challenges in sustainability and csr, sugar industry in bangladesh

The Sugar Industry in Bangladesh

Challenges in Sustainability and Corporate Social Responsibility

Novibx

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Challenges in Sustainability andCorporate Social Responsibility


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Published by

Prakruthi43, 2nd Cross, Ramaya LayoutSt. Thomas Town PostKammanahalliBangalore 560 084, Indiawww.prakruthi.org

Supported by

The NetherlandsOxfam Novib

Design and Layout by Rajesh MVPrinted at National Printing Press, Bangalore

© 2012, Edition - firstISBN: 978-81-908155-8-1

Author: Dr. Osman Gani, Bangladesh

Editor: Shahamin S. Zaman, CSR Centre Bangladesh

Research Co-ordinator: S. M. Faridul Haque, CSR Centre Bangladesh

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Acknowledgments

1.Introduction 71.1 Background 9

1.1.1 Global Perspective 91.1.2. Asian Perspective 111.1.3 Bangladesh Perspective 12

1.2 Importance of Sugar 131.2.1 Sugar’s Contribution to Employment and Output 131.2.2 Sugar’s Growth Potential 13

1.3 Major Problems in the Sugar Sector 141.4 Study Objective 14

1.4.1 Key Research Questions 141.4.2 Micro Level Situation 141.4.3 Specific Issues of Role of CSR Instruments 10

1.5 Methodology 151.5.1 Approaching the Issue 151.5.2 Sample and Data Collection 151.5.3Analytical Method 16

2. Literature Review 172.1 Major Issues 182.2 Sustainability 18

2.2.1. Environmental Sustainability 182.2.2. Economic Sustainability 182.2.3. Social sustainability 18

Contents

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2.3 Policy Literature 192.3.1 European Sugar Policy 192.3.2 Brazilian Sugar Policies 202.3.3 African Sugar Policies 202.3.4 U.S. Sugar Policies 202.3.5 Kenyan Sugar Policy 212.3.6 Bangladesh Sugar Policy 22

2.4 Corporate Social Responsibility of the Sugar Industry 232.4.1 General Concept of CSR 232.4.2 EU Perspective 242.4.3 Bangladesh Perspective 27

3. An Overview of the Sugar Market 293.1 The Global Trends in the Sugar Market 29

3.1.1 World Production and Consumption of Sugar 293.1.2 Summary of Global Statistics 2009 303.1.3 World Price of Sugar 323.1.4 Cost and Output Variation 32

3.2 The Sugar Industry in Bangladesh 323.2.1 Sources of Sugar in Bangladesh 323.2.2 Production of Sugarcane 333.2.3 Production of Sugar and Gur 353.2.4 Capacity Utilization of State-owned Sugar Mills 383.2.5 Price Setting for Sugarcane and Sugar 383.2.6 Profit and Loss 393.2.7 Contribution to GDP 403.2.8 Contribution to Employment 41

3.3 The Private Refiners 423.4 Import 42

4. Research Findings 454.1 The State of the Sugar Industry: Macro Aspects 45

4.1.2 Stagnation in the State-owned Sugar Mills 454.1.3 Subsidy to Consumers, Burden to Taxpayers 464.1.4 Import Dependence of Refineries 464.1.5 Growth Prospects 47

4.2 The State of the Sugar Industry: Micro Aspects 474.2.1 Problems Faced by Stakeholders 47

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4.2.2 The Support Sugar Mills Provide to Cane Suppliers 484.2.3 The support Sugar Mills Provide to Workers 484.2.4 Price Setting 484.2.5 Production Capacity 494.2.6 Quality Management 494.2.7 Environmental Concerns 494.2.8 Output Variability 494.2.9 Major Constraints 50

4.3 Sustainability 504.3.1 Multiple Dimensions of Sustainability 504.3.2 Environmental Sustainability 504.3.3 Economic Sustainability 514.3.4 Social Sustainability 52

4.4 CSR Options 524.4.1 Scope for CSR Activities 524.4.2 Public Versus Private Corporations 534.1.2 Issues where CSR can Intervene 53

5.Suggestions 555.1 Suggestions for Sustainability 55

5.1.1 Privatization 565.1.2 Trade Liberalization 565.1.3 Subsidization 565.1.4 Expert Suggestion 56

5.2 Suggestions for CSR Programs 56Conclusion 57

References 58Appendix: Survey Answers 58

List of TablesTable-1: World Sugar production, export, and per capita

consumption, (2008-09) 29Table-2: World Price of Sugar per kilogram, (2008-09), in USD and BDT, 32Table 3: Sugar market share of different participants in Bangladesh 33Table 4: Cane Output, sugar output, and cane price) in

Bangladesh (1971 to 08) 34Table 5: Production of Gur and Sugar in Bangladesh 1990-2009 35Table 6: Sugar Recovery from Sugarcane in Bangladesh, 1972-2003 36

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Table 7: Crushing Capacity of Sugar Mills in Bangladesh 38Table 8: Profit and loss of state-owned sugar mills in Bangladesh

(1972-2009) 39Table 9: Sugarcane’s contribution to GDP in Bangladesh (2003-04) 40Table 10: Contribution of sugarcane by-product to national

economy (2003-04) 41Table 11: Employment in Sugar Sector (1999-2000) 41

List of Acronyms

BSFIC Bangladesh Sugar and Food Industries Corporation

CSR Corporate Social Responsibility

DFID Department For International Development

EU European Union

HFCS (high fructose corn syrup)

IFC International Finance Corporation

MT metric ton

OECD Organization for Economic Co-operation and Development

PDB Power Development Board

SADC Southern African Development Community

SOE State Owned Enterprise

TRQ Tariff-rate Quota

WTO World Trade Organization

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Acknowledgments

The CSR Centre in partnership with Prakruthi and funded by Oxfam Novib hascompleted the research study titled “The Sugar Industry in Bangladesh: theChallenges of Sustainability and Corporate Social Responsibility”. We gratefullyacknowledge the support given by Prakruthi, India to conduct the study.

We would like to thank Bangladesh Sugar and Food Industries Corporation (BSFIC)for their interest in helping us to conduct this research and give us access to theGovernment Sugar mills.

We are thankful to Dr. Osman Gani, professor of Independent UniversityBangladesh (IUB) for compiling the research report. Dr. Tanvir Ahmed Khan,Registrar of Independent University Bangladesh (IUB), also deserves specialthanks for his cooperation and feedback.

From the CSR Centre, special thanks go to Mr. Golam Sorwar Bhuiyan andMr. M. Faridul Haque for their efforts to conduct the study. They were engagedwith the study from the very beginning. Both of them worked directly for primaryand secondary data collection, literature review and questionnaire formulation.

We are thankful to the following persons for their support in guiding the research-Mr. Mahmud ul Haque Bhuiyan ,Additional Secretary ,Government of the PeoplesRepublic of Bangladesh &Chairman Bangladesh Sugar & Food IndustriesCorporation, Mrs.Ferdous Begum, Secretary ,Bangladesh Sugar & Food IndustriesCorporation, Md.Abdul Wadud Dewan, Gm(Trg), Bangladesh Sugar & FoodIndustries Corporation, Managing Director, MD.Shahidullah, Carew & Company,,MD.Shahidullah, Managing Director, Jaypurhat Sugar Mills Ltd., Mr.Habibur

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Rahman, Managing Director, Mobarakgong Sugar Mills LTD, Mr.Anisur Rahman,GM-Administration,Natore Sugar Mills, Md.Habibur Rahman,North Bengal SugarMills LTD,GM –Administration, Mr.Abdus Salam,Managing Director,Pabna SugarMills LTD, Engr Sumsudin Ahmed,Managing Director, Panchagar Sugar MillsLtd., MD.Piasuzzaman, GM (Administration), Rajshahi Sugar Mills LTD, MD AbulRafique, Managing Director,Setabgonj Sugar Mills Ltd., Mr.S.M Abdul Aziz,Managing Director, Shyampur Sugar Mills Ltd., S.M Abdul Aziz, ManagingDirector, Shyampur Sugar Mills Ltd., Sibendra Nath Sarker, Managing Director,Thkurgaon Sugar Mills LTD.

Shahamin S. ZamanCEOCSR Centre

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1.1 BackgroundThis is a study on the challenges to the sustainability of the sugar industry inBangladesh and the scope of CSR to strengthen it. It was undertaken in view ofthe high importance of the sugar industry, its growth potential, and the perceptionof various problems faced by it.

To put the issues in context, we begin with a sketch of the global, Asian, andBangladeshi perspective. More details are given in Chapter 3: An Overview of theSugar Market.

1.1.1 Global PerspectiveThe major players in the world sugar market are Brazil, India, EU, China, Thailand,Australia, SADC (Southern African Development Community), RussianFederation, USA, and Mexico. Brazil is the largest producer of sugar in the world;it produced over 35 million ton (2008-2009). The Russian Federation is the smallestproducer among the top 10 producing countries, with an annual production of alittle above 4 million ton (2008-2009). The biggest exporters are Brazil, Thailand,China, Australia, SADC, EU and India.

The world sugar market is bound in a complicated mesh of quotas, tariffs, andsubsidies that significantly distorts production decisions and export balances.The sugar price in the world market as a result is very volatile and difficult topredict. The world indicator price for raw sugar witnessed a succession of peaksand downward corrections in 2010 before rising to a 30-year high of USD 36.08

Introduction

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cts/lb (OECD agricultural outlook, 2011-2010) in February 2011. Price volatilityleading to large deficits in the balance of trade teamed with adverse weather in anumber of countries failing to yield the expected level of production led to thisprice rise. World sugar stock, which had already been drawn down, fell to theirlowest level in 20 years in 2010-11, supporting higher as well as more volatilemarket prices. The Government policies continuing to intervene in many countriesis a major factor causing the sharp ups and downs in production and price in thesugar market due to large periodic swings in trade between imports and exports.In a study carried out by OECD team, the forecast states that production cycles insome major cane producing countries of Asia, will strongly influence world sugarproduction and price volatility. World sugar consumption is expected to grow ata lower average rate over the longer term in response to higher prices to reach207 million ton in 2020-21.

World sugar consumption is expected to grow at a lower average rate over thelonger term in response to higher prices to reach 207 million ton in 2020-21according to OECD.

Brazil being the largest producer and exporter, has earned the status of ‘pricesetter’ in the world market with international sugar prices usually correlatedwith its relatively low production costs. Brazil’s sugar production, as one of thelowest cost sugar producers with considerable capacity to expand sugar canearea on a large scale, along with the projected growth in ethanol production, willbe key determinants of global sugar production, which is projected to reach over209 million ton in 2020-21.

Source: Illovo Sugar Limited, Annual Report 2010

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1.1.2. Asian PerspectiveThe major Asian producers are Thailand, India, and China. Although muchsmaller compared than India and China in both population and land area,Thailand keeps its rate of production growing at a consistent rate. It is the secondlargest exporter of sugar after Brazil.

India’s production cycle suffers from government intervention and often suffersdeficits in its sugar trade. Like India, China has also been suffering declines inproduction and a balance of trade deficit. . It shows a decrease of 0.32% in 2009(Zeefer 2011). It ranks the highest in population and even low consumption at 11kg per person, China cannot meet its domestic demand. In 2010 September, Chinaimported sugar worth of 19.13 million U.S. dollars.

