Challenges in sustainability and CSR, sugar industry in Bangladesh

Challenges in Sustainability and Corporate Social Responsibility The Sugar Industry in Bangladesh

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Challenges in Sustainability and Corporate Social Responsibility

Challenges in Sustainability and Corporate Social Responsibility The Sugar Industry in Bangladesh

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Challenges in Sustainability and Corporate Social Responsibility

Š 2012, Edition - first ISBN: 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

Published by

Prakruthi 43, 2nd Cross, Ramaya Layout St. Thomas Town Post Kammanahalli Bangalore 560 084, India www.prakruthi.org

Supported by

Oxfam Novib The Netherlands

Design and Layout by Rajesh MV Printed at National Printing Press, Bangalore

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Contents

Acknowledgments 1.Introduction 1.1 Background 1.1.1 Global Perspective 1.1.2. Asian Perspective 1.1.3 Bangladesh Perspective 1.2 Importance of Sugar 1.2.1 Sugar’s Contribution to Employment and Output 1.2.2 Sugar’s Growth Potential 1.3 Major Problems in the Sugar Sector 1.4 Study Objective 1.4.1 Key Research Questions 1.4.2 Micro Level Situation 1.4.3 Specific Issues of Role of CSR Instruments 1.5 Methodology 1.5.1 Approaching the Issue 1.5.2 Sample and Data Collection 1.5.3Analytical Method

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2. Literature Review 2.1 Major Issues 2.2 Sustainability 2.2.1. Environmental Sustainability 2.2.2. Economic Sustainability 2.2.3. Social sustainability

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2.3 Policy Literature 2.3.1 European Sugar Policy 2.3.2 Brazilian Sugar Policies 2.3.3 African Sugar Policies 2.3.4 U.S. Sugar Policies 2.3.5 Kenyan Sugar Policy 2.3.6 Bangladesh Sugar Policy 2.4 Corporate Social Responsibility of the Sugar Industry 2.4.1 General Concept of CSR 2.4.2 EU Perspective 2.4.3 Bangladesh Perspective

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3. An Overview of the Sugar Market 3.1 The Global Trends in the Sugar Market 3.1.1 World Production and Consumption of Sugar 3.1.2 Summary of Global Statistics 2009 3.1.3 World Price of Sugar 3.1.4 Cost and Output Variation 3.2 The Sugar Industry in Bangladesh 3.2.1 Sources of Sugar in Bangladesh 3.2.2 Production of Sugarcane 3.2.3 Production of Sugar and Gur 3.2.4 Capacity Utilization of State-owned Sugar Mills 3.2.5 Price Setting for Sugarcane and Sugar 3.2.6 Profit and Loss 3.2.7 Contribution to GDP 3.2.8 Contribution to Employment 3.3 The Private Refiners 3.4 Import

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4. Research Findings 4.1 The State of the Sugar Industry: Macro Aspects 4.1.2 Stagnation in the State-owned Sugar Mills 4.1.3 Subsidy to Consumers, Burden to Taxpayers 4.1.4 Import Dependence of Refineries 4.1.5 Growth Prospects 4.2 The State of the Sugar Industry: Micro Aspects 4.2.1 Problems Faced by Stakeholders

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4.2.2 The Support Sugar Mills Provide to Cane Suppliers 4.2.3 The support Sugar Mills Provide to Workers 4.2.4 Price Setting 4.2.5 Production Capacity 4.2.6 Quality Management 4.2.7 Environmental Concerns 4.2.8 Output Variability 4.2.9 Major Constraints 4.3 Sustainability 4.3.1 Multiple Dimensions of Sustainability 4.3.2 Environmental Sustainability 4.3.3 Economic Sustainability 4.3.4 Social Sustainability 4.4 CSR Options 4.4.1 Scope for CSR Activities 4.4.2 Public Versus Private Corporations 4.1.2 Issues where CSR can Intervene

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5.Suggestions 5.1 Suggestions for Sustainability 5.1.1 Privatization 5.1.2 Trade Liberalization 5.1.3 Subsidization 5.1.4 Expert Suggestion 5.2 Suggestions for CSR Programs Conclusion

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References Appendix: Survey Answers

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List of Tables Table-1: World Sugar production, export, and per capita consumption, (2008-09) Table-2: World Price of Sugar per kilogram, (2008-09), in USD and BDT, Table 3: Sugar market share of different participants in Bangladesh Table 4: Cane Output, sugar output, and cane price) in Bangladesh (1971 to 08) Table 5: Production of Gur and Sugar in Bangladesh 1990-2009 Table 6: Sugar Recovery from Sugarcane in Bangladesh, 1972-2003

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Table 7: Crushing Capacity of Sugar Mills in Bangladesh Table 8: Profit and loss of state-owned sugar mills in Bangladesh (1972-2009) Table 9: Sugarcane’s contribution to GDP in Bangladesh (2003-04) Table 10: Contribution of sugarcane by-product to national economy (2003-04) Table 11: Employment in Sugar Sector (1999-2000)

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 has completed the research study titled “The Sugar Industry in Bangladesh: the Challenges of Sustainability and Corporate Social Responsibility�. We gratefully acknowledge 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 the Government Sugar mills.

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

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

We are thankful to the following persons for their support in guiding the researchMr. Mahmud ul Haque Bhuiyan ,Additional Secretary ,Government of the Peoples Republic of Bangladesh &Chairman Bangladesh Sugar & Food Industries Corporation, Mrs.Ferdous Begum, Secretary ,Bangladesh Sugar & Food Industries Corporation, Md.Abdul Wadud Dewan, Gm(Trg), Bangladesh Sugar & Food Industries 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 Sugar Mills LTD,GM –Administration, Mr.Abdus Salam,Managing Director,Pabna Sugar Mills LTD, Engr Sumsudin Ahmed,Managing Director, Panchagar Sugar Mills Ltd., MD.Piasuzzaman, GM (Administration), Rajshahi Sugar Mills LTD, MD Abul Rafique, Managing Director,Setabgonj Sugar Mills Ltd., Mr.S.M Abdul Aziz, Managing Director, Shyampur Sugar Mills Ltd., S.M Abdul Aziz, Managing Director, Shyampur Sugar Mills Ltd., Sibendra Nath Sarker, Managing Director, Thkurgaon Sugar Mills LTD.

