
v Nazik Hussain
Clerk
c. Accounts operations
Accounts Department performs following functions,
i Financing
The mills provide the finance to the former through some banks like MCB
Allied bank. They provided the finance to the former for some specific purpose just
like,
ii Payments
The payment procedure is very simple to facilitate the formers. They make
their payment in term of cash if the amount is small, but if the amount is large than
Km at per 40 Kg, subject to distance of 40 Km, this will also increase the interest of
the former.
the formers that is why the formers can easily provide the sugar canes to the centers.
- 38 -
v. Bonus
The company management gives the bonus to their permanent employees in
shape of cash. The bonus is given to motivate and to satisfy the employees. But the
company cannot pay the bonus to the employees who work as temporary bases
Sugar prices continued depressed well into the midseason of 1999-2000: at the
end of crushing, as soon as necessity of import of sugar due to shortfall was known,
the prices of sugar started improving. During the year’2000 for the first time in four
years retail price of sugar crossed Rs.22/- per kg. Mill gate prices are generally Rs.3/-
to Rs.4/- below the market retail price. Though process of export was completed in
May’99 yet sugar prices remained low for a period of over a year, till the glut like
conditions ended.
Escalation in the production cost of sugar has been due to high cost of sugarcane with
low recovery, high taxation and high interest rates charged by the Banks and DFls.
With sugarcane support price still enforced no similar mechanism exists for the sugar.
Without adopting a sound strategy, the industry will continue to suffer. The production
Table presented below shows that the sugar price could not respond to the increase in
the sugarcane price for a period of three years, due to domestic surplus production and
similar crash in the international sugar trade price due to global surplus.
- 39 -
SUGARCANE SUPPORT PRICES MILL GATE DELIVERY
PREMIUM
- 40 -
Sugar is mainly extracted from sugar cane and beet. The majority of sugar in Pakistan
is produced by crushing and processing sugar cane, with only three mills in NWFP
producing sugar from beet.3 In 2003-04, 1,074,700 hectares of agricultural land was
used to grow sugar cane yielding 53,800 tones, with an average yield of 49.7 tones per
hectare of which 81.19 % was utilized by sugar mills (PSMA, 2004, 27). The actual
sucrose content of sugar cane and beet varies with location and permanent harvesting
recovery depends on both the processing technology and composition of the raw
materials. Sucrose typically comprises 8 – 15 percent of the juice first extracted from
the sugar cane (see Appendix A for a breakdown of sugar cane contents).
The sugar cane is harvested by cutting the stem, typically by hand in Pakistan and
most parts of the world, and the roots are left for re-growth. There is a high priority on
immediate delivery of the cane to the mill and to begin processing it as soon as
possible after harvesting because the sucrose content deteriorates rapidly via enzymic,
chemical, and microbial processes. Dependent on the harvest season, sugar mills are
in operation only from around early November to April or May. Sugarcane processing
is aimed at isolating from the cane juice, which initially contains soil, fibers, and other
non-sugar components, the purest form of sucrose possible with minimum wastage
through destruction of the sucrose. The process is initiated with unloading, washing,
and cutting the sugar cane, after which the desired end-product, refined white sugar, is
produced in a two step procedure – in the first stage, juice is extracted from the sugar
cane and converted to raw sugar; in the second stage, the raw sugar is refined to
- 41 -
With some minor variations, the process of cane juice extraction and raw sugar
production is relatively similar across the industry. A series of roller mils are used to
crush and grind the cane. The residual fiber, called bagasse, is used as fuel for the
boilers. The juice from the mill is generally clarified with heat or slaked lime, a
process called “defecation”, which precipitates much of the impurities in the form of
an insoluble mass termed “Mud” which is separated via gravity or centrifuge and then
suspended particles.
through steam evaporation and then boiled in large vacuum pans until the syrup is
- 42 -
saturated enough for crystallization to begin. The crystallization is often initiated with
a sprinkling of sugar dust. After crystallization, the mixture of sugar crystals and
mother liquor is centrifuged and the separated crystals are washed with water. The
stage to remove the maximum sugar content possible until the molasses has been
reduced to a solution of much lower purity which becomes one of the by-products,
used mainly as cattle food or for ethanol production in distilleries. At this point, the
raw sugar is either cooled and packaged or sent directly to the refinery in an
integrated facility.
