Comparative Advantage And Policy Analysis Of Pakistan Sugar \ud Industry Implications For Farmers Income And Food Security

This research study \ud was designed to determine the comparative advantage of Pakistan’s \ud sugar industry by analyzing the policies, to know whether sugarcane \ud production are favored or discriminated by the policy \ud incentives.Another objective of the research was to determine \ud whether Pakistan should produce sugarcane/sugar as import \ud substitution strategy to ensure food security or qualifies for \ud export of sugarcane/sugar.The cost of sugarcane production data for \ud Punjab, Sindh, Khyber Pakhtunkhwa and Pakistan as a whole for the \ud harvesting years i.e. 2004-05 and 2008-09 were used by applying \ud Policy Analysis Matrix (PAM).The PAM analysis showed that the \ud Domestic Resource cost (DRC) values were less than unity (0.86-0.93) \ud in 2004-05 and (0.66-0.80) in 2008-09 except Sindh in 2004-05 for \ud import substitution regime which implies that Pakistan has \ud comparative advantage in producing sugarcane as import substitution \ud while its values were greater than unity (1.70-3.69) in 2004-05 and \ud (1.05-1.29) in 2008-09 for export promotion regime confirms \ud Pakistan’s disadvantage in sugarcane production for the purpose of \ud export. For import substitution regime the Social Benefit Cost (SBC) \ud ratios were greater than one (1.04-1.14) in 2004-05 and (1.15-1.30) \ud in 2008-09) except Sindh in 2004-05 and its values were less than \ud unity (0.61-0.77) in 2004-05 and (0.86-0.97) in 2008-09 for export \ud regime.Thus, for import substitution SBC analysis validates Pakistan \ud comparative advantage in sugarcane production and disadvantage for \ud export purpose. For import substitution the Nominal Protection \ud Coefficient (NPC) ratios were less than on (0.82-0.86) in 2004-05 \ud and (0.78-0.89) in 2008-09 which means that sugarcane farmers were \ud discriminated and they received prices less than the world \ud prices.For export promotion regime the NPC ratios were greater than \ud one (1.22-1.28) in 2004-05 and (1.04- 1.18) in 2008-09 which implies \ud that sugarcane were favored and they received prices more than world \ud reference prices. Similarly, for import substitution the values of \ud Effective Protection Coefficient (EPC) were less than unity \ud (0.71-0.80) in 2004-05 and (0.68-0.85) in 2008-09 show that, both \ud output and input prices were taxed and for export promotion these \ud ratios were greater than one (1.58-2.18) in 2004-05 and (1.11-1.37) \ud in 008-09 which means positive incentives to the cane growers and \ud that input and output prices were protected.This implies that the \ud current sets of macroeconomic and agricultural policies are not \ud consistent with the existing pattern of comparative advantageand \ud have discriminated the sugarcane production in both export promotion \ud and import substitution regimes.For import substitution in both \ud producer Subsidy Equivalent (PSE) and Subsidy Ratio to Producer (SRP) \ud values were negative which means that the overall transfers have \ud taken place from sugarcane producers to society. Whereas for export \ud promotion regime these values were positive indicating the overall \ud transfer from society to sugarcane growers.The results further \ud reveal that for import substitution regime the DRC coefficient had \ud smaller values in 2008-09 than 2004-05, indicating higher \ud comparative advantage in 2008-09.The results suggest that sugarcane \ud as an import substitution strategy for self-sufficiency and food \ud security could be produced.While for export purpose its production \ud should be discouraged.The sensitivity analysis was carried out by \ud changing yield, import/export parity prices, cost of land rent, \ud fertilizer, seed and sowing and irrigation.The sensitivity analysis \ud revealed that 10 percent and more increase in yield will not only \ud further strengthen Pakistan’s comparative advantage in import \ud substitution regime, but also will turn its comparative disadvantage \ud in to comparative advantage for export purpose.This study recommends \ud that we can strengthen our comparative advantage in sugarcane \ud production by improving cane yield and ensuring world level \ud reference prices to sugarcane growers. The study further recommends \ud that Pakistan’s top administrators/policy makers should make sincere \ud efforts for policies which are in favor of national goals of \ud agricultural development, trade and food security