Shahamin S. Zaman CEO CSR Centre

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1 Introduction

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

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

1.1.1 Global Perspective The major players in the world sugar market are Brazil, India, EU, China, Thailand, Australia, SADC (Southern African Development Community), Russian Federation, 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 smallest producer among the top 10 producing countries, with an annual production of a little 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, and subsidies that significantly distorts production decisions and export balances.

The sugar price in the world market as a result is very volatile and difficult to predict. The world indicator price for raw sugar witnessed a succession of peaks and downward corrections in 2010 before rising to a 30-year high of USD 36.08

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cts/lb (OECD agricultural outlook, 2011-2010) in February 2011. Price volatility leading to large deficits in the balance of trade teamed with adverse weather in a number of countries failing to yield the expected level of production led to this price rise. World sugar stock, which had already been drawn down, fell to their lowest level in 20 years in 2010-11, supporting higher as well as more volatile market prices. The Government policies continuing to intervene in many countries is a major factor causing the sharp ups and downs in production and price in the sugar 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 in some major cane producing countries of Asia, will strongly influence world sugar production and price volatility. World sugar consumption is expected to grow at a lower average rate over the longer term in response to higher prices to reach 207 million ton in 2020-21.

World sugar consumption is expected to grow at a lower average rate over the longer term in response to higher prices to reach 207 million ton in 2020-21 according to OECD. Brazil being the largest producer and exporter, has earned the status of ‘price setter’ in the world market with international sugar prices usually correlated with its relatively low production costs. Brazil’s sugar production, as one of the lowest cost sugar producers with considerable capacity to expand sugar cane area on a large scale, along with the projected growth in ethanol production, will be key determinants of global sugar production, which is projected to reach over 209 million ton in 2020-21.

Source: Illovo Sugar Limited, Annual Report 2010

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1.1.2. Asian Perspective The major Asian producers are Thailand, India, and China. Although much smaller 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 second largest exporter of sugar after Brazil.

India’s production cycle suffers from government intervention and often suffers deficits in its sugar trade. Like India, China has also been suffering declines in production 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 11 kg per person, China cannot meet its domestic demand. In 2010 September, China imported sugar worth of 19.13 million U.S. dollars.

The following paragraphs offer some projections of the Asian sugar market for the three major producers. (Data source: OECD agricultural outlook 2011): India - The international sugar market remains one of the most volatile of all commodity markets. One of the contributory factors to this volatility is policyinduced production swings among some Asian countries, particularly India. A longstanding feature of the sugar market in India is the cyclical nature of production, where 2-3 years of surplus are followed by 2-3 years of deficit. In recent years, the cycle has been more pronounced, with larger swings in production and trade. After an increase in 2006/07 to 30.1 million ton, 33% over the record 2002/03 crop, sugar output declined to 15.2 million ton in 2008/09 and is currently estimated at 28 million ton for 2010/11.

Thailand - In terms of other leading exporters, Thailand plays a unique role in Asia as the only consistent producer of a large sugar surplus and with a natural trade advantage, along with Australia, to service the large and ballooning sugar deficit in that region. Exports from Thailand, which is ranked number two in the world, are projected to grow to around 5.8 million ton by 2020-21, exceeding the 2003 record. In the case of Australia, increased production over the projection period should support exports of around 3.8 million ton by 2020-21. Strong demand for HFCS in Mexico, which is expected to grow to 75% of total sweetener consumption and similar to the situation in the US, will substitute for sugar used in 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 of countries.

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

1.1.3 Bangladesh Perspective Bangladesh has a domestic demand of 1.95 million ton of sugar in 2012, for a population of about 150 million, assuming 13 kg per capita consumption. But it produces 0.08 million ton domestically and imports 1.3 million ton, mainly from India. The rest of the demandsupply gap is filled up by sugar produced in the 6/7 refineries in Bangladesh and gur/jaggery producers.

The sugar industries in Bangladesh are nationalized since the country’s independence.

Due to inefficiencies in management, mismatched demand and supply of raw materials, outdated technology, low recovery-rate of cane-type used in the mills, the level of actual production is far below installed capacity. The industries are running at a loss since the mid 1980s. The sugar production in Bangladesh is not growing at a steady 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 metric tons on average).

Source: BSRI

Data Source: BSRI

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

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

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

1.3 Major Problems in the Sugar Sector The overall problem in the sugar sector is that the state-owned sugar mills have long 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 grow vigorously unless the policymakers revert to the long era of protectionism and subsidization.

1.4 Study Objective CSR Centre undertook the present study to identify the challenges to sustainability of the sugar sector and to discover options for deploying CSR instruments for its revitalization and improved sustainability.

1.4.1 Key Research Questions The 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, and liberalization

1.4.2 Micro level Situation The research team undertook a field survey to learn about the specific problems faced by individual sugar mills. A structured questionnaire was devised to lean about the following: Production process and technology Procurement of raw material Quality management

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Š Support to cane suppliers Š Price setting

1.4.3 Specific Issues of Role of CSR Instruments The key interest of CSR Centre is to identify ways in which CSR initiatives and programs may contribute to the long term sustainability of the sugar sector in Bangladesh.

1.5 Methodology The broad scope of the term sustainability has many dimensions. While some quantitative indication is unavoidable, the choice of the method of investigation is basically interpretative and hence qualitative. Therefore, the framework for the research starts with a discussion on the approaches to the issue. Considers the matter of sampling and data collection. Lastly, this research interprets the data through a combination of quantitative and qualitative analysis.

1.5.1 Approaching the Issue The key research issue involves the state of the sugar industry in Bangladesh and the prospects and problems of sustaining its healthy survival and growth. Hence the first aim is to look at available statistical and other information to assess the state of the industry. However, the issue of sustainability has many dimensions.