The following paragraphs offer some projections of the Asian sugar market forthe three major producers. (Data source: OECD agricultural outlook 2011):

India - The international sugar market remains one of the most volatile of allcommodity markets. One of the contributory factors to this volatility is policy-induced production swings among some Asian countries, particularly India. Alongstanding feature of the sugar market in India is the cyclical nature ofproduction, where 2-3 years of surplus are followed by 2-3 years of deficit. Inrecent years, the cycle has been more pronounced, with larger swings inproduction and trade. After an increase in 2006/07 to 30.1 million ton, 33% overthe record 2002/03 crop, sugar output declined to 15.2 million ton in 2008/09 andis currently estimated at 28 million ton for 2010/11.

Thailand - In terms of other leading exporters, Thailand plays a unique role inAsia as the only consistent producer of a large sugar surplus and with a naturaltrade advantage, along with Australia, to service the large and ballooning sugardeficit in that region. Exports from Thailand, which is ranked number two in theworld, are projected to grow to around 5.8 million ton by 2020-21, exceeding the2003 record. In the case of Australia, increased production over the projectionperiod should support exports of around 3.8 million ton by 2020-21. Strongdemand for HFCS in Mexico, which is expected to grow to 75% of total sweetenerconsumption and similar to the situation in the US, will substitute for sugar usedin beverage manufactures, releasing surplus sugar for export to the US market.Mexican exports to the preferred US market are projected to exceed 1.8 million

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ton by 2020-21. Sugar importers make up a broader, more diversified group ofcountries.

China - A significant development in 2010-11 was that China exceeded for thefirst time the TRQ ( tariff-rate quota) of 1.95 million ton established on sugarimports at the time of its entry to the WTO in 1998. Rapid economic growth andurbanization trends are promoting the industrial use of sugar in food manufactureand preparations. Along with low per capita sugar consumption levels of only 11kg per person in the population at large and tightening government controls onthe production and use of artificial sweeteners, these are expected to leadcollectively to strong growth in sugar use in China in coming years. Sugardisappearance is projected to grow by over 3% p.a., exceeding the growth ofproduction which is increasingly limited by tightening water availability, andboosting sugar imports to over 5 million ton by 2020-21. This will make Chinathe largest importer exceeding that of the EU, US, and the Russian Federation.

1.1.3 Bangladesh PerspectiveBangladesh has a domestic demand of 1.95 million ton of sugar in 2012, for apopulation of about 150 million, assuming 13 kg per capita consumption. But itproduces 0.08 million ton domestically and imports 1.3 million ton, mainly fromIndia. The rest of the demand-supply gap is filled up by sugarproduced in the 6/7 refineriesin Bangladesh and gur/jaggeryproducers.

The sugar industries inBangladesh are nationalizedsince the country’sindependence. Due toinefficiencies in management,mismatched demand andsupply of raw materials,outdated technology, low recovery-rate of cane-type used in the mills, the level ofactual production is far below installed capacity. The industries are running at aloss since the mid 1980s. The sugar production in Bangladesh is not growing at asteady rate for reasons that we will look into in section 3. Findings. The mills in

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Bangladesh are now producing at an average rate of 9000 metric tons per year(during 2008 to 2012) which is much below their capacity (above 40000 metrictons on average).

1.2 Importance of Sugar

1.2.1 Sugar’s Contribution to Employment and OutputSugar occupies an important place in the industrial sector of Bangladesh. It directlyand indirectly employs over 5 million people. It contributed 0.74% of agriculturalGDP in 2010 as per Bangladesh Sugar Research Institute (BSRI). It uses up 0.17million hectare of the nation’s cropland. Although production of cane has increasedat 2.9% over the past three decades, sugar production at the mills is going down.

1.2.2 Sugar’s Growth PotentialAs the population of Bangladesh is increasing, and per capita income is alsoincreasing, the demand or sugar will increase. The natural resource base of landand water and requisite manpower is available to expand sugarcane and sugar

Source: BSRI

Data Source: BSRI

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producing enormously. The country has ample reefing capacity to process rawsugar for the consumer market.

1.3 Major Problems in the Sugar SectorThe overall problem in the sugar sector is that the state-owned sugar mills havelong been in decay and dilapidation, with continuous streaks of massive losses.Its output varies enormously from one year to the next.

In contrast, the private sector refineries have ample capacity and are apt to growvigorously unless the policymakers revert to the long era of protectionism andsubsidization.

1.4 Study ObjectiveCSR Centre undertook the present study to identify the challenges to sustainabilityof the sugar sector and to discover options for deploying CSR instruments for itsrevitalization and improved sustainability.

1.4.1 Key Research QuestionsThe key research questions for this study are as follows:

What are the major challenges to sustained growth of the sugar sector?

What can various CSR interventions do to improve sustainability?

At a more detailed level of investigation, we have

Micro-level firm specific problems and issues of sustainability, and

Macro-level policy issues regarding subsidization, privatization, andliberalization

1.4.2 Micro level SituationThe research team undertook a field survey to learn about the specific problemsfaced by individual sugar mills. A structured questionnaire was devised to leanabout the following:

Production process and technology

Procurement of raw material

Quality management

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Support to cane suppliers

Price setting

1.4.3 Specific Issues of Role of CSR InstrumentsThe key interest of CSR Centre is to identify ways in which CSR initiatives andprograms may contribute to the long term sustainability of the sugar sector inBangladesh.

1.5 MethodologyThe broad scope of the term sustainability has many dimensions. While somequantitative indication is unavoidable, the choice of the method of investigationis basically interpretative and hence qualitative. Therefore, the framework forthe research starts with a discussion on the approaches to the issue. Considersthe matter of sampling and data collection. Lastly, this research interprets thedata through a combination of quantitative and qualitative analysis.

1.5.1 Approaching the IssueThe key research issue involves the state of the sugar industry in Bangladesh andthe prospects and problems of sustaining its healthy survival and growth. Hencethe first aim is to look at available statistical and other information to assess thestate of the industry. However, the issue of sustainability has many dimensions.For the benefit of CSR, whose principal interest lies in the social sustainabilitythrough the deployment of CSR programs, the research needs a qualitativeapproach. After all, Sustainability of the sugar industry is essentially a matter ofthe quality of the sugar sector.

1.5.2 Sample and Data CollectionThe study team intended to cover all the sugar mills and refineries in Bangladesh.However logistic and time limitation forced the team to conduct in depthinterviews with 12 mills out of 17. This is adequate to get a representative pictureof the shades of opinion regarding the matters of sustainability and deploymentof CSR interventions. Members of the study team visited the mills listed below.They gathered detailed case histories and data on various aspects of productionmarketing ad finance. The top executives sat for interviews to exchange opinionson a variety of issue pertinent to sustainability and the room for engagement ofCSR interventions.

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The research team visied the following mills:

Rangpur Sugar mill, Setabgonj Sugar mill, Carew & Co., ThakurgaonSugar mill, Jaypurhat Sugar mill, Rajshahi Sugar mill, MobarakgonjSugar mill, Shyampur Sugar mill, Panchagar Sugar mill, FaridpurSugar mill, Natore Sugar mill, Pabna Sugar mill

1.5.3 Analytical MethodThe study adopted a multidisciplinary approach to analyze the primary data.Much of this is qualitative. This was categorized into various responses to delineatethe representative as well as non-representative opinions and information.

The detailed data on the various economic and financial matters of production,cost, marketing, employment et cetera could be easily fed into standard statisticalmodels of analysis. But there is no point in carrying out any of these, becauseprecise estimation of parameter s is not the goal. Rather the problem is tounderstand the bottlenecks and options for overcoming them. The research looksfor opportunities to introduce innovations through CSR initiatives. Thus themain interest is well served as we try to interpret the sugar sector by theresponding executives. These are people with long experience at the helm of theaffairs and their opinions reflect a deep understanding of the problems and theway they think they can cope with them.

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Literature Review

The available empirical literature and secondary data point to the major issues.The relevant theoretical literature shows how to approach the articulation andconceptualization of the issues.

First a review of the literature on the issues of sustainability is done look at bothlocal and global concerns. Second, looking at the literature dealing with CSRissues in the Sugar Sector.

2.1 Major IssuesAn overview of the secondary data indicates the major issues pertaining to thesugar market. Among the various issues, two predominant issues aresustainability and the role of CSR interventions.

The global sugar industry is one of theworld’s oldest agro-based industries, whichis estimated to produce around 167 milliontons of sugar in the 2010/11 internationalsugar season (OECD). Whilst many forcescontinually impact upon annual globalproduction, a major sustainability featureof this industry is its historic and ongoingsugar consumption growth, which onaverage, increases by around 1.8% perannum.

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There are new challenges emerging in the world sugar market. The challengesfacing the sugar industry are similar to other industries that are highly regulatedand are slow to liberalize. If sugar prices are too high then the producer isuncompetitive; however, if it is too low, sugar farmers and producers will not beable to make a profit. Efficient countries or countries with low labor costs, likeBrazil and India, will fare better with low-cost sugar because they will still beable to make a profit. If there were no quotas or tariffs, sugar producers in Europeand the U.S. could go out of business with a flood of cheap sugar into their market.But sugar is major crop for developing countries, who’s GDP rely much more onagriculture than other industries. European and American tariffs hurt farmers indeveloping countries who cannot compete.

2.2 SustainabilitySustainability is a multidimensional phenomenon. The three key dimensions ofsustainability concern the environment, the economy, and the society.

2.2.1. Environmental SustainabilityThe environmental aspect of sustainabilityfor the sugar industry is pretty straightforward: sugar is produced out of sugar caneand we do not see serious danger signals tothe environment from the growing of caneon land or of processing it through crushingand even refining.

2.2.2. Economic SustainabilityThe economic sustainability raises a host of concerns from the consumers of thefinal product (sugar, gur and other byproducts), the producers, the financiers,the traders, especially the importers, and the taxmen. The government’sinvolvement in the state-owned enterprises also raise a number of issues ofpolitical economy, which mixes up politics with economics, pitting one group ofstakeholders against another.

2.2.3. Social SustainabilityThe primary interest of this research is the social sustainability. An industrialconcern exists inside a society and must build a two-way symbiosis for peaceful

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and mutually beneficial coexistence. The issue of social sustainability concernshow a manufacturer may or may not rend the society asunder by promotinginequality and inequity or deprivation and discrimination.

2.3 Policy LiteratureThe review of policy pursued by various nations may give a sense of the policyoptions.

2.3.1 European Sugar PolicyThe EU has an extensive tariff system as well, which underwent major changesin 2006-2007. Sugar subsidies to farmers were cut, certain quotas were merged,and obsolete mills were closed or consolidated. Measures were taken though toease the burden of increased sugar from the least developed countries (LDCs),who are given preferential access to the European market under the “Everythingbut arms” initiative. Sugar from the LDCs will only be allowed duty-free andquota-free access to the European market in 2009.

Other measures taken to ease the burden on European farmers include:

extra payments for five years to Member states that cut their sugarproduction by more than half;

subsidies to European farmers that grow sugar beet for ethanol (as longas the plants are not grown on set-aside land); and,

a new restructuring fund for European sugar producers that will helpthem become more competitive.

Europe’s new sugar policies have not shown a big impact during the short-term.So far, only Ireland, Latvia, and Slovenia have abandoned sugar production.

Another element of Europe’s sugar policies relate to biofuels, such as ethanol.European ethanol is subsidized through tax-exemptions for producers and bytaxes for the users. Europe has been trying to force environmental protectionthrough its ethanol policies. The EU is considering banning fuel crops whoseproduction cause harm to the environment (such as the destruction of rain forestsfor agricultural land to grow biofuels). To ensure that the biofuels areenvironmentally-friendly, the EU is considering a tracking system to assesssustainability criteria.

