FY21 was a good year for Pakistan’s exports, especially for the leading exporting segment, textile. But how did the non-textile exporting segment performed? BR Research renews its attempt to size the market share of Pakistan’s silent exporters, who otherwise go unnoticed from the policymaking discussions.
Over the past five years, Pakistan’s ethanol exports (Tariff line: 2207) have averaged at $325 million. According to ex-chairman of Pakistan Ethanol Manufacturers Association (PEMA) Asim Ghani, local production of ethanol is almost entirely export oriented. The industry has around 20 - 21 distinct players, belonging to major sponsor business groups of the country.
According to PEMA’s database, at least 13 out of association’s 18 members are registered as vertically integratedsugar milling companies. Because several of PEMA’s members are unlisted entities, past attempts to size market shares of these exporting firms has been out of question. Luckily, a list of Pakistan’s exporters for FY21 doing rounds on social media (and commonly attributed to commerce ministry) has finally made answering this question possible.
But what about those players engaged in sale of both sugar milling and ethanol? Turns out, one happy but unintended consequence of ban on export of sugar – imposed in February 2020 – resolves that dilemma. Since sugar exports were banned throughout FY21 (and continues to be so in FY22), the following analysis assumes any exports proceeds received by these firms during the year as proceeds against ethanol sales. This assumption remains open to challenge, however, should broadly stand the test against evidence.
According to the exporters database, 19 firms made exports of $386.4 million during FY21. Of these, $252 million exports are attributed to vertically integrated sugar mills, while standalone ethanol manufacturing units made exports of $134 million. Of these 19, the largest exporter is a listed player Unicol Limited, with a market share of $48 million or 12.5 percent. At least two members of PEMA – Abdullah and Ramzan Sugar Mills – apparently recorded nil exports during the year, while two other exporting sugar mills are not listed as members of PEMA on association’s website.
A deeper dive into the ownership structure of the 6 standalone ethanol manufacturers show that at least 3 of these units are owned/co-owned by sugar milling groups. For example, Unicol Limited is a joint venture between three sugar milling groups from Sindh.
Not surprisingly, the export figure of $386.4 million does not exactly match up with PBS and SBP data. Although PBS 8-digit export data provides rupee denominated export values only, 12-month average exchange rate places PBS exports against tariff line 2207 at nearly $287 million. Interestingly, PBS data shows that ethanol exports declined by 6 percent in rupee value during FY21, even as quantity exported increased by 17 percent. Unlike textile exports, unit price seems to have declined in the case of ethanol, which warrants more explanation.
Although SBP data places export proceeds a tad higher than PBS, at $322 million exports proceeds are almost flat-lined over the previous year. This is all the more curious considering global demand for ethanol – used as raw material in the pharmaceutical industry – picked up after the onset of pandemic. Which raises the questions as to why unit prices of ethanol export trended downwards in 2021.
Pakistan’s limited sugarcane crop remains the primary bottle-neck to growing ethanol exports, as the chemical is almost entirely derived from a byproduct of sugarcane crushing process: molasses. According to PEMA, local industry is highly price competitive in global trade, and is able to export without support from government subsidies (however, as an export-oriented segment it is eligible for export refinance schemes provided by SBP). Policymakers may be tempted to look towards the ethanol industry as a non-traditional exporting segment, but are they ready to expand the footprint of its raw material supplier – the sugar sector?