For the benefit of CSR, whose principal interest lies in the social sustainability through the deployment of CSR programs, the research needs a qualitative approach. After all, Sustainability of the sugar industry is essentially a matter of the quality of the sugar sector.

1.5.2 Sample and Data Collection The study team intended to cover all the sugar mills and refineries in Bangladesh.

However logistic and time limitation forced the team to conduct in depth interviews with 12 mills out of 17. This is adequate to get a representative picture of the shades of opinion regarding the matters of sustainability and deployment of CSR interventions. Members of the study team visited the mills listed below.

They gathered detailed case histories and data on various aspects of production marketing ad finance. The top executives sat for interviews to exchange opinions on a variety of issue pertinent to sustainability and the room for engagement of CSR interventions.

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The research team visied the following mills: Rangpur Sugar mill, Setabgonj Sugar mill, Carew & Co., Thakurgaon Sugar mill, Jaypurhat Sugar mill, Rajshahi Sugar mill, Mobarakgonj Sugar mill, Shyampur Sugar mill, Panchagar Sugar mill, Faridpur Sugar mill, Natore Sugar mill, Pabna Sugar mill

1.5.3 Analytical Method The study adopted a multidisciplinary approach to analyze the primary data.

Much of this is qualitative. This was categorized into various responses to delineate the 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 statistical models of analysis. But there is no point in carrying out any of these, because precise estimation of parameter s is not the goal. Rather the problem is to understand the bottlenecks and options for overcoming them. The research looks for opportunities to introduce innovations through CSR initiatives. Thus the main interest is well served as we try to interpret the sugar sector by the responding executives. These are people with long experience at the helm of the affairs and their opinions reflect a deep understanding of the problems and the way they think they can cope with them.

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2 Literature Review

The available empirical literature and secondary data point to the major issues.

The relevant theoretical literature shows how to approach the articulation and conceptualization of the issues.

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

2.1 Major Issues An overview of the secondary data indicates the major issues pertaining to the sugar market. Among the various issues, two predominant issues are sustainability and the role of CSR interventions.

The global sugar industry is one of the world’s oldest agro-based industries, which is estimated to produce around 167 million tons of sugar in the 2010/11 international sugar season (OECD). Whilst many forces continually impact upon annual global production, a major sustainability feature of this industry is its historic and ongoing sugar consumption growth, which on average, increases by around 1.8% per annum.

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There are new challenges emerging in the world sugar market. The challenges facing the sugar industry are similar to other industries that are highly regulated and are slow to liberalize. If sugar prices are too high then the producer is uncompetitive; however, if it is too low, sugar farmers and producers will not be able to make a profit. Efficient countries or countries with low labor costs, like Brazil and India, will fare better with low-cost sugar because they will still be able to make a profit. If there were no quotas or tariffs, sugar producers in Europe and 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 on agriculture than other industries. European and American tariffs hurt farmers in developing countries who cannot compete.

2.2 Sustainability Sustainability is a multidimensional phenomenon. The three key dimensions of sustainability concern the environment, the economy, and the society.

2.2.1. Environmental Sustainability The environmental aspect of sustainability for the sugar industry is pretty straight forward: sugar is produced out of sugar cane and we do not see serious danger signals to the environment from the growing of cane on land or of processing it through crushing and even refining.

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

2.2.3. Social Sustainability The primary interest of this research is the social sustainability. An industrial concern 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 concerns how a manufacturer may or may not rend the society asunder by promoting inequality and inequity or deprivation and discrimination.

2.3 Policy Literature The review of policy pursued by various nations may give a sense of the policy options.

2.3.1 European Sugar Policy The EU has an extensive tariff system as well, which underwent major changes in 2006-2007. Sugar subsidies to farmers were cut, certain quotas were merged, and obsolete mills were closed or consolidated. Measures were taken though to ease the burden of increased sugar from the least developed countries (LDCs), who are given preferential access to the European market under the “Everything but arms” initiative. Sugar from the LDCs will only be allowed duty-free and quota-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 sugar production by more than half; subsidies to European farmers that grow sugar beet for ethanol (as long as the plants are not grown on set-aside land); and, a new restructuring fund for European sugar producers that will help them 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 by taxes for the users. Europe has been trying to force environmental protection through its ethanol policies. The EU is considering banning fuel crops whose production cause harm to the environment (such as the destruction of rain forests for agricultural land to grow biofuels). To ensure that the biofuels are environmentally-friendly, the EU is considering a tracking system to assess sustainability criteria.

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2.3.2 Brazilian Sugar Policies Brazil 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 produce ethanol; the remaining is used for domestic sugar consumption and for export.

Brazilian sugar is exported all over the world; Russia is the top international consumer of Brazilian sugar. In 2006, Brazil exported 52 percent of the world’s ethanol market.

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

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

2.3.4 U.S. Sugar Policies U.S. sugar policy takes into a number of factors including sugar imports and exports, sweeteners (including sugar and corn sweeteners) and ethanol. Imports of raw sugar cane, refined sugars, sugar syrups, and sugar-containing products are controlled via tariff-rate quotas (TRQs), which charge different rates depending on the volume. A high tariff is paid for sugar imports in excess of the country’s quota. Forty countries receive TRQs for raw sugar cane. Mexico’s over-quota tariffs ended in 2008.

In addition to TRQs, the U.S. also has a re-export program to help U.S. sugar refineries and manufacturers of sugar-based products. There are also domestic marketing allotments and price supports to control the amount of sugar on the U.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. sugar manufacturers uncompetitive in the domestic and export market. U.S. sugar prices are 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 and competitive. Automation is being used to cut back on high labor costs. Scientists are developing and using round-up (herbicide) resistant sugar beet seeds. These seeds are one of the first genetically-engineered plants since the 1990s to be widely grown. While genetically modified products require labeling in Europe, there is less controversy in the US and no label is required. About three percent of US sugar 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. is converting more of its corn into ethanol, leaving less corn available for the sweetener 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 bolsters the US corn industry, but makes it difficult for sugar ethanol products to enter the country.