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2.3.2 Brazilian Sugar PoliciesBrazil is the world’s largest and most efficient producer and exporter of sugar(raw and refined) and ethanol. Fifty percent of Brazil’s sugarcane is used to produceethanol; the remaining is used for domestic sugar consumption and for export.Brazilian sugar is exported all over the world; Russia is the top internationalconsumer of Brazilian sugar. In 2006, Brazil exported 52 percent of the world’sethanol market.

2.3.3 African Sugar PoliciesAfrica only holds 5.7 percent of the global sugar production; the continent is a netsugar importer. South Africa is competitive on the global sugar market and willprobably continue to thrive despite the changing sugar policy landscape. On theother hand, countries that rely on preferential access, such as Mauritius andSwaziland, will have a huge problem with changing policies and preferentialtreatments.

Participating countries in the “Everything but arms” initiatives, includingMalawi, Zambia, and possibly Zimbabwe and Sudan, have the potential forgrowth in the sugar exports when European quotas expire in 2009. Other African(and Caribbean and Pacific) countries may benefit from current negotiationswith Europe on Economic Partnership Agreements (EPAs) for quota and tarifffree access to the EU. However, quota-free and tariff-free sugar from these countrieswill not be on the table until 2015.

2.3.4 U.S. Sugar PoliciesU.S. sugar policy takes into a number of factors including sugar imports andexports, sweeteners (including sugar and corn sweeteners) and ethanol. Importsof raw sugar cane, refined sugars, sugar syrups, and sugar-containing productsare controlled via tariff-rate quotas (TRQs), which charge different rates dependingon the volume. A high tariff is paid for sugar imports in excess of the country’squota. Forty countries receive TRQs for raw sugar cane. Mexico’s over-quotatariffs ended in 2008.

In addition to TRQs, the U.S. also has a re-export program to help U.S. sugarrefineries and manufacturers of sugar-based products. There are also domesticmarketing allotments and price supports to control the amount of sugar on theU.S. market. The TRQs, domestic marketing allotments, and price supports keep

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U.S. sugar prices higher than the world market price, which make U.S. sugarmanufacturers uncompetitive in the domestic and export market. U.S. sugar pricesare 2-3 times higher than the world sugar price.

The U.S. is fighting to keep its sugar industry and to make it more efficient andcompetitive. Automation is being used to cut back on high labor costs. Scientistsare developing and using round-up (herbicide) resistant sugar beet seeds. Theseseeds are one of the first genetically-engineered plants since the 1990s to be widelygrown. While genetically modified products require labeling in Europe, there isless controversy in the US and no label is required. About three percent of USsugar is exported, so the use of genetically modified seeds is viable.

The U.S. has the world’s largest corn-based, sweetener industry. The U.S. isconverting more of its corn into ethanol, leaving less corn available for thesweetener market. Demand for sugar as an alternative to high fructose corn syrup(HFCS) may rise, since the price of sugar is declining and price of corn increasing.Currently, there is a controversial 54-cent tariff on ethanol imports, which bolstersthe US corn industry, but makes it difficult for sugar ethanol products to enterthe country.

2.3.5 Kenyan Sugar PolicyKenya’s situation is much like Bangladesh. It has a nationalized sugar industrythat has been running at a loss for many years now. The elasticity of demand forsugar imports in Kenya is 1.68 (Boss 2008) which is elastic. According to Bossprotectionism in Kenya has had a significant negative effect on the efficiency of itssugar industry. Protectionism is the economic policy of restraining trade betweennations. It is done through high tariffs on imported goods, restrictive quotas anda variety of restrictive government regulations that are designed to discouragecheaper imports and dumping. This is in an attempt to protect domestic industriesfrom foreign take-over or competition, on the other hand Efficiency is the costincurred by not optimally utilizing the available scarce resource in the industry.Kenya took a protectionist stand on international trade of sugar due to theconjecture that liberalizing the sector will adversely affect the local sugar. Thishas been made possible by Kenya presenting a strong case to COMESA on theneed to protect the fragile sugar sector, a case that has allowed Kenya to protecther sugar industry till 2012 since the year 2003. The results from the studyindicated that the cost of allocational efficiency has been fluctuating between

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6.80 and 9.04 percent of Gross Domestic Product (GDP) since 2003. These translateto an average loss of 43.64 million dollars per annum since the protection policywas introduced in Kenya and according to the theory of international trade thishigh level of inefficiency in the sugar industry has been brought about by lack ofcompetition in this industry.

2.3.6 Bangladesh Sugar PolicyIn June 2002, the government of Bangladesh liberalized the import of sugar. Beforethat sugar was imported by BSFIC & Trading Corporation of Bangladesh (TCB)only. Bangladesh’s sugar import, especially from India is steeply increasing tofulfill its growing domestic demand.India’s been heard to dump its excesssugar into the Bangladeshi market. In2010 India subsidizes sugar at a $60/MTrate, which – when there is surplusproduction - enables their producers tosell at Tk. 24/kg to the Bangladeshi market(whereas the local market price wasaround Tk 35/kg), which is a majormarket distortion. Dumping does notstrictly come under the purview of competition law, but it is dealt with under theWTO, which provides a mechanism for countries to challenge trading partnerson dumping allegations, and take action if necessary.

Bangladesh does not currently have a competition law and policy frameworkthat is being applied, though the Monopolies and Restrictive Trade PracticesOrdinance (MRTPO) enacted in 1970 by the Government of Pakistan whenBangladesh was a constituent part as East Pakistan, remains on the legislativebooks. But neither the government nor the private sector has attempted to invokethis law in the past. A draft Competition Act 2008 has been prepared by theMinistry of Commerce and is currently being considered by Government. Therewere concerns that the draft bill “had been drawn up by foreign experts”, thatthe bill was a copy of the Indian competition bill, and that the consultants soughtto introduce a one size fits all plan, without regard to the level of development,legal structure or business practices within Bangladesh.

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The other concern raised by stakeholders was that the previous bill (MRTPO of1970) itself had never been implemented because of a lack of capacity and skilledtechnical staff to implement it, so they had little faith the new bill would beimplemented effectively. The Bill is indeed based on international best practice.This means that it benefits from lessons learned from experience with competitionlaw from across the world. The media coverage on this issue suggests thatBangladesh may suffer from significant competition problems, with substantialcosts to consumers and to Bangladesh’s economic performance more widely.

A competition bill would in fact be to the advantage of many businesses, whocould potentially benefit from new market opportunities and lower input priceswhich would make them more competitive on world markets. The benefits wouldaccrue more to new businesses than incumbent businesses who have the vestedinterest of preventing change. The Ministry has also sought the assistance of theIFC in Bangladesh and a pool of experts to help build the evidence for the needs forpro-competitive reform and to develop a Competition Bill based on best practiceexperience from around the world. The IFC and DFID have also commissioned anumber of studies which are looking at the degree of competition in variousproduct markets in Bangladesh. It is hoped that these studies will build theevidence base and help to convince policy makers and Government Ministersthat the proposed Bill is not about stifling domestic industry but rather that it isabout fostering competition, entry, efficiency, consumer welfare and growth inthe domestic economy.

2.4 Corporate Social Responsibility of the Sugar Industry

2.4.1 General Concept of CSRThe general idea is that the corporations in the sugar sector have a socialresponsibility to its entire stakeholder. In particular, the corporations need topursue polices and undertake practices that contribute to the wellbeing of thecane growers as suppliers and the factory workers. Of course the general citizensof the country and particularly in the neighborhood of the mills have rights thath the corporations should respect. They need to act such as to promote socialjustice and cohesion through commitments to equity, equal opportunity and fairplay, without discrimination, denial and deprivation.

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2.4.2 EU PerspectiveThe following excerpts from a document of the European Federation of Food,Agriculture and Tourism (EFFAT) shows how the notion of corporate socialresponsibility translates into policy and action plans.

Corporate Social Responsibility in the European Sugar Industry is a frameworkwithin which the sector voluntarily decided to promote social development aswell as respect for fundamental rights.

As an industry, the companies are not only responsible for their products andservices but also for the conditions under which they are produced. For a numberof years the European Sugar Industry has already given its support to a Europeansocial model through a whole series of guarantees going well beyond legalrequirements. It is a social model in which the involvement of the employees inthe social dialogue at all levels is one of the major elements. Now this CSRframework in the European Sugar Industry goes even further and sets voluntaryminimum standards in a number of areas such as human rights, education andtraining, health and safety, pay and working conditions, restructuring, as well asrelationship between social partners.

Moreover, this framework has been created to serve as a vehicle for sharingexperiences and will function as a source for learning to develop best practicethroughout the whole European Sugar Industry as an inspiration for continuousimprovement.

Finally, it clearly positions the European Sugar Industry in relation to thestakeholders, be they employees, consumers, customers, shareholders, suppliers,public and financial authorities, the European Commission or the World TradeOrganization.

The vision for this work is to create added human and social value byincorporating Corporate Social Responsibility into all corporate activities.

CSR for Human RightsThe European Sugar Industry complies with the principles and rights at work asdefined by the ILO and in the UN Universal Declaration of Human Rights and theEuropean legislation.

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The European Sugar Industry:respects the freedom of association and thus the right for all workers toestablish trade unions and to affiliate, including for workersrepresentatives the right of access to the enterprise (ILO convention 87).

recognizes the effective right to collective bargaining as well as the rightfor worker representatives to get facilities as appropriate in order tocarry out their functions promptly and efficiently. (ILO conventions 98and 135).

confirms the fact that exercising these rights won’t cause any personalof professional damage to the workers and their representatives.

will not operate with any form of forced or compulsory labor (ILOConvention 29).

is opposed to child labor (Convention 182) and meets ILO convention138 in relation to the minimum age for admission to employment.

Is against all discrimination, be it based on ethnic or national origin,religion, sex, sexual orientation, affiliation to trade union, age or politicalaffiliation and undertakes in particular to guarantee and promote equalopportunities and equal treatment for men and women (ILO conventions100 and 111 – EU directives

CSR for Education, Vocational and Life Long Training The European Sugar Industry endeavors to invest in its employees by providingthem with the best possible skills and abilities in order to develop their individualpotential to the maximum, and thereby contributes to the success andcompetitiveness of the enterprise. It gives specific training to employees as regardstechnical aspects connected with the production process and the field of healthand safety at the workplace, and all other relevant aspects connected with theenterprise.Education and training constitute an integral part of the social dialogue in thecompanies. Proposals and initiatives by the employees and their representativesare welcome and will be implemented in accordance with national habits.

The European sugar industry recommends to sugar companies, whenevereconomically and socially feasible, to make a significant effort to offer more youngpeople training periods and places as apprentices in order to improve their skillson the labor market.

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CSR For Health and SafetyThe European Sugar Industry pays special attention to health and safety. This iswhy the Sugar Industry strives to create working conditions that give itsemployees the possibility to work considering the human aspect and particularlywithout any risk for their health. In cooperation with the Employees and theirrepresentatives, the Sugar Industry will care for a healthy and safe workingenvironment based on secure facts and practices regarding work protection; allpreventive measures on health and safety are considered as a priority. The sugarindustry does not only pay special attention to the European legislations on healthand safety and, in particular, the framework directive of 1989, but in most cases,it goes beyond the legislations.

Specific training programs, safety procedures and policies, tailor-made for thesugar industry and taking into account the specific hazards linked to themanufacturing process, are implemented in all sugar factories and pay specialattention to prevention.

CSR for Fair PayThe present pay levels in the sugar industry meet or exceed the minimum ratesprovided for by branch or industry collective agreements and/or legal provisions.When no agreement or pay scale exists, wages are enough to ensure that workersand their families have a decent standard of living as defined by the UniversalDeclaration of Human Rights and the ILO Tripartite Declaration.