CHEMICALS USED
- 43 -
While the desired product, sucrose, is fully formed and present in the sugar cane or
beet, the process of extracting the purest and most refined form of the sucrose from
amongst the other components of the raw material, involves the use of a number of
chemicals which eventually find their way into the wastewater stream. The following
colloidal matter and precipitate impurities into an insoluble mass which can be
separated.
Carbon Dioxide (CO2): In processes that employ carbonation for clarification of the
raw sugar melt, CO2 from the wet scrubbing unit of the boiler stacks or from
calcinations of limestone in the lime kiln, is bubbled through the liquid to precipitate
impurities.
phosphoric acid is added to the sugar mixture to separate impurities. It may also be
added before liming to sugarcane juices deficient in phosphorous pent oxide (P2O5)
Sulphur Dioxide (SO2): In processes that amply sulphitation for decolourisation, the
sugar melt is treated with SO2 obtained through burning sulfur rolls in a kiln.
polymers used in sugar processing to separate impurities in the form of a flock that
- 44 -
Caustic Soda (NaOH), Soda Ash (Na2CO3), and Hydrochloric Acid (HCl):
Accumulated scale from multiple effect evaporators and vacuum pans is removed by
boiling a cleaning solution containing 30-35% caustic soda and 6-8% soda ash in the
heaters, followed by rinsing with a solution containing 3.5% hydrochloric acid and
Lead Sub Acetate: Lead Sub Acetate is a toxic chemical used to analyze sugar
content.
d. Distribution strategy
Brokers
Wholesalers
Retailers
Final Consumers
e. Promotional strategy
At this time when industry is fully mature, and the competition in terms of
access to raw material is very high the companies usually face the problems of slow
- 45 -
demand growth, emphasize on cost and services, topping out and loss of profitability.
The Indus Sugar Mills is also facing the same problems. Although it has tackled the
major problems very well but still there is some room of improvement in its existing
strategy.
The company has got an advantage of access to the sources of raw material.
In fact the owners of the company are big landlords. When they observe the problem
of the sugarcane supply they plan to provide sugarcane to factory through their own
lands. This plan was successfully implemented and at the moment they are fulfilling
almost 30% of total requirements through their own sources. This type of
company.
Failure
Usually in the mills workers get some perks along with their salaries. The
company can afford such kind of expenses only when it is profitable. Indus Sugar
Mills is incurring losses right from its inception. To reduce these losses company
tightens the fringe benefit policy. Not only did these workers also not get any bonus
for last many years. Such kind of activities demoralized the employees and with less
- 46 -
2- JDW Sugar Mills Jamal Din Wali
3- Hajra Rehman Sugar Mills Muzaffargarh
the main reason being the drought conditions being faced by the country, which
has resulted in less acreage of cultivated sugarcane and low yield. Resultantly
due to market forces the mills are receiving a better price for its sugar but
allow import of raw sugar with withdrawal of excise duty thereon to overcome the
expected shortage of sugar. It is hoped that myopic decisions are not made to
Since the growers are getting a good price for the cane it is expected that the
sowing would be better for the next season. Your management is confident of
Through the analysis of last five years financial statements some facts are also
generated which will throw light on the financial aspects of the company. From this
data certain ratios are calculated and these ratios are compared with the industry
averages. Because the figures will be just meaningless without any interpretation so
Liquidity Ratios
- 47 -
The liquidity ratios of the company are good as compare to the industry
average. There is a big difference between current ratio and Acid Test ratio, which is
due to the low inventory levels. The ratios show that the company is able to fulfill its
current liabilities very easily with its current assets. Low level of inventory is due to
Turnover Ratios
Turn over ratios is also showing better than the industry norms. This is due to
the better relationships with the suppliers, a better-automated system and strict
recovery controls.
This ratio is amazingly high in the company. The industry average is about
30:70, while the Indus Sugar Mills has this about 16:84. This shows a high
dependence of the company on debts. And now the company is almost unable to
Profitability ratios
Here again the company is showing very poor performance. Although the
ratios are not very different from the industry as a whole but due to the continuous
losses in the previous years the ratios are turned to be very discouraging. Due to the
profits earned by the company in last year it can be expected from the company to get
Professional leadership
- 48 -
Usually in such kind of traditional organizations leadership is deficient.