2.3.5 Kenyan Sugar Policy Kenya’s situation is much like Bangladesh. It has a nationalized sugar industry that has been running at a loss for many years now. The elasticity of demand for sugar imports in Kenya is 1.68 (Boss 2008) which is elastic. According to Boss protectionism in Kenya has had a significant negative effect on the efficiency of its sugar industry. Protectionism is the economic policy of restraining trade between nations. It is done through high tariffs on imported goods, restrictive quotas and a variety of restrictive government regulations that are designed to discourage cheaper imports and dumping. This is in an attempt to protect domestic industries from foreign take-over or competition, on the other hand Efficiency is the cost incurred by not optimally utilizing the available scarce resource in the industry.

Kenya took a protectionist stand on international trade of sugar due to the conjecture that liberalizing the sector will adversely affect the local sugar. This has been made possible by Kenya presenting a strong case to COMESA on the need to protect the fragile sugar sector, a case that has allowed Kenya to protect her sugar industry till 2012 since the year 2003. The results from the study indicated 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 translate to an average loss of 43.64 million dollars per annum since the protection policy was introduced in Kenya and according to the theory of international trade this high level of inefficiency in the sugar industry has been brought about by lack of competition in this industry.

2.3.6 Bangladesh Sugar Policy In June 2002, the government of Bangladesh liberalized the import of sugar. Before that sugar was imported by BSFIC & Trading Corporation of Bangladesh (TCB) only. Bangladesh’s sugar import, especially from India is steeply increasing to fulfill its growing domestic demand.

India’s been heard to dump its excess sugar into the Bangladeshi market. In 2010 India subsidizes sugar at a $60/MT rate, which – when there is surplus production - enables their producers to sell at Tk. 24/kg to the Bangladeshi market (whereas the local market price was around Tk 35/kg), which is a major market distortion. Dumping does not strictly come under the purview of competition law, but it is dealt with under the WTO, which provides a mechanism for countries to challenge trading partners on dumping allegations, and take action if necessary.

Bangladesh does not currently have a competition law and policy framework that is being applied, though the Monopolies and Restrictive Trade Practices Ordinance (MRTPO) enacted in 1970 by the Government of Pakistan when Bangladesh was a constituent part as East Pakistan, remains on the legislative books. But neither the government nor the private sector has attempted to invoke this law in the past. A draft Competition Act 2008 has been prepared by the Ministry of Commerce and is currently being considered by Government. There were concerns that the draft bill “had been drawn up by foreign experts”, that the bill was a copy of the Indian competition bill, and that the consultants sought to 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 of 1970) itself had never been implemented because of a lack of capacity and skilled technical staff to implement it, so they had little faith the new bill would be implemented effectively. The Bill is indeed based on international best practice.

This means that it benefits from lessons learned from experience with competition law from across the world. The media coverage on this issue suggests that Bangladesh may suffer from significant competition problems, with substantial costs to consumers and to Bangladesh’s economic performance more widely.

A competition bill would in fact be to the advantage of many businesses, who could potentially benefit from new market opportunities and lower input prices which would make them more competitive on world markets. The benefits would accrue more to new businesses than incumbent businesses who have the vested interest of preventing change. The Ministry has also sought the assistance of the IFC in Bangladesh and a pool of experts to help build the evidence for the needs for pro-competitive reform and to develop a Competition Bill based on best practice experience from around the world. The IFC and DFID have also commissioned a number of studies which are looking at the degree of competition in various product markets in Bangladesh. It is hoped that these studies will build the evidence base and help to convince policy makers and Government Ministers that the proposed Bill is not about stifling domestic industry but rather that it is about fostering competition, entry, efficiency, consumer welfare and growth in the domestic economy.

2.4 Corporate Social Responsibility of the Sugar Industry 2.4.1 General Concept of CSR The general idea is that the corporations in the sugar sector have a social responsibility to its entire stakeholder. In particular, the corporations need to pursue polices and undertake practices that contribute to the wellbeing of the cane growers as suppliers and the factory workers. Of course the general citizens of the country and particularly in the neighborhood of the mills have rights that h the corporations should respect. They need to act such as to promote social justice and cohesion through commitments to equity, equal opportunity and fair play, without discrimination, denial and deprivation.

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

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

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

Moreover, this framework has been created to serve as a vehicle for sharing experiences and will function as a source for learning to develop best practice throughout the whole European Sugar Industry as an inspiration for continuous improvement.

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

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

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

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Challenges in Sustainability and Corporate Social Responsibility

The European Sugar Industry: respects the freedom of association and thus the right for all workers to establish trade unions and to affiliate, including for workers representatives the right of access to the enterprise (ILO convention 87). recognizes the effective right to collective bargaining as well as the right for worker representatives to get facilities as appropriate in order to carry out their functions promptly and efficiently. (ILO conventions 98 and 135). confirms the fact that exercising these rights won’t cause any personal of professional damage to the workers and their representatives. will not operate with any form of forced or compulsory labor (ILO Convention 29). is opposed to child labor (Convention 182) and meets ILO convention 138 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 political affiliation and undertakes in particular to guarantee and promote equal opportunities and equal treatment for men and women (ILO conventions 100 and 111 – EU directives

CSR for Education, Vocational and Life Long Training The European Sugar Industry endeavors to invest in its employees by providing them with the best possible skills and abilities in order to develop their individual potential to the maximum, and thereby contributes to the success and competitiveness of the enterprise. It gives specific training to employees as regards technical aspects connected with the production process and the field of health and safety at the workplace, and all other relevant aspects connected with the enterprise.

Education and training constitute an integral part of the social dialogue in the companies. Proposals and initiatives by the employees and their representatives are welcome and will be implemented in accordance with national habits.

The European sugar industry recommends to sugar companies, whenever economically and socially feasible, to make a significant effort to offer more young people training periods and places as apprentices in order to improve their skills on the labor market.