In order to avoid any discrimination, the sugar industry also recognizes the rightfor employees in similar conditions to get equal pay for equal work (ILOConvention 100, EU Treaty 141, Directive 2000/78/EC).

CSR for Working ConditionsThe European Sugar Industry meets the European legislation covering workingconditions and complies with branch or industry standards on working hours.As far as working time during the processing season is concerned, specialagreements may have been concluded between the Social Partners or with thePublic Authorities.

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When no standard exists, the social partners can conclude appropriateagreements. At least working conditions must be equivalent to those offered bycomparable employers in the country concerned.

CSR for RestructuringAt European level, within the framework of the European social dialogue, regularinformation, exchanges of views and, if necessary, joint action can be organizedin relation to all issues, including those related to the Community policy and theCommunity legislations where they have economic and social effects for the sugarsector.

This dialogue meets or exceeds the national and European legislation oninformation and consultation.

Since an open dialogue between management and employees is a pre-requisitefor a climate of mutual respect and confidence, employees and theirrepresentatives will be regularly kept aware of the situation of the enterprise aswell as informed and consulted on planned restructuring measures in due time.

In case of restructuring, as well as in the event of investments having a socialimpact as provided by the present Code of Conduct, the sugar industry acts in asocially responsible way.

Steps are taken to improve the employability of employees.

2.4.3 Bangladesh PerspectiveCSR is a relatively new concept inBangladesh even as the NGO movement inBangladesh prepared the generalatmosphere of opinion in its favor. CSRCentre is a major organization dedicatedto pursue the deployment of CSR initiativesand programs.

The key areas in which Bangladeshicorporations seem to act with CSRprograms involve support to arts andculture, scholarships to students, and relief to victims of disaster. For the sugar

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industry, however, it seemingly requires much more; indeed it calls for a fullrange of actions.

The cane growers need corporate support in agricultural technology and farmingtechniques, general education, health, finance, and social communication.

The promotion of gender equity in particular requires interventions in the millzone villages to help the women get equal and equitable opportunities toparticipate in production, access to health facilities and an education. They needcorporate support in child care and child rearing, including support duringpregnancy, lactation and the care of infants.

The workers need help desperately to learn transferable skills, especially sincethe e sugar mills are not expect to offer them a bright future with well paid jobs.

The management staff also need much help to deal with limited access to moderncommunication facilities.

While the chief patrons of CSR are normally profit-making corporations, theoddity is that loss-making public corporations in Bangladesh are providing CSRto an excessive degree: by keeping jobs that are not tenable through continuouslosses. The profitable importers and refiners are yet to come on board and fulfilltheir sociall responsibility.

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3.1 The global Trends in the Sugar Market

3.1.1 World Production and Consumption of SugarMore than 100 countries produce sugar. About 81% of sugar is made from sugarcane. The cane grows primarily in the tropical and sub-tropical zones of thesouthern hemisphere. About 20% of sugar comes from beet which is grown mainlyin the temperate zones of the northern hemisphere. Generally, the costs ofproducing sugar from sugar cane are lower than those in respect of processingsugar beets. Currently, 72% of the world’s sugar is consumed in the countries oforigin, whilst the balance is traded on world markets. (Source: Czarnikow 2011.)

Table-1: World Sugar production, export, and per capita consumption, (2008-09

Country Production Exports Rank in Population Consumptionmillion ton million ton World export million kg/person

Brazil 38.63 23.69 1 198 58

India 16.03 0.24 15 1166 19

EU 14.87 0.71 9 500 34

China 13.59 - - 1338 10

Thailand 7.72 5.00 2 66 36

United States 6.92 - 307 29

Mexico 5.76 0.71 9 111 49

SADC* 5.31 1.79 4 139 19

An Overview of the Sugar Market

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Australia 4.80 4.22 3 21 45

Pakistan 4.24 - 176 23

* Southern African Development Community (Angola, Botswana, Lesotho, Malawi,Mozambique, Swaziland, Tanzania, Zambia, Zimbabwe)

Source: Illovo Sugar Limited Annual Report 2009 (page 55)

3.1.2 Summary of Global Statistics 2009

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3.1.3 World Price of SugarTable 2: World Price of Sugar per kilogram, (2008-09), in USD and BDT

Area USD BDT

Japan 2.18 152.46

USA 1.83 127.82

France 1.80 126.28

Australia 1.14 80.08

South Africa 0.96 67.76

Malawi 0.84 58.52

Swaziland 0.75 52.36

Brazil 0.70 49.28

India 0.86 60.00

Pakistan 0.94 66.00

UK 1.40 98.00

World 0.61 42.70

Bangladesh 0.74 52.00

Source: World of Sugar. Illovo sugar Limited Annual Report, 2009

*1 US $ = 70.00 Taka.

3.1.4 Cost and Output VariationThe market price of sugar varies because the cost of sugar production variesenormously. This is due to production efficiency, which in turn depends ontechnology, worker skill, management drive, as well as government intervention.Countries like Brazil and India have highly efficient sugar plants while countrieslike Kenya and Vietnam and Bangladesh have government run plants and arenot functioning so well. In general, state run production is inefficient.

3.2 The Sugar Industry in Bangladesh

3.2.1 Sources of Sugar in BangladeshSugar consumed in Bangladesh comes from three main sources:

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private sector sugar refiners, who import raw sugar and process it;

domestically grown sugar which is milled by the Bangladesh Sugarand Food Industries Corporation (BSFIC) owned by the Government;and

imports of refined sugar

Table 3: Sugar market share of different participants in Bangladesh

Estimated Share (%)

BSFIC 10 - 15%

Direct Import 5 - 10%

Private Sector Refiners 80%

Source: ODI Research, Interviews with Stakeholders

The private sector does not use domestically produced sugar as it can importsugar of a higher quality more cheaply from abroad. Domestic sugar productionis entirely dependent on state subsidies to state owned enterprise (SOE) mills.The estimated share of sugar coming from each of these sources is shown in Table3 above.

3.2.2 Production of SugarcaneTraditionally the government makes formalcontracts with mill zone sugar producers toproduce and sell all of their production togovernment sugar mills. However, there isnow a trend for farmers not to sell all of theirsugar production to government mills (e.g.in order to produce more handicraft sugarproducts such as “gur/ jaggery” for localconsumption). This is affecting productionlevels at the BSFIC mills.

There is also evidence that some farmers are switching from growing sugar togrowing seasonal vegetables and other cash crops. This suggests that the pricepaid for sugar cane under the BSFIC scheme is too low.

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Table 4: Cane Output, Sugar output, and Cane price) in Bangladesh (1971 to 2008)

Crushing Land Cane Yield Crushing Sugar Recov Cane Profit RevenueSeason use outout (Ton/ (Ton) Output ery (%) Price Loss (Tk.. in

(ha) (mill ha) (Ton) (per (million million)zone) ton) TK.)(Ton)

1971-72 55109 1139785 20.68 409160 24200 5.92 267.92 - -

1972-73 47663 1103552 23.15 274310 19604 7.14 267.92 -29.95 11.16

1973-74 56847 2104241 37.02 1187202 89808 7.56 267.92 50.20 52.78

1974-75 70970 2206104 31.09 1422181 100040 7.02 267.92 50.52 191.27

1975-76 50542 1668517 33.01 1100946 88177 8.10 267.92 30.27 210.37

1976-77 65865 2389199 36.27 1706370 140925 8.26 321.51 83.90 307.42

1977-78 96022 3271953 34.08 2309652 178072 7.72 321.51 6.80 450.95

1978-79 75975 2573833 33.88 1715505 132812 7.74 321.51 7.40 441.58

1979-80 62965 2203112 34.99 1272089 94714 7.46 321.51 53.02 423.86

1980-81 77370 2833317 36.62 1826731 145205 7.93 401.88 262.12 681.95

1981-82 94969 3748431 39.47 2473301 202158 8.17 401.88 413.08 825.55

1982-83 99280 3925136 39.54 2216939 181355 8.18 401.88 411.82 871.64

1983-84 95902 3388795 35.34 1899831 151353 7.97 455.47 422.46 858.25

1984-85 94034 3136846 33.36 1176599 87849 7.48 509.05 -307.53 368.26

1985-86 73789 2998799 40.64 1018202 82498 8.11 616.22 -382.68 591.90

1986-87 85915 4132368 48.10 2286650 181925 7.95 643.01 -397.73 1050.61

1987-88 94299 4329241 45.91 2199389 178260 8.10 643.01 -175.01 665.01

1988-89 91866 3767600 41.01 1330320 110000 8.27 723.39 -241.30 667.72

1989-90 85476 4019565 47.03 2096203 183862 8.77 991.31 245.38 855.58

1990-91 95459 4695510 49.19 3105918 246493 7.93 991.31 -95.94 1293.60

1991-92 95501 4491122 47.03 2390251 195587 8.18 991.31 -655.74 1306.19

1992-93 87966 4246613 48.28 2233114 187483 8.40 991.31 -829.49 874.70

1993-94 92250 4576394 49.61 2699901 221547 8.21 991.31 -252.51 1127.05

1994-95 99004 5030449 50.81 3482741 270196 7.76 991.31 78.89 1046.06

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1995-96 95942 4340890 45.25 2383481 183934 7.71 991.31 -379.28 1344.08

1996-97 86575 4097854 47.33 1763153 135320 7.67 991.31 -659.19 1802.80

1997-98 88130 4191153 47.56 2121845 166457 7.84 991.31 -385.73 1794.55

1998-99 94352 4123740 43.71 2313806 152979 6.61 991.31 -1305.90 1771.03

1999-00 86397 3526498 40.82 1612320 123498 7.66 991.31 -1117.71 1382.76

2000-01 74873 3361867 44.90 1369026 98355 7.18 1098.48 -1352.26 1358.25

2001-02 88274 4475990 50.71 2811123 204329 7.27 1098.48 -1181.19 858.70

2002-03 105420 4595270 43.59 2633430 177,398 6.67 1100.00 -972.49 299.49

2003-04 84870 3948240 46.52 1642510 119,000 7.26 1100.00 -594.80 349.10

2004-05 78180 3516970 44.98 1414490 107,000 7.53 1180.00 -175.70 -

2005-06 75430 3717300 49.28 1853180 133280 7.19 1290.00 +661.60 -

2006-07 83600 4112660 49.19 233504 162000 7.07 1390.00 - -

2007-08 86400 4051140 46.54 228753 164000 7.16 1390.00 - -

2008-09 78740 3497920 44.42 - 80000 6.75 - - -

Source: MIS Report, BSFIC, 1972-2004

3.2.3 Production of Sugar and GurThe table below shows that the volume of gur production is 2 to 4 times largerthan that of sugar. Gur production also eats up roughly 60% of the sugarcane.Thus s gur is a serious competitor against sugar. Poorer and rural people opt forgur while the richer urban ones go for sugar.