People are usually guided through specified rules and regulations. Also the
professionalism is lacking in most of the cases. But Indus Sugar Mills is clearly
different in this aspect from other organizations. After taking charge of many
responsibilities Mr. Bashir Ch. has worked very hard for the success of the mill. Due
to his professional abilities and leadership qualities he has also got many of his
objectives. And now this is the result of his efforts that the company is showing very
Skilled labor
In most of the factories skilled and semi skilled labor along with unskilled
labor is hired from outside. There is always a risk associated with them that whether
they work properly or not. Indus Sugar Mills has its own training department. In this
department people are hired and trained for a period of three years. After that period
they have been given an opportunity to stay with organization or to go to some other
factory. Most of the time the workers opt to stay and in this way company gets a good
Sophisticated machinery
There is no hard and fast rules in sugar industry regarding the technology or
process implied. Even in some factories fifty years old machinery is also used. Such
type of machinery effect the recovery rate. Indus Sugar Mills has the latest machinery
and plant. As it is one of the last sugar mills build in Pakistan, so it is using the most
modern technology available in Pakistan. This machinery also gives an edge to the
- 49 -
ISO 9000 Certification
One of the objectives of the company is to prepare itself serve the foreign
markets by exporting sugar. As a proactive step the company has gone for ISO 9000
certification. The process is on its way and the company will get this certificate at the
end of year 2001. In sugar industry very few firms has got this certificate, so it’s the
competitive edge the company will be having on other players in foreign markets.
Backward linkages
Generically the company has got an advantage of access to the sources of raw
material. In fact the owners of the company are big landlords. When they observe the
problem of the sugarcane supply they plan to provide sugarcane to factory through
their own lands. This plan was successfully implemented and at the moment they are
fulfilling almost 30% of total requirements through their own sources. This type of
company.
ii Weaknesses
Usually in the mills workers get some perks along with their salaries. The
company can afford such kind of expenses only when it is profitable. Indus Sugar
Mills is incurring losses right from its inception. To reduce these losses company
tightens the fringe benefit policy. Not only did these workers also not get any bonus
for last many years. Such kind of activities demoralized the employees and with less
Transportation cost
- 50 -
The mill is located at such a place where the sugarcane is not cultivated
widely. To ensure the 100% capacity utilization of mill the company purchases
sugarcane from distant areas. When this cane is transported its cost become high,
which results in high production costs. Because they can not transfer this to the
Financial expenses
The company is highly dependent upon debts. Against these debts the
company is paying a heavy amount every year as interest payment. The company has
also defaulted, once, against its debentures to different DFIs. Due to this default and
high dependence the company is considered as risky company. That is why to cover
this risk whenever any institute extend any loan to them it carries a high interest rate
as comparing to others.
iii Opportunities
Generic opportunities
The sugar has so many opportunities due to its product nature. It is a necessity
and no one can avoid it. In Pakistan the consumption rate of sugar is highest in the
world, 22-Kilogram per person per year. And as the population growth rate is also
very high so the company has an opportunity to meet the demand of local market.
Also the product has no substitute, so people have to buy it in any case. These are the
Diversification
for some distillery to refine the molasses to make ethyl alcohol or can go for making
- 51 -
Chipboard or for any paper mill. The inputs of these products will be available in the
De-Zoning
Previously it has to arrange the sugarcane from the near vicinity, while the sugarcane
is not easily available in proximity. In this way the company was suffering from
sugarcane shortage. But due to de-zoning now the mill can arrange sugarcane from
Export market
so with a little effort. Although the cost of production in Pakistan is very high as
compare to the competitors due to the high price of sugarcane. But still company can
make its mark in Central Asian States as well as to Iran, India and Afghanistan.
iv Threats
The sugarcane is not produced sufficiently in the country. It is due to the low
productivity of the varieties and due to the less area cultivation. Due to this low
production the mill faces a shortage of sugarcane which is always a problem for the
company.
Changing trends
Sugarcane is a crop, which needs more water and water for the whole year.
Due to the water crisis in Pakistan, now the trend of the growers is changing towards
- 52 -
those crops, which needs less water. This thing can also cause a shortage of
sugarcane.
imposing a ban on the establishment of new sugar plant but due to the new policy of
privatization of sick units the scenario is bit changed. The government has privatized
different industrial units including sugar mills, which will increase the competition in
the industry.