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Challenges in Sustainability and Corporate Social Responsibility

CSR For Health and Safety The European Sugar Industry pays special attention to health and safety. This is why the Sugar Industry strives to create working conditions that give its employees the possibility to work considering the human aspect and particularly without any risk for their health. In cooperation with the Employees and their representatives, the Sugar Industry will care for a healthy and safe working environment based on secure facts and practices regarding work protection; all preventive measures on health and safety are considered as a priority. The sugar industry does not only pay special attention to the European legislations on health and 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 the sugar industry and taking into account the specific hazards linked to the manufacturing process, are implemented in all sugar factories and pay special attention to prevention.

CSR for Fair Pay The present pay levels in the sugar industry meet or exceed the minimum rates provided for by branch or industry collective agreements and/or legal provisions.

When no agreement or pay scale exists, wages are enough to ensure that workers and their families have a decent standard of living as defined by the Universal Declaration of Human Rights and the ILO Tripartite Declaration.

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

CSR for Working Conditions The European Sugar Industry meets the European legislation covering working conditions and complies with branch or industry standards on working hours.

As far as working time during the processing season is concerned, special agreements may have been concluded between the Social Partners or with the Public Authorities.

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Challenges in Sustainability and Corporate Social Responsibility

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

CSR for Restructuring At European level, within the framework of the European social dialogue, regular information, exchanges of views and, if necessary, joint action can be organized in relation to all issues, including those related to the Community policy and the Community legislations where they have economic and social effects for the sugar sector.

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

Since an open dialogue between management and employees is a pre-requisite for a climate of mutual respect and confidence, employees and their representatives will be regularly kept aware of the situation of the enterprise as well 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 social impact as provided by the present Code of Conduct, the sugar industry acts in a socially responsible way.

Steps are taken to improve the employability of employees.

2.4.3 Bangladesh Perspective CSR is a relatively new concept in Bangladesh even as the NGO movement in Bangladesh prepared the general atmosphere of opinion in its favor. CSR Centre is a major organization dedicated to pursue the deployment of CSR initiatives and programs.

The key areas in which Bangladeshi corporations seem to act with CSR programs involve support to arts and culture, scholarships to students, and relief to victims of disaster. For the sugar

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Challenges in Sustainability and Corporate Social Responsibility

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

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

The promotion of gender equity in particular requires interventions in the mill zone villages to help the women get equal and equitable opportunities to participate in production, access to health facilities and an education. They need corporate support in child care and child rearing, including support during pregnancy, lactation and the care of infants.

The workers need help desperately to learn transferable skills, especially since the 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 modern communication facilities.

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

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3 An Overview of the Sugar Market

3.1 The global Trends in the Sugar Market 3.1.1 World Production and Consumption of Sugar More than 100 countries produce sugar. About 81% of sugar is made from sugar cane. The cane grows primarily in the tropical and sub-tropical zones of the southern hemisphere. About 20% of sugar comes from beet which is grown mainly in the temperate zones of the northern hemisphere. Generally, the costs of producing sugar from sugar cane are lower than those in respect of processing sugar beets. Currently, 72% of the world’s sugar is consumed in the countries of origin, 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 million ton

Exports million ton

Rank in Population Consumption 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

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Challenges in Sustainability and Corporate Social Responsibility Australia

4.80

4.22

Pakistan

4.24

-

3

21

45

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 Sugar Table 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 Variation The market price of sugar varies because the cost of sugar production varies enormously. This is due to production efficiency, which in turn depends on technology, worker skill, management drive, as well as government intervention.

Countries like Brazil and India have highly efficient sugar plants while countries like Kenya and Vietnam and Bangladesh have government run plants and are not functioning so well. In general, state run production is inefficient.

3.2 The Sugar Industry in Bangladesh 3.2.1 Sources of Sugar in Bangladesh Sugar 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 Sugar and 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 import sugar of a higher quality more cheaply from abroad. Domestic sugar production is 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 Table 3 above.

3.2.2 Production of Sugarcane Traditionally the government makes formal contracts with mill zone sugar producers to produce and sell all of their production to government sugar mills. However, there is now a trend for farmers not to sell all of their sugar production to government mills (e.g. in order to produce more handicraft sugar products such as “gur/ jaggery” for local consumption). This is affecting production levels at the BSFIC mills.

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

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Challenges in Sustainability and Corporate Social Responsibility Table 4: Cane Output, Sugar output, and Cane price) in Bangladesh (1971 to 2008) Crushing Land Season use (ha)

Cane outout (mill zone) (Ton)

Yield Crushing Sugar Recov Cane (Ton/ (Ton) Output ery (%) Price ha) (Ton) (per ton)

Profit Revenue Loss (Tk.. in (million million) TK.)

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

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

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78.89

874.70

1046.06

Challenges in Sustainability and Corporate Social Responsibility 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

6.75

-

-

-

-

80000

Source: MIS Report, BSFIC, 1972-2004

3.2.3 Production of Sugar and Gur The table below shows that the volume of gur production is 2 to 4 times larger than 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 for gur while the richer urban ones go for sugar.

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

Sugar production (‘000 ton)

Gur production (‘000 ton)

Sugar import (‘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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Challenges in Sustainability and Corporate Social Responsibility 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 Cane Sugar recovery rate varied between 6.61 % and 8.77% during 1972-73 and 20022003. namely by as much as 32% from the bottom. In India, the recovery rate is about 11.23% in 2012 while in Brazil it is about 14.1%. The Brazilian recovery rate is nearly double of that of Bangladesh. There is much scope for dramatic improvement in recovery rate. This would require use of improved varieties of sugar cane and better crushing and extraction technology.

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

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Harvesting Season

Sugar production (ton)

Sugar recovery (%)

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

Challenges in Sustainability and Corporate Social Responsibility 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 Mills Table 7: Crushing Capacity of Sugar Mills in Bangladesh Name of sugar mills

Year of establishment

Production 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 per BSRI (Bangladesh Sugar Research Institute). Actual output in recent years has fallen to nearly a quarter of the capacity.

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

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

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Challenges in Sustainability and Corporate Social Responsibility

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 to increases in demand).