Table 5: Production of Gur and Sugar in Bangladesh 1990-2009

Crushing Sugar Gur Sugar Season production production import

(‘000 ton) (‘000 ton) (‘000 ton)

1990-91 246.00 432.00 138.00

1991-92 195.00 482.00 5.00

1992-93 187.00 415.00 64.00

1993-94 221.00 334.00 86.00

1994-95 270.00 285.00 156.00

1995-96 184.00 371.00 28.00

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1996-97 135.00 463.00 207.00

1997-98 166.00 415.00 160.00

1998-99 153.00 359.00 191.00

1999-00 123.00 427.00 115.00

2000-01 98.00 436.00 328.00

2001-02 205.00 306.00 210.00

2002-03 177.00 322.00 600.00

2003-04 119.00 371.00 440.00

2004-05 107.00 462.00 687.00

2005-06 133.00 333.00 625.00

2006-07 162.00 310.00 594.00

2007-08 164.00 299.00 1200.00

2008-09 80.00 324.00 1300.00

Sugar Recovery from CaneSugar recovery rate varied between 6.61 % and 8.77% during 1972-73 and 2002-2003. namely by as much as 32% from the bottom. In India, the recovery rate isabout 11.23% in 2012 while in Brazil it is about 14.1%. The Brazilian recoveryrate is nearly double of that of Bangladesh. There is much scope for dramaticimprovement in recovery rate. This would require use of improved varieties ofsugar cane and better crushing and extraction technology.

Table 6: Sugar Recovery from Sugarcane in Bangladesh, 1972-2003

Harvesting Sugar SugarSeason production recovery

(ton) (%)

1972-73 19,295 6.62

1973-74 88,375 7.56

1974-75 98,466 7.62

1975-76 86,788 8.01

1976-77 138,707 8.26

1977-78 178,072 7.72

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1979-79 130,720 7.74

1979-80 93,224 7.46

1980-81 142,918 7.93

1981-82 202,168 8.17

1982-83 181,355 8.18

1983-84 151,353 7.97

1984-85 87,849 7.48

1985-86 82,498 8.11

1986-87 181,925 7.95

1987-88 178,260 8.10

1988-89 110,000 8.27

1989-90 183,862 8.77

1990-91 246,493 7.93

1991-92 195,587 8.12

1992-93 187,483 8.40

1993-94 221,547 8.21

1994-95 270,196 7.76

1995-96 183,934 7.71

1996-97 135,000 7.67

1997-98 166,000 7.84

1998-99 153,000 6.61

1999-00 123,000 7.66

2000-01 98,350 7.18

2001-02 204,329 7.27

2002-03 177,398 6.67

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3.2.4 Capacity Utilization of State-owned Sugar MillsTable 7: Crushing Capacity of Sugar Mills in Bangladesh

Name of sugar mills Year of Productionestablishment capacity(ton/day)

North Bengal Sugar mill 1933 1200

Setabgonj Sugar mill 1933 1250

Deshbandhu Sugar mill 1934 1200

Carew & Co. 1938 1000

Rangpur Sugar mill 1958 1300

Thakurgaon Sugar mill 1958 1200

Zealbangla Sugar mill 1959 1500

Jaypurhat Sugar mill 1959 1000

Rajshahi Sugar mill 1963 2000

Kushtia Sugar mill 1966 1500

Mobarakgonj Sugar mill 1966 1500

Shampur Sugar mill 1966 1000

Panchagar Sugar mill 1968 1000

Kaliachapra Sugar mill 1970 1000

Faridpur Sugar mill 1977 1000

Nator Sugar mill 1985 1500

Pabna Sugar mill 1997 1500

Total Production capacity 21,700

The annual output of sugar at full capacity would be almost 640,000 tons as perBSRI (Bangladesh Sugar Research Institute). Actual output in recent years hasfallen to nearly a quarter of the capacity.

Better capacity utilization would primarily hinge on giving enough e incentiveto cane farmers to supply the required cane. The next step is to improve themanagement to combat the inefficiency that besets it.

3.2.5 Price setting for Sugarcane and SugarThe Bangladesh Government heavily subsidizes the price of BSFIC sugar. Whenthe cost of production of local sugar was around Tk. 62/kg, it was sold in themarket at around Tk. 35/kg (2007?) Such subsidization is likely to be necessary if

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BSFIC sugar is to compete with sugar from private refineries, (except at Ramadan,when prices charged by the private refineries are likely to increase in response toincreases in demand).

However, given the fairly small market share of BSFIC sugar, and the fact thatmuch of it appears to be sold at Ramadan, it is unlikely to generate much of adistortion or crowd out much private sector activity during normal periods.

3.2.6 Profit and LossBSFIC data shows that the mills in Bangladesh have been making lossesconsistently since at least the beginning of the 1990s. Future production by BSFICmills is under threat because of these continuous losses and also reducedsugarcane production.

Table 8: Profit and loss of state-owned sugar mills in Bangladesh (1972-2009)

Harvesting Profit/lose Paying revenueseason (million taka) (million taka)

1972-73 29.346 11.16

1973-74 50.196 52.78

1974-75 50.519 191.27

1975-76 30.269 210.37

1976-77 83.896 307.42

1977-78 6.868 450.95

1979-79 7.402 441.58

1979-80 53.021 423.86

1980-81 349.463 681.95

1981-82 413.083 825.55

1982-83 411.817 871.64

1983-84 422.464 858.25

1984-85 (202.496) 368.26

1985-86 (330.547) 591.90

1986-87 (339.628) 1050.61

1987-88 (175.013) 665.01

1988-89 (241.304) 667.72

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1989-90 245.384 855.58

1990-91 (95.942) 1293.60

1991-92 (657.062) 1306.19

1992-93 (829.493) 874.70

1993-94 (143.739) 1127.05

1994-95 78.890 1046.06

1995-96 (379.279) 1344.08

1996-97 (659.185) 1802.80

1997-98 (385.732) 1794.55

1998-99 (603.704) 1771.03

1999-00 (1117.709) 1382.76

2000-01 (595.673) 1358.25

2001-02 (1181.191) 858.70

2002-03 (972.487) 299.49

Statistics of profit/loss of 34 years (1972-2009):

Profit (14 seasons)

Loss (20 seasons)

The high cost of production in the sugar industries in Bangladesh can be attributedto 2 causes:

Bangladesh’s sugar growing regions are characterized by manysmallholder farmers, which reduce scale economies in production andcontribute to low yields.

The machineries in the mills are outdated, and the management isinefficient.

3.2.7 Contribution to GDPTable 9: Sugarcane’s contribution to GDP in Bangladesh (2003-04)

Commodity GDP Valuation at GDP Contribution GDP Contribution Constant Market to Sugarcane to National

Price (Tk.. in million) Economy (%) Economy (%)

Sugar 3812.67 22.61 0.15

By-Product 712.78 4.23 0.03

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Seed 834.10 4.95 0.03

Chewing, Juice 1053.65 6.25 0.04

Gur 9672.23 57.35 0.39

Cattle feed/Fuel 778.09 4.61 0.03

Total 16863.52 100.00 0.67

Table 10: Contribution of sugarcane by-product to national economy (2003-04)

By- products of Sugar Production (million ton) Value (million Taka)

a) By- products of sugar mill

1. Bagasse 0.575 276.00

2. Press mud 0.058 27.84

3. Molasses 0.066 408.94

a) By- products of sugar cane

1. Sugarcane top (fodder) 0.519 248.99

2. Dried leave 0.373 178.96

3. Root stock (fuel) 0.729 350.14

Total 1491.00

3.2.8 Contribution to EmploymentUtilization of labor force in sugarcane production and processing (1999-2000)

BSRI survey estimates for 1999-2000 show that employment in sugar productioncovers 40% of the sugar labor force while gur production takes up the remaining 60%.

Table 11: Employment in Sugar Sector (1999-2000)

Areas of utilization Sugarcane Production Labor use(million ha) million man days

Sugarcane cultivation in sugar mills zone 0.086 24.452

Sugarcane cultivation in non-mill zone 0.084 23.030

Sugar processing — 6.300

Gur processing 0.093 9.492

Production chewing cane/production of juice 0.006 0.124

Fodder/fuel 0.170 2.627

Total — 66.025

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¨ Manpower utilization in sugar industry: 16802

¨ Sales proceeds (1972-2003): 1295.8 million taka

¨ Farmers income (1972-2003): 663.5 million taka

3.3 The Private RefineriesThere are seven private companies in the market involved in the refining ofimported raw sugar. All are conglomerates (i.e. sugar is only one of their products),and are companies with a long heritage in the edible items market. According tointerview evidence, they are also profitable. The largest has an estimated 46%market share.

Because these refiners are large conglomerates, they have access to well-establisheddistribution channels which they also use to distribute other edible productsthat they manufacture. It is possible that a new entrant in the sugar refiningsector would face difficulties accessing distribution channels and this mayrepresent a barrier to entry.

There have also been newspaper reports suggesting coordination within the sugarmarket, with allegations that the private refineries and/or the wholesalers wererestricting supply in order to increase prices. It has been suggested that this hasbeen facilitated by the industry association, to which all refineries belong.However, the study team has been unable to verify the validity of this report.This would be an issue that a Competition Authority could investigate, if one isestablished in Bangladesh. Relatively little price variation was observed betweenthe private refineries at the time of the mission, though interview evidencesuggests they may compete in other ways e.g. through marketing and distribution.

3.4 ImportUp to June 2002, sugar wasimported by BSFIC & TradingCorporation of Bangladesh (TCB)only. However, sugar importationhas now been liberalized andsugar can now be importedwithout any restriction. The studyteam heard reports that there was

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some dumping of Indian sugar in the Bangladeshi market. India subsidizes sugarat a $60/MT rate, which – when there is surplus production of subsidized sugarin India - enables their producers to sell at Tk. 24/kg to the Bangladeshi market(whereas the local market price is around Tk. 35/kg). Unfair competition fromdumping further distorts the sugar market.

Sustainability in the Sugar SectorThe government run sugar industry inBangladesh did not prove to be successful.The production cost of sugar in the mills isinternationally uncompetitive, and hence theindustry has become a significant drain onthe public purse, with a high opportunity cost(in terms of other budgetary needs) whichmeans that they and associated livelihoodsare ultimately unlikely to be sustainable.

BSFIC data shows that the mills in Bangladesh have been making lossesconsistently since at least the beginning of the 1990s. Future production by BSFICmills is under threat because of these continuous losses and also reducedsugarcane production.

It appears that the Government has maintained the mills through subsidizationfor two reasons.

Firstly, to support agricultural livelihoods - because 2 million people are directlyinvolved in sugar production and another 3 million people are involved indirectly.This is a matter of concern given that so many jobs depend on a sector which isfundamentally unsustainable and has an uncertain future.

The second reason for maintaining these mills is because during Ramadan BSFICfloods the market with much of its stock, in order to prevent over-heating ofprices of an essential commodity at a time when sugar consumption increasesgreatly. This is probably not the most efficient way for the Government to preventoverheating of prices.

The Government could achieve the same outcome with price controls, or byimporting white sugar and releasing it onto the market at Ramadan time, thereby

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saving on the subsidies required to keep the sector alive, and freeing up thegovernment budget for other purposes.

The ongoing subsidization of BSFIC sugar is increasingly recognized as beingunsustainable, and the government is now in the process of privatizing severalof the mills. The question as to whether Bangladesh could produce sugarcompetitively if the industry was run efficiently, or whether it would be moreefficient to simply import sugar continues to be debated within Bangladesh.

The domestic industry has been maintained artificially in order to create rurallivelihoods, but it is not clear whether the removal of state involvement wouldactually result in an end to the industry, and the loss of associated livelihoods.

It could be that a privately run industry would generate more sustainablelivelihoods. Even if it did not, it may be that there are other crops that could begrown instead, in which Bangladesh could be internationally competitive, whichwould be an alternative

source of livelihoods in rural areas, resulting in a net benefit to the country ifresources that are currently being used inefficiently to produce sugar, werediverted to more efficient production of other crops.