Decrease in consumption
Due to the increase in awareness level of the people the consumption rate is
consumption of sugar. The high rate of diabetes in the country is another cause which
restricts the people to use sugar. Because of all these factors the consumption rate of
company?
From the findings I have a general interpretation is that most important hurdle
involved in the consumer satisfaction about sugar is the price and the quality. To solve
them I give certain suggestions. To find out problem with out providing solution is
I found that Indus Sugar Mills sugar users are completely satisfied with their quality
- 53 -
Sugar should be made more economical that it can become affordable to all
users of Sugar.
Samples of Sugar should be distributed in those areas in which people are not
using this Sugar. Then response collected from them and relative steps should
We should leave that consumer who are using Sugar are completely satisfied.
Focus on that part which is not satisfied with their current Sugar and not using
The first point of focus, not least because of the relative immediacy of results and
tanneries.
- 54 -
The various measures discussed have the potential to increase efficiency, decrease
and substantial maintenance costs will eventually have to be adopted to bring the
sugar industry in compliance with NEQS. If the sugar mills are vigilant with the in
rendering the requisite end-of-pipe treatment much less costlier than the scale of
treatment that would be needed to mitigate current effluent levels. The financial
burden per company can also be reduced if any clustered mills pool resources to
create and maintain a collective wastewater treatment system. Moreover, the Kasur
Tannery Pollution Control demonstration project has shown that the financial burden
can be moderated with savings through other means such as the marketability of land
reclaimed from standing wastewater. The sugar industry also has to keep in mind that
eventually pollution charge will become a financial liability that will only be averted
through complying with NEQS limits. From the various options available, sequences
sludge system appear to be the most thorough and affordable options. To enhance the
consider carrying out periodic “waste audits”, particularly for water use, to identify
fostering favorable regulatory and financial conditions. It already has at its disposal
broad legislative authority under PEPA 97 and potent implementation tools in the
- 55 -
form of the proposed Self Monitoring and Reporting/SMART Program for Industry
and pollution charge system to which industry has itself contributed and acquiesced.
for environmental technology, soft loans, and technology transfer assistance aimed at
agreements, for instance, and leverage funding for demonstration projects similar to
the Cleaner Production Center assisting the Sialkot tanneries and treatment plant
providing forums and opportunities for stakeholders to come together and tackle
for the determination of the pollution charge system and self-monitoring and reporting
initiative government could promote is examining the potential for a joint wastewater
treatment system.
By the arrival of new director everything in the organization has been changed
and revived. All the vision, Mission, and objectives have been revised and
- 56 -
results for the organization. According to the new management the vision of the
company is:
Although at this very moment it is difficult to understand that how they will
accomplish it. But there efforts will be analyzed for this purpose in next section. A
good thing with this vision is that previously it was widely believed by the workers
that the firm stands only for profits and it does not care about anything else. But this
new vision really shared by all the employees and it has changed there mental model.
Previously the only mission of the organization was to run the factory in profitable
manner. But with the change of vision, the mission is also positively affected. Now
"By the application of sophisticated machinery and better planning, produce a high
quality product, consistently, for local and foreign markets. As well as building
competition".
Although the vision and mission of the company is very broad, but they are supported
by the goals and objectives set by the company. Currently it looks difficult to
accomplish all these goals but the management has set its direction and sooner or later
- 57 -
a) To bring the company out of financial crisis, by decreasing its debt dependency.
b) Enhancing to utilize the full potential of the mill by arranging raw material,
c) To build up the confidence of growers and managing and maintain long term good
relationship with them, with fair honest and mutually profitable dealings.
The vision of the company is very broad and deals with both the functional and
organization wide acceptance of this vision. The mission is also not very different
from the vision rather its an explanation of company vision. This vision and mission
is not stated anywhere in the organization rather they are inferred and extracted during
The objectives are very clear and to much extent are self explanatory in nature. These
objectives are being formulated not only according to the current situation but also to
keep the future and coming opportunities in mind. The objectives also give a shadow
Problem Statement
- 58 -
It seems that the organization is now coming out of the problems. In past the
organization has faced plenty of problems but due to the proper planning and well
implementation problems are decreasing day by day. But still the organization is not
Reference
Indus Sugar Mills Kot Bahadar Rajan Pur
Abid Hussain (Chief Accountant)
Source.
(PSMA) Pakistan Sugar Mills Association.
19. ANNEXES
Will be provided at the time of the submission of hardcopy.
- 59 -