“When life gives you sugarcane, make ethanol not sugar”; at least that is the lesson from around the world. And a basic analysis of country’s export numbers indicates that it may be equally true for Pakistan as well.
For the better part of past decade, Pakistan’s annual ethyl alcohol (HS code: 2207) export has averaged at $300 million. South Korea has remained exporters’ favourite destination, consistently absorbing more than one-third of these exports as per PBS and SBP trade numbers.
During the same time, crystallized sugar export has swung like an unhinged pendulum; increasing to $431 million from zero within two-year span (FY11 to FY12), declining again to near $110 million by FY16, before closing at $700 million last fiscal year.
Most years, ethyl alcohol (industrial grade ethanol) export has exceeded sugar trade in value; mostly because sugar trade is regulated by TCP under limited quotas announced by Ministry of Commerce. But it’s not as if sugar export would have crossed billion-dollar mark if it were unregulated; after-all, in years when BOP numbers have recorded a sugar rush, it has mostly been propped up by heavy subsidies.
It is unfortunate that despite showing great resilience, ethanol’s potential for export remains ignored while sugar production and glut receives all the attention. Pakistan’s sugarcane growing practices are dated and inefficient, with low yield per hectare and abysmal sucrose content compared to other leading sugarcane growing countries.
But it’s not just the inefficiency of the backward linkages in farming that has held the sector back; by BR Research’s estimates, only 15 out of 82 sugar mills have full-scale distillery operations, generating enough revenue to be classified under a distinct operating segment.
It should be of no surprise that as a higher-value add product, ethanol production is a more profitable business. In comparison, repeated cycles of excess supply have led to plain-vanilla millers complain of failure to breakeven. That claim may be exaggerated; however, should not come as a shock considering sugarcane constitutes up to 85 to 90 percent of sugar production cost.
Despite distortion market practices beginning from support price to freight subsidy on export, ethanol’s export value has demonstrated consistency, while volume has grown exponentially from under 50 million tons at turn of the century to over 700 million tons per annum in FY18.
Yet, classified mostly as a by-product of milling process, ethanol continues to be treated as an afterthought. As the flowchart indicates, ethanol can also be the primary product from sugarcane juice. This is in comparison to the manufacturing process-flow followed currently by most mills, which extract ethanol from sugar’s first-cycle by-product, molasses.
Consider this, as a by-product, molasses recovery rate is usually half that of sucrose recovery when measured as a percentage of sugarcane crushed. Ethanol production extracted from this process is thus marginal, as most of the juice has already been consumed towards sugar production. In comparison, if the sugarcane juice is directly utilized towards ethanol extraction, ethanol output will be significantly higher.
Most millers will cite high input cost of sugarcane as reason for not investing in high value addition forward linkages such as ethanol distilleries. Even if the argument is taken prima facie, it doesn’t answer the mystery of how ethanol export has maintained momentum in absence of any subsidy.
Moreover, when compared to sugar export value net of subsidy, ethanol’s superiority becomes even more stark; sugar exporters received subsidy of close to $150 million during last marketing season, which brings last years net export to $530 million.
The next column in this series will seek to value Pakistan’s existing ethanol output, and its domestic consumption.
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