This is a question faced by the other case study countries too e.g., Kenya, which isfacing the same pressure on its state led, internationally uncompetitive sugarsector. The lesson from looking across all 5 countries seems to be that protected,state led sugar industries are rarely successful, are internationally uncompetitive,and hence become a significant drain on the public purse, with a high opportunitycost (in terms of other budgetary needs) which means that they and associatedlivelihoods are ultimately unlikely to be sustainable.

This suggests that the state should disengage from sugar production, allowingthe private sector to take over if internationally competitive domestic productionis viable, and if not then allowing resources to be diverted to sectors that havebetter growth prospects.

In the same period the experience of the neighboring country, India has beendramatically different. India is one of the leading producers of raw and refinedsugar.

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Research Findings

4.1 The State of the Sugar Industry: Macro AspectsThe sugar market in Bangladesh is growing owing to increasing demand fuelledby growth of income and of population. The growth of demand is further bolsteredby urbanization with a lifestyle favoring more intensive use of sugar and itssubstitutes and complements. However, the production of sugarcane as theprimary raw material, and then the production of raw sugar as the intermediateinput suffer from policy-induced stagnation. It is primarily a result of theinefficient production under bureaucratic management of state-ownedenterprises, which generally fail in every nation to show profit and growth exceptfor a very few instances.

The private sector is thriving with the refineries. But these are highly andincreasingly dependent on imports.

4.1.2 Stagnation in the State-owned Sugar MillsThe stagnation of the state-owned sugarmills is a foregone conclusion. Nearly inevery nation, state owned enterprises aregenerally highly inefficient and inflexible.They lack the commercial motivation tomake profit, and work under stringentbureaucratic rules that are very inflexible.The technology is outdated and theproduction facilities are dilapidated, just

4

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because the mills as loss-makers cannot carry out maintenance and modernizationfor lack of capital. The workers are demoralized. They are usually untrained, arepoorly paid, and have little incentive either to learn how to work better or towork harder.

The stagnation in the supply side of the sugar mill industry is induced by policy.The principal problem is the government determination to overlook profitabilityand run the mills at a loss.

4.1.3 Subsidy to Consumers, Burden to TaxpayersSugar is not a necessary item of consumption. It is consumed mainly by thericher sections of society. Yet sugar made by state-owned mills is highlysubsidized. This subsidy to the rich is the biggest financial reason for the lossesincurred by the sugar mills. It adds an increasing burden on the tax payers, andmakes it a highly unappetizing proposition to embark on further public investmentin this losing sector. The call for privatization of the state-owned enterprises hasbeen going on for long and for increasing more compelling reasons. The politicalleaders however are unable to make the tough decisions to close them down or toprivatize them, especially in an apparent political ploy to keep the jobs of theunhappy and underpaid unskilled workers of the mills, and the even moredesperately unhappy cane growers.

4.1.4 Import Dependence of RefineriesThe incasing dependence of the refineries on imported raw sugar and the growingcapacity to export refined sugar enhance the globalization of the economy. But itraises the question of national self-sufficiency. There however is no compellingreason why Bangladesh ought to seek self-sufficiency in sugar production. Classiceconomic doctrine would suggest that Bangladesh specialize in the production ofindustrial products because it has an advantage with the huge supply ofmanpower. It is not well equipped to export agricultural products or agro basedproducts.

Unfortunately, the paradox of agriculture is often not understood. The largestindustrial nation of the world (USA) is indeed the largest exporter of food grainwhile most nations where 60% or more of the labor force work in agriculture arenet importers of food. Bangladesh has no advantage in food production: it haslong been a net importer of food. Bangladesh has show ability to export industrial

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products, though low grade. Ready made garments and other industrial productsare the mainstay of its export. A proper understanding of this paradox will showthat Bangladesh should give up the dream of producing agrarian goods for exportor even for self-sufficiency: it better prepare to clothe the world and buy its foodfrom abroad.

4.1.5 Growth ProspectsWhile the refinery segment of the sugar industry has good prospects of growthprovided that raw sugar can be imported easily, the hope of Bangladesh emergingas a competitive producer of raw sugar is very dim indeed.

4.2 The State of the Sugar Industry: Micro AspectsThe study team interviewed mill executives to learn about the various issuesfacing them. The results are summarized below:

4.2.1 Problems Faced by Stakeholders

Insufficient Raw MaterialSugar mills are unable to procure enough sugarcane to crush. This is so becausefarers lack the incentive to sell cane to the mills at low price. They rather prefergur makers who offer higher prices. And they switch to non-cane crops.

Low Rate of RecoveryThe average recovery rate in Bangladesh is around 7%, while that in Brazil ismore than twice as high. This is the result of traditional varieties of cane withlow sugar content and especially the outdated technology that fails to crush thesugar cane enough to extract the sugar content.

Outdated TechnologyThe sugar mills are old and have very old machines that are not kept in goodorder. This situation [prevails because the state-owned mills almost never sawmuch profit to invest in upgrading the technology. The e perennial loss makerscannot afford to modernize.

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Production Cost is Higher than Market PriceGovernment policy is partly responsible for this. Competition from efficientforeign producers such as Brazil means that imports would wipe out the domesticmills. The inefficiency of the domestic mills is so grave that they incur one ofhighest production costs. But the government also must keep the customs happyfor political reasons. It therefore orders mills to sell sugar at prices far below costand hence incur losses.

4.2.2 The Support Sugar Mills Provide to Sugar Cane SuppliersCrop Protection support: The mills offer insecticides/pesticides at highlysubsidized prices to the sugarcane farmers in the mill zone.

Input support: Cane growers may get seeds and fertilizers on loan.

Free transportation facilities: for farmers who have to travel a long distance: Themills offer free trucking to the cane brought from long distances.

Payments in advance: Cane suppliers may ask for advance payment beforedelivering the cane to the mill.

Infra-structural support: Mills build and maintain the roads, culverts/bridgesand drainage faculties in the mill zone.

4.2.3 The Support Sugar Mills Provide to WorkersThe mills run schools and clinics to offer genera education as well as technicaltraining. This is a free service to the workers. They also get free medical service.

However, the standard of educational and health services is rather basic.

4.2.4 Price SettingThe buying price of sugarcane is set by the government. So mills don’t have anybargaining power, they have to purchase their raw material at the fixedprocurement price.

The price paid to farmers is usually 250 Tk. per quintal. This varies from 244 to251.69 depending on the season and depending on where it has been purchasedfrom. At the mill gates the price is 251.69, from the ‘collection center’ it is 244 andfrom ‘purchase centre’ it is 245. During mid January and mid February the pricemay rise by 2 Tk. per quintal (January 2012).

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The selling price of sugar is also fixed by the government. It is set far below cost ofproduction and hence a carries massive subsidy component for political reasons.

4.2.5 Production CapacityConsidering the statistics of the years 2009-2010, 2010-2011, and 2011-2012, theaverage production of sugar from the mills is 9000 metric ton per year. PabnaSugar Mill claims the highest quantity of production, 30406.5 metric ton, from2010-2011. Rangpur Sugar Mill yielded the least quantity, 1444 metric ton, from2010-2011.

4.2.6 Quality ManagementThe sugar produced at the mills is sent for laboratory checking and analysis. Butoverall it seemed checking of the quality of the sugar was not given a bigimportance. The health effects of the sugar produced at the mills is not wellinvestigated. It cannot be yet commented on if the mills have a proper qualityassuring system or not.

4.2.7 Environmental ConcernsSugarcane is a water intensive crop that remains in the soil for 12 months of theyear using approximately one million liters of water to produce 12.5 ton ofcommercial cane. Some sugarcane is grown on steep hillside without terracing,resulting in the loss of topsoil from the farm and a high sediment in rivers andestuaries. There is evidence that a monoculture crop like sugarcane has an adverseeffect on soil, health, and fauna.

4.2.8 Output VariabilityThe productive capacity of the sugar mills in Bangladesh vary from 200 ton/day(Deshbandhu Sugar Mill) to 2000 ton/day (Rajshahi Sugar Mill). But the millscannot produce near full capacity every season; rather they usually produce at alevel well below their productive capacity. Considering their capacity, theproduction per mill should be 40,000 ton per season on average, which comes toa total of 640.000 ton of sugar per year. But the mills in Bangladesh could notproduce over 300,000 ton per year. In 2008 to 2009 the total sugar production ofthe mills was 80,000 ton. This is mainly due to insufficiency in the supply of rawsugar.

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4.2.9 Major ConstraintsAmong the major constraints in the sugar industries, unstable supply of cane isthe most troubling. Cane farmers complain that price of cane is not as high asother cash crops and often switch to growing other cash crops like jute and corn.The total land area employed in growing cane from year 2008 to 2009 inBangladesh was 78740 ha. But to meet the domestic demand for sugar a muchlarger farming area needs to be dedicated to cane production. At the moment themills provide for only 10 to 15% of the domestic demand for sugar.

4.3 Sustainability

4.3.1 Multiple Dimensions of SustainabilitySustainability is a multidimensionalphenomenon. The first usage of the termcame with the environmentalistmovement. Critics of industrializationand dense urbanization were afraid thatrapid population growth would entail adegradation of the environment. Later on,economists caught up with the conceptand added the issues of economicsustainability based on forces of demandand supply growth, especially income, productivity, and technology. Lastly, theemergence of the NGO’s gave increasing credence to the concept of socialsustainability. An industry must exist in society and must not do things to createinequality, disparity, and discrimination. This last concept is the key to the ideaof corporate social responsibility.

4.3.2 Environmental SustainabilityThere are mild concerns with environmental sustainability. Improper techniquesof sugarcane cultivation, especially the practice of monoculture withoutvariations in the nutrient absorption may degrade the quality of the soil. Thishowever is not yet an alarming problem. It however is important that agronomicexperts be consulted to develop a long term strategy of sugarcane cultivation.

The mills use traditional and outdated technology. More environmentallysensitive technology is required for long term environmental sustainability ofsugar and gur production.

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4.3.3 Economic SustainabilityEconomists would argue that the most powerful driving force behind thesustainability of any production is the economic sustainability. Unless there issufficient income to maintain the level of demand, an industry risks gradualextinction. From the supply side, it faces the pressure of competition. To survive,it must continuously upgrade technology and take all measures to keep the costsand prices competitive.

The issue of competition from abroad adds a global dimension to thesustainability of the sugar industry. More efficient foreign producers are able tochallenge the inefficient domestic producers.

The sugar mills of Bangladesh face severecompetitive challenges. These areuncompetitive owing to dilapidatedfactories, outdated technology, demoralizedworkforce relying on unskilled workers andlack of managerial flexibility. The sugar millshave long been suffering enormous losses.These are kept alive by government subsidyand loss absorption.

The sugar mills also face domestic competitor from the gur makers. Sugarcaneproducers in the mill zone do not feel enthusiastic as the mills pay low price. Thegur makers seemingly offer a better price to cane farmers. Thus one of the loudestcomplaints heard from mill executives is the insufficient supply of sugarcanefrom the cane growers.

The fundamental problem besetting the sugar mills is that they are state-ownedand hence share the common misfortune of all state-owned enterprises. Theylack the entrepreneurial freedom and flexibility to respond to market conditions.Had the same mills been in the private sector, the owners would take the risk oflaying off excess workers, fire the unskilled and disruptive ones and train theworkers as well as pay them enough to keep them enthusiastic. Privateentrepreneurs could risk borrowing capital to finance modernization of technologyand to embark on cane production to meet the raw material needs, throughcommercially completive contracts and even through own management. Thereis no hope that the government bureaucracy can do the same.