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

3.2.6 Profit and Loss BSFIC data shows that the mills in Bangladesh have been making losses consistently since at least the beginning of the 1990s. Future production by BSFIC mills is under threat because of these continuous losses and also reduced sugarcane production.

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

Profit/lose (million taka)

Paying revenue (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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Challenges in Sustainability and Corporate Social Responsibility 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 attributed to 2 causes: Bangladesh’s sugar growing regions are characterized by many smallholder farmers, which reduce scale economies in production and contribute to low yields.

The machineries in the mills are outdated, and the management is inefficient.

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

GDP Valuation at Constant Market Price (Tk.. in million)

GDP Contribution to Sugarcane Economy (%)

Sugar

3812.67

22.61

0.15

By-Product

712.78

4.23

0.03

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GDP Contribution to National Economy (%)

Challenges in Sustainability and Corporate Social Responsibility 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)

1. Bagasse

0.575

276.00

2. Press mud

0.058

27.84

3. Molasses

0.066

408.94

1. Sugarcane top (fodder)

0.519

248.99

2. Dried leave

0.373

178.96

3. Root stock (fuel)

0.729

350.14

a) By- products of sugar mill

a) By- products of sugar cane

Total

1491.00

3.2.8 Contribution to Employment Utilization of labor force in sugarcane production and processing (1999-2000) BSRI survey estimates for 1999-2000 show that employment in sugar production covers 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

—

6.300

Gur processing

0.093

9.492

Production chewing cane/production of juice

0.006

0.124

Fodder/fuel

0.170

2.627

—

66.025

Sugar processing

Total

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Challenges in Sustainability and Corporate Social Responsibility ¨ 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 Refineries There are seven private companies in the market involved in the refining of imported 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 to interview evidence, they are also profitable. The largest has an estimated 46% market share.

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

There have also been newspaper reports suggesting coordination within the sugar market, with allegations that the private refineries and/or the wholesalers were restricting supply in order to increase prices. It has been suggested that this has been 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 is established in Bangladesh. Relatively little price variation was observed between the private refineries at the time of the mission, though interview evidence suggests they may compete in other ways e.g. through marketing and distribution.

3.4 Import Up to June 2002, sugar was imported by BSFIC & Trading Corporation of Bangladesh (TCB) only. However, sugar importation has now been liberalized and sugar can now be imported without any restriction. The study team heard reports that there was

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some dumping of Indian sugar in the Bangladeshi market. India subsidizes sugar at a $60/MT rate, which – when there is surplus production of subsidized sugar in 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 from dumping further distorts the sugar market.

Sustainability in the Sugar Sector The government run sugar industry in Bangladesh did not prove to be successful.

The production cost of sugar in the mills is internationally uncompetitive, and hence the industry has become a significant drain on the public purse, with a high opportunity cost (in terms of other budgetary needs) which means that they and associated livelihoods are ultimately unlikely to be sustainable.

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

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

Firstly, to support agricultural livelihoods - because 2 million people are directly involved 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 is fundamentally unsustainable and has an uncertain future.

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

The Government could achieve the same outcome with price controls, or by importing 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 the government budget for other purposes.

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

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

It could be that a privately run industry would generate more sustainable livelihoods. Even if it did not, it may be that there are other crops that could be grown instead, in which Bangladesh could be internationally competitive, which would be an alternative source of livelihoods in rural areas, resulting in a net benefit to the country if resources that are currently being used inefficiently to produce sugar, were diverted to more efficient production of other crops.

This is a question faced by the other case study countries too e.g., Kenya, which is facing the same pressure on its state led, internationally uncompetitive sugar sector. 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 opportunity cost (in terms of other budgetary needs) which means that they and associated livelihoods are ultimately unlikely to be sustainable.

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

In the same period the experience of the neighboring country, India has been dramatically different. India is one of the leading producers of raw and refined sugar.

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4 Research Findings

4.1 The State of the Sugar Industry: Macro Aspects The sugar market in Bangladesh is growing owing to increasing demand fuelled by growth of income and of population. The growth of demand is further bolstered by urbanization with a lifestyle favoring more intensive use of sugar and its substitutes and complements. However, the production of sugarcane as the primary raw material, and then the production of raw sugar as the intermediate input suffer from policy-induced stagnation. It is primarily a result of the inefficient production under bureaucratic management of state-owned enterprises, which generally fail in every nation to show profit and growth except for a very few instances.

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

4.1.2 Stagnation in the State-owned Sugar Mills The stagnation of the state-owned sugar mills is a foregone conclusion. Nearly in every nation, state owned enterprises are generally highly inefficient and inflexible.

They lack the commercial motivation to make profit, and work under stringent bureaucratic rules that are very inflexible.

The technology is outdated and the production facilities are dilapidated, just

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because the mills as loss-makers cannot carry out maintenance and modernization for lack of capital. The workers are demoralized. They are usually untrained, are poorly paid, and have little incentive either to learn how to work better or to work 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 profitability and run the mills at a loss.

4.1.3 Subsidy to Consumers, Burden to Taxpayers Sugar is not a necessary item of consumption. It is consumed mainly by the richer sections of society. Yet sugar made by state-owned mills is highly subsidized. This subsidy to the rich is the biggest financial reason for the losses incurred by the sugar mills. It adds an increasing burden on the tax payers, and makes it a highly unappetizing proposition to embark on further public investment in this losing sector. The call for privatization of the state-owned enterprises has been going on for long and for increasing more compelling reasons. The political leaders however are unable to make the tough decisions to close them down or to privatize them, especially in an apparent political ploy to keep the jobs of the unhappy and underpaid unskilled workers of the mills, and the even more desperately unhappy cane growers.

4.1.4 Import Dependence of Refineries The incasing dependence of the refineries on imported raw sugar and the growing capacity to export refined sugar enhance the globalization of the economy. But it raises the question of national self-sufficiency. There however is no compelling reason why Bangladesh ought to seek self-sufficiency in sugar production. Classic economic doctrine would suggest that Bangladesh specialize in the production of industrial products because it has an advantage with the huge supply of manpower. It is not well equipped to export agricultural products or agro based products.