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The private refineries are doing fine and may continue to thrive. This howeverrequires the trade policy of openness: they need to have the full freedom both toimport raw sugar and to export the refined white sugar. They have the flexibilityto rely on the capital and credit market to finance their operations. They may alsoenjoy the potential to invite foreign direct investment.

4.3.4 Social SustainabilityAn industry lives and dies within society. It cannot survive and prosper in asociety where conflict and strife and disharmony is splitting it and throwing itinto chaos. If the industries pursue profit such that it adds to inequity, disparity,and discrimination, it tears apart the fabrics of society. The idea of socialsustainability is therefore to look at the broader issues of contributing towardsgreater social harmony through deliberate actions to combat deprivation anddiscrimination and inequity.

Corporate social responsibility is the concept that emerges form the work ofvarious NGOs that have tried to add a new dimension o social existence. The ideais that the corporations would contribute towards the wellbeing of the variousstakeholders in a positive and balanced manner to ensure equity, non-discrimination and fair access to benefits.

The sugar producers are not known to have caused any major harm to society. Itis just trying to survive. IT is not healthy enough to do much to advance thesociety, but it is not hurting society. Hence it is socially sustainable as it is. CSRactions may make it more acceptable to society.

4.4 CSR Options

4.4.1 Scope for CSR ActivitiesThe idea of corporate social responsibility is an outgrowth of activism of the non-government organization (NGO). They advocate that private corporations oughtto give back to the broader society. The Corporate Social Responsibility (CSR) isgenerally understood to be the way a company achieves integration of economic,environmental, and social imperative. Many firms believe that the focus on newopportunities as a way to respond to in-terrelated economic, societal andenvi-ronmental demands in the marketplace provides a clear competitiveadvantage and stimulates corporate innovation.

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Big companies such as Donone and Coca Cola generally think that their CSRactions make the consumers more trus-ting towards their products. They alsosee CSR as the business contribution to sustainable development .They are awarethat they can contribute to sustainable development by managing theiroperations in such a way as to enhance economic growth, in-creasecompetitiveness, promote social rights, and ensure environmental protection.

According to some people, CSR usually affords to avoid labor conflicts. In thisglobal context, voluntary social and environmental practices of busi-ness, goingbeyond companies’ exis-ting legal obligations, can play a ma-jor role in filling thegovernance gap in an innovative way. CSR is then not a substitute, but acomplement to hard law.

As such it must not be detrimental to public authorities’ task to establish bindingrules, at domestic and/or at international level, for the respect of certain minimumsocial and environ-mental standards.

The focus of the debate in this res-pect has now moved on from a sim-pledichotomy between voluntary and binding instruments, towards the overarchingchallenge of devi-sing reporting tools and verification mechanisms to ensureproper com-pliance with CSR commitments.

Most of the time, CSR is about health and safety, environmental protection, humanrights, human resource management practices, corporate governance, communitydevelopment, and consumer pro-tection, labor protection, supplier relations,business ethics, and stake-holder rights.

4.4.2 Public Versus Private CorporationsIn case of Bangladesh, one of the first issues to tackle is to delineate the role ofpublic corporations vis-à-vis the private ones. It does appear that the state-runagencies are indeed taking to much social responsibility, by way of keeping jobsdespite continuous losses and in providing subsidy to cane growers and sugarcustomers. One would think that the private refiners, who are earning goodprofits, ought to be the principal agents to take up CSR initiatives.

4.1.2 Issues where CSR can InterveneSince it has been running at a loss for about two decades now, the employees inthe sugar mills are not well paid. They are also not well trained or skilled.

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The working environment poses many threats to the health of the workers asmost of these mills are very old fashioned and don’t have good ventilation systemsfor the fumes produced during production to exit the building.

The cane farmers need to be introduced to more efficient and cost effective waysof farming.

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Suggestions

The suggestions are divided into two parts, to deal with sustainability and CSRprograms respectively.

5.1 Suggestions for SustainabilityThe focus should be on long term economic sustainability. The issues are relevantto policy reform with respect to privatization, trade liberalization andsubsidization

5.1.1 PrivatizationThe sugar mills in Bangladesh share the common fate of state-owned enterprisesanywhere I the world. By the very character of government administration,entrepreneurial flexibility is lacking, and indeed there are too many cumbersomerules and regulations in the bureaucratic procedures. Even with the highestcompetence and the best of honest intentions, executives cannot run state-ownedenterprises efficiently. The mills have long been making losses and there is nomagic formula to revitalize them short of handing them over to the private sector.

The principal concern in this regard is to protect the jobs of the employees as wellas to allow the cane farmers survive. The government may seriously considerdeveloping private pubic partnership, whereby private investors will take overmanagement and bring fresh investments. The government’s equity (if there isstill any positive equity left after decades of losses and unpaid debt burdens)may be given to the employees so that they have a say in keeping their jobs ormoving to suitable other occupations. This requires a serious study to discoverfeasible options.

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5.1.2 Trade LiberalizationBangladesh has shown promise in exporting industrial goods such as readymadegarments, foot wear and light engineering goods. Trade liberalization ha s helpedBangladesh achieve high rate of growth of income. The sugar market should beopened to allow freedom to import and export. Bangladeshi refiners are quitecapable of importing raw sugar and then re-export them as refined white sugar.It would also create new options to attract foreign direct investment.

5.1.3 SubsidizationSugar is a necessary good and should be subsidized. At the same time from sugaror as it is called locally “Gur” should be increased in production.

5.1.4 Other RecommendationsThe Refineries should be housed under the Export Processing Zone (EPZ)so that they can be a source of employment and at the same time earnvaluable foreign exchange;

The Mills should be revamped into technologically efficient units anddouble their production;

The Contract Growers Scheme of BATB should be adopted around theMill area;

The CSR Centre can draw upon their expertise to identify areas ofintervention where various organizations could take up one issue eachto help the sugarcane industry, e.g. providing the best seeds; enhancethe skills of the growers; fund for applying the appropriate fertilizers;fund for providing irrigation water; etc.

Since sugar is a necessity, it should be subsidized and the domesticdemand of sugar can be met from the Mills and import of sugar fromabroad;

The EPZ sugar is only for export.

5.2 Suggestions for CSR ProgramsIt is believed that the state run sugar mills are trying to survive under the presentsituation. The private refineries and the importers ought to come forward withCSR initiatives in order to provide ‘Cutting edge’ to the business.

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There are great many areas calling for urgent attention. Cane growers need to gethelp in adopting better varieties of sugarcane. They also need knowledge throughdemonstration how to preserve soil quality and how to better utilize by-products.

The mill workers are generally unskilled and lack transferable skills. They h needhelp with learning other skills so they can earn something besides doing millwork in the harvesting season. Off-season employment should be created forthem.

As for health coverage for the sugar mills only employees are covered but thefarmers are isolated from any medical coverage.

ConclusionThis research study reveals the existing situation of the sugar sector in Bangladesh.

The field survey analysis shows that the major share of ownership of the sugarmills in Bangladesh is the Government, Whereas most of the sugar refineries areprivately owned. There is a strong gap between these two entities as the privaterefineries process the ‘Gur’ or brown sugar which is imported from countriessuch as Brazil and China for processing the final product and sells to the marketvia retailers/dealers.

The research helps to understand and investigate the issue of the marketengagement and identifies the scope for implementing Corporate SocialResponsibility initiatives and programs.

With the given recommendation it will be feasible to work in partnership at thenational level with the Government of Bangladesh and at the implementing levelwith individual sugar refineries to develop their CSR Strategies for thesustainability of the sugar sector in Bangladesh.

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Appendix: Survey Answers

Can you tell us about your roles and responsibilities in this company?

Roles and Responsibility Frequency

Overall administration coordination of sugar mill 7

To operate sugar mill smoothly & to arrange raw-materials 4

To play Managing Role 1

Coordinating Financial activities, budget Preparation etc. 1

As part of management 1

Participation in the smooth running of the factory 1

Develop, manage, organize (Total Production Process) 1

Investigate information to enable strategic decision-making 1

Human resource Control 1

Achieved the target 1

Accountable to the authority 1

Overall coordination and management 1

Overall Coordination & Control ,direction, guideline of the Company 1

To operate smoothly & to arrange raw-material and sell product 2

About 60% of the interviewees are involved in administrative and coordinating tasks,and 50% do the job of mill operation and arranging of raw materials.

References

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Could please tell us about the production and marketing process?

Supports provided to the farmers by the mills Frequency

Farmer-Mill-Distributor-Retailer 12

There are four stages of production 2

I. Extraction of juice from the cane

II. Clarification of the Juice

III. Boiling of the Juice

IV. Mounding and Packaging

Farmer-factory-1)sugar 2)molasses)Vegas 1

According to the interviewees, the production process has mainly four steps:

Extraction of juice from the cane

Clarification of the Juice

Boiling of the Juice

Mounding and Packaging

The mills reach their products to the retailers through distributors.

What support does your company provide to farmers?

Supports provided to the farmers by the mills Frequency

Education 7

Technical Training 12

Medical Support 8

Insecticides 12

Vehicle(For distance) 7

Advance Payment(As Loan) 8

Advance Payment 2

Infra structural Support 7

Loan 2

Subsidy for product 5

Other-Seed and fertilizer as Loan 1

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All the mills in that participated in the survey provide the farmers with pesticides.Technical training is also provided by all 12 mills. About 60% of the mills provide loanfacilities, education, and medical support and infra structural supports to the farmers.

How do you set the price of sugarcane?

Price setting of sugar cane Frequency

Set By the government 12

All 12 mills informed that the price of cane is always set by the government.

How much do you pay farmers for per unit?

Taka per quintal Frequency

250 10

251.69 (Mill Gate) 1

244(From collection centre) 4

245 (Purchase Centre) 1

The per unit cost varies from time to time, especially during mid January and midFebruary. It usually stays in the vicinity of 250 Taka/quintal.

Does it change in different times of year? Why?

Time of the year when price varies Frequency

Every 15 days it increase up to 2Tk. per quintal 1

Decided by govt.(Mid of the January 2 Tk. increase per unit 7

It does change Mid of the February per unit-2Tk. increased 1

It does change Mid of the January due to weight of the cane 1

It does change Mid of the February due to maturity of the cane 1

What was total production of your company in the last three years?

Total Production in the last three years

Thakurgaon Sugar Mills Pabna Sugar Mills

1) 2008-2009(3589.70 MT) 1) 2009-2010(3503.50 MT)

2) 2009-2010(3814.00 MT) 2) 2010-2011(4165.35 MT)

3) 2010-2011(6558.00 MT) 3) 2011-2012(30406.50 MT)

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Shampur Sugar Mills North Bengal Sugar Mills

1) 2008-2009(3589.70 MT) 1) 2008-2009(112323.50 MT)

2) 2009-2010(3814.00 MT) 2) 2009-2010(7448.70 MT)

3) 2010-2011(6558.00 MT) 3) 2010-2011(15823.70 MT)

Setabgonj Sugar Mill Natore Sugar Mills

1) 2009-2010(3299.00 MT) 1) 2008-2009(6837 MT)

2) 2010-2011(4526.50 MT) 2) 2009-2010(3727.50 MT)

3) 2011-2012(3752.40 MT) 3) 2010-2011(10282 MT)

Rangpur Sugar Mills Mobarakganj Sugar Mills

1) 2009-2010(7455.80 MT) 1) 2008-2009(5078.00 MT)

2) 2010-2011(3330.80 MT) 2) 2009-2010(6067.35 MT)

3) 2011-2012(1444.20 MT) 3) 2010-2011(9400.40 MT)

Panchagahr Sugar Mills Joypurhaat Sugar Mills

1) 2008-2009(4158.85 MT) 1) 2009-2010(3800.90 MT)

2) 2009-2010(4000 MT) 2) 2010-2011(6800.00 MT)

3) 2010-2011(5794.50 MT) 3) 2011-2012(4200.00 MT)

Rajshahi Sugar Mills Carew & Co Sugar Mills

1) 2008-2009(5671.00 MT) 1) 2009-2010(7455.80 MT)

2) 2009-2010(2761.50 MT) 2) 2010-2011(7116.50 MT)

3) 2010-2011(7390.00 MT) 3) 2011-2012(4364.00 MT)

Pabna Sugar Mill claims the highest quantity of production, 30406.5 metric ton, from2010-2011. Rangpur Sugar Mill yielded the least quantity, 1444 metric ton, from 2010-2011. On average the mills produce around 9000 metric ton per year.