Unfortunately, the paradox of agriculture is often not understood. The largest industrial nation of the world (USA) is indeed the largest exporter of food grain while most nations where 60% or more of the labor force work in agriculture are net importers of food. Bangladesh has no advantage in food production: it has long 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 products are the mainstay of its export. A proper understanding of this paradox will show that Bangladesh should give up the dream of producing agrarian goods for export or even for self-sufficiency: it better prepare to clothe the world and buy its food from abroad.

4.1.5 Growth Prospects While the refinery segment of the sugar industry has good prospects of growth provided that raw sugar can be imported easily, the hope of Bangladesh emerging as a competitive producer of raw sugar is very dim indeed.

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

4.2.1 Problems Faced by Stakeholders Insufficient Raw Material Sugar mills are unable to procure enough sugarcane to crush. This is so because farers lack the incentive to sell cane to the mills at low price. They rather prefer gur makers who offer higher prices. And they switch to non-cane crops.

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

Outdated Technology The sugar mills are old and have very old machines that are not kept in good order. This situation [prevails because the state-owned mills almost never saw much profit to invest in upgrading the technology. The e perennial loss makers cannot afford to modernize.

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

4.2.2 The Support Sugar Mills Provide to Sugar Cane Suppliers Crop Protection support: The mills offer insecticides/pesticides at highly subsidized 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: The mills offer free trucking to the cane brought from long distances.

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

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

4.2.3 The Support Sugar Mills Provide to Workers The mills run schools and clinics to offer genera education as well as technical training. 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 Setting The buying price of sugarcane is set by the government. So mills don’t have any bargaining power, they have to purchase their raw material at the fixed procurement price.

The price paid to farmers is usually 250 Tk. per quintal. This varies from 244 to 251.69 depending on the season and depending on where it has been purchased from. At the mill gates the price is 251.69, from the ‘collection center’ it is 244 and from ‘purchase centre’ it is 245. During mid January and mid February the price may 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 of production and hence a carries massive subsidy component for political reasons.

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

4.2.6 Quality Management The sugar produced at the mills is sent for laboratory checking and analysis. But overall it seemed checking of the quality of the sugar was not given a big importance. The health effects of the sugar produced at the mills is not well investigated. It cannot be yet commented on if the mills have a proper quality assuring system or not.

4.2.7 Environmental Concerns Sugarcane is a water intensive crop that remains in the soil for 12 months of the year using approximately one million liters of water to produce 12.5 ton of commercial 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 and estuaries. There is evidence that a monoculture crop like sugarcane has an adverse effect on soil, health, and fauna.

4.2.8 Output Variability The 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 mills cannot produce near full capacity every season; rather they usually produce at a level well below their productive capacity. Considering their capacity, the production per mill should be 40,000 ton per season on average, which comes to a total of 640.000 ton of sugar per year. But the mills in Bangladesh could not produce over 300,000 ton per year. In 2008 to 2009 the total sugar production of the mills was 80,000 ton. This is mainly due to insufficiency in the supply of raw sugar.

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4.2.9 Major Constraints Among the major constraints in the sugar industries, unstable supply of cane is the most troubling. Cane farmers complain that price of cane is not as high as other 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 in Bangladesh was 78740 ha. But to meet the domestic demand for sugar a much larger farming area needs to be dedicated to cane production. At the moment the mills provide for only 10 to 15% of the domestic demand for sugar.

4.3 Sustainability 4.3.1 Multiple Dimensions of Sustainability Sustainability is a multidimensional phenomenon. The first usage of the term came with the environmentalist movement. Critics of industrialization and dense urbanization were afraid that rapid population growth would entail a degradation of the environment. Later on, economists caught up with the concept and added the issues of economic sustainability based on forces of demand and supply growth, especially income, productivity, and technology. Lastly, the emergence of the NGO’s gave increasing credence to the concept of social sustainability. An industry must exist in society and must not do things to create inequality, disparity, and discrimination. This last concept is the key to the idea of corporate social responsibility.

4.3.2 Environmental Sustainability There are mild concerns with environmental sustainability. Improper techniques of sugarcane cultivation, especially the practice of monoculture without variations in the nutrient absorption may degrade the quality of the soil. This however is not yet an alarming problem. It however is important that agronomic experts be consulted to develop a long term strategy of sugarcane cultivation.

The mills use traditional and outdated technology. More environmentally sensitive technology is required for long term environmental sustainability of sugar and gur production.

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

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

The sugar mills of Bangladesh face severe competitive challenges. These are uncompetitive owing to dilapidated factories, outdated technology, demoralized workforce relying on unskilled workers and lack of managerial flexibility. The sugar mills have long been suffering enormous losses.

These are kept alive by government subsidy and loss absorption.

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

The fundamental problem besetting the sugar mills is that they are state-owned and hence share the common misfortune of all state-owned enterprises. They lack 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 of laying off excess workers, fire the unskilled and disruptive ones and train the workers as well as pay them enough to keep them enthusiastic. Private entrepreneurs could risk borrowing capital to finance modernization of technology and to embark on cane production to meet the raw material needs, through commercially completive contracts and even through own management. There is 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 however requires the trade policy of openness: they need to have the full freedom both to import raw sugar and to export the refined white sugar. They have the flexibility to rely on the capital and credit market to finance their operations. They may also enjoy the potential to invite foreign direct investment.

4.3.4 Social Sustainability An industry lives and dies within society. It cannot survive and prosper in a society where conflict and strife and disharmony is splitting it and throwing it into 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 social sustainability is therefore to look at the broader issues of contributing towards greater social harmony through deliberate actions to combat deprivation and discrimination and inequity.

Corporate social responsibility is the concept that emerges form the work of various NGOs that have tried to add a new dimension o social existence. The idea is that the corporations would contribute towards the wellbeing of the various stakeholders in a positive and balanced manner to ensure equity, nondiscrimination and fair access to benefits.