How do you measure the standard / quality of sugar?Methods of measuring quality of sugar Frequency

By Laboratory through sample collection & analysis 4

In an average 2

No more scope 4

All the raw-materials goes for production 1

Variety and Recovery rate 1

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According to 4 the interviewees, the final product that comes out from the mills aretested at the laboratory for their quality. But the raw materials possibly don’t go throughany screening.

Why has the production rate varied?

Causes for the production rate to vary Frequency

Due to supply of raw-materials 11

Production of sugarcane 2

Due to gur price 1

Low recovery rate 6

Overhead cost 1

Wages & maintenances cost 1

Price of the raw materials 1

Unskilled workers 1

According to the interviewees, the major factors causing the production rate to varyare the unstable supply of sugarcane and low recovery rate. (why is the supply unstable?Can this situation be improved?)

What packaging materials do you use? Are these readily available and affordable?

Why/ Why not?

Kind of packaging used Frequency

PP bag(Propylene bag)these are available & affordable 12

PP bag provide by the government 5

All 12 mills in the study use PP bags (propylene bag) for packaging which they buy fromthe market. They are available and affordable according to the interviewees. Somemills use PP bags that are provided by the government.

What services (fuel, water, electricity etc.) are available in the factory? Whatadditional services do you require? How would these help your business?

Services Frequency

All Logistics are Available and provided by the company 3

Bagasse (Fuel) 7

Deep tube well water 7

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We are sufficient and nothing more is required 4

Own steam turbine direct-generator 6

Rest of the Season the mill uses PDB electricity 1

The supplies that are usually required for the production process of sugar are bagasse(fuel), water (from the deep tube well), electricity (which they generate from their ownsteam turbines)

How do you preserve raw materials?

Answers Frequency

No more scope 10

Raw materials must be used within 24 hours 8

Only product is stored 1

As soon as possible we have to send it for production 1

It is to be processed within 24 hours of harvesting 1

According to the interviewees the raw materials can not be kept without spoiling formore than 24 hours. They must be processed within 24 hours of harvesting. They canonly preserve the material at processed form.

How do you maintain the quality of sugarcane?

Answers Frequency

No more Scope 9

In an average 1

In factory by crashing within 24 hours (fresh cane) 1

Cane Dept. with Engineers/Chemist check the quality 1

Cane cannot be preserved. So the raw materials are usually sent in for processing assoon as they arrive from the farmers.

Are trained workers available and are their salaries affordable? Do workershave the training required to do their job?

Answers Frequency

No, we have training facility 1

No, the learn by doing 1

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Trained workers not available 8

Require proper training to do their job 6

Salaries not affordable 1

We have to provide Training 4

Provision should be made not to terminate the skilled employees 1

Workers usually enter as novices and then receive the necessary training at the mills.Trained workers are usually not available.

What are the skills the Workers usually have? What are the skills they require?

Answers Frequency

Low skills 4

All basic training 1

Usually unskilled worker are recruited 5

Workers required proper training to do their job 4

Operational and maintenance skills are required it is achievedonly by training 2

Require proper training to do their job 1

No skills expected found from a new comer 1

From the data we can see that the workers who enter sugar mills are unskilled labors.The sugar mills then provide them with the necessary training. Operational andmaintenance skills are among the most commonly required skills at the sugar mills.

What are the major constraints of sugar sector in Bangladesh? How do youbelieve these could be overcome? (Including supply chains; setting quality /standards; marketing the product)

Production and marketing process Frequency

Gur Price is more than sugar price 4

Lack of high contain of sugarcane 5

Low Recovery rate 1

Insufficient of raw-materials 6

Farmers are not interested to cultivate sugarcane due to duration 2

Unavailability of variety 3

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Market price is not relevant to production cost 1

Limitation of technology 1

Less Pricing of Raw-Materials 1

Old machineries 1

Manpower-unskilled 1

Long-term crop 1

Low price of sugarcane comparatively to others 1

Unskilled labor 2

Gur Production 1

Lack of yield field 1

Identifying by products as valuable 1

Financial Contribution to modernize factory 1

Most important problem is that the rate of recovery of the sugaris very low than any developed country. So, this is the very specificreason to bring the loss of this mill. 1

A strong syndicate is responsible for the crisis in sugar industry 1

50% of the interviewees expressed that insufficient supply of raw material is a bigproblem in the sugar industry. Among other key problems the price of Gur being morethan sugar is a major issue according to the interviewee. [ ] The unstable andinsufficient supply of cane forces the mills to produce quantities much below theirproduction capacity.

What are the opportunities of sugar sector in Bangladesh?

The kind of opportunities the sugar sector provides Frequency

Local socio-economic development by roads, education, employment 2

Bio-fertilizer 3

By-products to be emphasized 4

Gur 1

Large scale subsidy to sugarcane farmers for encouragingcane cultivation 2

Subsidies to sugar mills should also be given. 2

Crushing capacity of sugar mills must be enhanced through BMREand modernization to achieving high recovery 4

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Our government should strongly patronize sugarcane cropproduction with a long term vision and mission to fulfill our ownconsumption of sugar 1

Joint Collaboration with coal for electricity 1

Sugar Refinery is to be established 2

By product is to be considered as main product 1

1) Bagasse

2) Molasses

3) Distillery

4) Freshmud

Achieving high recovery 1

Distillery-Power plant(By-Product) 1

Govt. should take strong Separate policy (Sugar & Gur) 1

Price of sugarcane is to be increased 1

Opportunity to increase the yield of sugarcane 1

Modernization of the sugar mills and increase of production 1

The molasses sell the mills at lower price because there is nodistillery of the mills 1

To improve social, economic condition of that area 1

Education for local area 1

Employment opportunity for local people 1

Local infrastructural development 1

Only due to lack of government initiative, no distillery firm has sofar established in the country 1

Marshal Distillery is running by the bi-products of 3 sugar mills-Panchagarh Sugar Mill, Thakurgaon Sugar Mill and SetabganjSugar Mill, Dinajpur. 1

While the private sector has been profitably operating distilleries,sugar mills produce 1 lakh tones annually against the yearly demandof 14 to 15 lakh metric tones. 1

The demand can be fulfilled by the country’ own production andthere is no need to import sugar 1

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Government should strongly patronize sugarcane crop productionwith a long term vision and mission to fulfill our own consumptionof sugar 1

There are 27 different answers to this question.

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SANSARSouth Asia Network for Sustainability and Responsibility

Organizations of South East Asia promoting Corporate Social Responsibility such as CSRCentre (Bangladesh), Sustainable Development Policy Institute (Pakistan), Centre for AfghanCivil Society Support (Afghanistan) have come together to launch new platform called SANSARalong with Prakruthi (India). The whole idea to make sure that a platform for discussing andpromoting sustainability and CSR issues in South Asian Countries has been well supported byOXFAM NOVIB, The Netherlands. This was also well received by other organizations fromNepal, Sri Lanka and Indonesia.

SANSAR's core strategy is to make stakeholders redefine and commonly understand theconcept of CSR and promote it actively to address social, environmental and business relatedissues across the globe & sectors in the long run. To achieve this, SANSAR employs strategiessuch as policy outreach, activism capacity building, research ·and networking. The abovepages document the initial research work done in sugar sector, which visibly affects lives oflarge number of population in these countries. While trying to identify with the CSR issues incounties which are at different levels of understanding and praxis of sustainability issues, wecreate a platform to discuss, share, learn and implement CSR to reduce structural poverty. Thiswould not have been possible without the help of many like-minded people.

I would like to thank Dr. Abid Suleri of SDPI Pakistan, Shahamin Zaman of CSR CentreBangladesh, Mujeeb Niazi of Centre for Afghan Civil Society Support, Afghanistan who haveextended their whole-hearted support even within their busy schedules to make the pillars forthis network made. We are hoping that more and more organisations would join this network torealize our collective dream of a peaceful and prosperous South Asia.

I would like to, in this regard, extend our sincere thanks to Mr. Viraf Mehta, Dr ShatadruChattopadhayay, Dr Bimal Arora, Prof. VasanthiSrinivasan, Dr MC Gopinathan in helpingus with their valuable inputs and guidance whenever needed.

Pramod JohnPrakruthi , India27th March 2012

ISBN: 978-81-908155-8-1

Prakruthi, Bangalore-based non-profit organisation established in 1991, envisages a society where the economic and social divide created by a non-egalitarian system is minimised. Prakruthi works with the poor and the marginalised in various sectors of Indian economy- the plantation workers, small and marginal farmers, women, youth and children addressing issues in garments, tea, coffee and sugarcane sectors with special focus in social and environmental sustainability.

The research on the “Sugar Industry in Bangladesh – The Challenges of Sustainability and Corporate Social Responsibility” was undertaken as one of the basic essential commodity “ sugar “ which is a necessity for all socio-economic groups of the population in Bangladesh. Although the consumption of sugar varies within urban and rural population it still acts as a significant food item at a national level. Domestic consumption is multiplying through the years and so the high importance of the sugar industry and its future sustainability is a concern for those stakeholders engaged within this industry.

In order to sustain the growth of the sugar industry which is mostly owned by the Government of Bangladesh it is necessary to conduct an in-depth study into the present status, challenges faced and potential for future growth of the industry through its supply chains. To enhance the domestic production of sugar as well as to create benchmark standards equivalent to global standardization, the concept of CSR or Corporate Social Responsibility needs to be addressed.

This research gives an over global perspective as well as Regional perspective of the sugar industry in order to understand the supply, demand and price setting which is necessary to relate these issues to the Bangladeshi sugar industry.

As the domestic consumption increases in Bangladesh with the growing population trend there is a need to identify and implement alternative solutions for engaging private sector with the public sector enterprises so that a sustainable and healthy sugar industry can emerge in Bangladesh.

The CSR Centre was launched in September 5th 2007, with private sector start-up funding to encourage and expand CSR practices in Bangladesh. The Centre is registered as a Trust with 15 members on the Board representing a wide range of sectors. The Vision of the CSR Centre is to be recognized as the centre of expertise for CSR and sustainable development in Bangladesh. CSR Centre shares knowledge and provides expertise and services to promote sustainable development through responsible business practices. The Centre offers services including CSR strategy development, training and capacity building programs, research and partnership development. The Centre is a focal point of the UN Global Compact and actively promotes the ten UN Global Compact principles among the private sector in Bangladesh. CSR Centre believes that 'CSR is about achieving commercial success in ways that honor ethical values and respect people, communities and the natural environment'.

Novibx



challenges in sustainability and csr, sugar industry in bangladesh

Documents

sugar market

sugar sector

consumption of sugar

importance of sugar

sources of sugar

bangladesh sugar policy

support sugar mills

european sugar policy