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

4.4 CSR Options 4.4.1 Scope for CSR Activities The idea of corporate social responsibility is an outgrowth of activism of the nongovernment organization (NGO). They advocate that private corporations ought to give back to the broader society. The Corporate Social Responsibility (CSR) is generally understood to be the way a company achieves integration of economic, environmental, and social imperative. Many firms believe that the focus on new opportunities as a way to respond to in-terrelated economic, societal and envi-ronmental demands in the marketplace provides a clear competitive advantage and stimulates corporate innovation.

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

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

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

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

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

4.4.2 Public Versus Private Corporations In case of Bangladesh, one of the first issues to tackle is to delineate the role of public corporations vis-Ă -vis the private ones. It does appear that the state-run agencies are indeed taking to much social responsibility, by way of keeping jobs despite continuous losses and in providing subsidy to cane growers and sugar customers. One would think that the private refiners, who are earning good profits, ought to be the principal agents to take up CSR initiatives.

4.1.2 Issues where CSR can Intervene Since it has been running at a loss for about two decades now, the employees in the 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 as most of these mills are very old fashioned and don’t have good ventilation systems for the fumes produced during production to exit the building.

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

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5 Suggestions

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

5.1 Suggestions for Sustainability The focus should be on long term economic sustainability. The issues are relevant to policy reform with respect to privatization, trade liberalization and subsidization

5.1.1 Privatization The sugar mills in Bangladesh share the common fate of state-owned enterprises anywhere I the world. By the very character of government administration, entrepreneurial flexibility is lacking, and indeed there are too many cumbersome rules and regulations in the bureaucratic procedures. Even with the highest competence and the best of honest intentions, executives cannot run state-owned enterprises efficiently. The mills have long been making losses and there is no magic 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 well as to allow the cane farmers survive. The government may seriously consider developing private pubic partnership, whereby private investors will take over management and bring fresh investments. The government’s equity (if there is still 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 or moving to suitable other occupations. This requires a serious study to discover feasible options.

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5.1.2 Trade Liberalization Bangladesh has shown promise in exporting industrial goods such as readymade garments, foot wear and light engineering goods. Trade liberalization ha s helped Bangladesh achieve high rate of growth of income. The sugar market should be opened to allow freedom to import and export. Bangladeshi refiners are quite capable 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 Subsidization Sugar is a necessary good and should be subsidized. At the same time from sugar or as it is called locally “Gur” should be increased in production.

5.1.4 Other Recommendations The Refineries should be housed under the Export Processing Zone (EPZ) so that they can be a source of employment and at the same time earn valuable foreign exchange; The Mills should be revamped into technologically efficient units and double their production; The Contract Growers Scheme of BATB should be adopted around the Mill area; The CSR Centre can draw upon their expertise to identify areas of intervention where various organizations could take up one issue each to help the sugarcane industry, e.g. providing the best seeds; enhance the 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 domestic demand of sugar can be met from the Mills and import of sugar from abroad; The EPZ sugar is only for export.

5.2 Suggestions for CSR Programs It is believed that the state run sugar mills are trying to survive under the present situation. The private refineries and the importers ought to come forward with CSR 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 get help in adopting better varieties of sugarcane. They also need knowledge through demonstration how to preserve soil quality and how to better utilize by-products.

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

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

Conclusion This 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 sugar mills in Bangladesh is the Government, Whereas most of the sugar refineries are privately owned. There is a strong gap between these two entities as the private refineries process the ‘Gur’ or brown sugar which is imported from countries such as Brazil and China for processing the final product and sells to the market via retailers/dealers.

The research helps to understand and investigate the issue of the market engagement and identifies the scope for implementing Corporate Social Responsibility initiatives and programs.

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

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References

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.

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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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Challenges in Sustainability and Corporate Social Responsibility 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 loan facilities, 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 mid February. 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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Challenges in Sustainability and Corporate Social Responsibility 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, from 2010-2011. Rangpur Sugar Mill yielded the least quantity, 1444 metric ton, from 20102011. 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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Challenges in Sustainability and Corporate Social Responsibility According to 4 the interviewees, the final product that comes out from the mills are tested at the laboratory for their quality. But the raw materials possibly don’t go through any 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 vary are 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 from the market. They are available and affordable according to the interviewees. Some mills use PP bags that are provided by the government.

What services (fuel, water, electricity etc.) are available in the factory? What additional 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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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 own steam 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 for more than 24 hours. They must be processed within 24 hours of harvesting. They can only 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 as soon as they arrive from the farmers.

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

Answers

Frequency

No, we have training facility

1

No, the learn by doing

1

y

63

Challenges in Sustainability and Corporate Social Responsibility 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 achieved only 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 and maintenance skills are among the most commonly required skills at the sugar mills.

What are the major constraints of sugar sector in Bangladesh? How do you believe 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

y64

Challenges in Sustainability and Corporate Social Responsibility 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 sugar is very low than any developed country. So, this is the very specific reason 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 big problem in the sugar industry. Among other key problems the price of Gur being more than sugar is a major issue according to the interviewee. [ ] The unstable and insufficient supply of cane forces the mills to produce quantities much below their production 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 encouraging cane cultivation

2

Subsidies to sugar mills should also be given.

2

Crushing capacity of sugar mills must be enhanced through BMRE and modernization to achieving high recovery

4

y

65

Challenges in Sustainability and Corporate Social Responsibility Our government should strongly patronize sugarcane crop production with a long term vision and mission to fulfill our own consumption 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 no distillery 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 so far established in the country

1

Marshal Distillery is running by the bi-products of 3 sugar millsPanchagarh Sugar Mill, Thakurgaon Sugar Mill and Setabganj Sugar Mill, Dinajpur.

1

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

1

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

1

y66

Challenges in Sustainability and Corporate Social Responsibility Government should strongly patronize sugarcane crop production with a long term vision and mission to fulfill our own consumption of sugar

1

There are 27 different answers to this question.

y

67

Challenges in Sustainability and Corporate Social Responsibility

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

SANSAR's core strategy is to make stakeholders redefine and commonly understand the concept of CSR and promote it actively to address social, environmental and business related issues across the globe & sectors in the long run. To achieve this, SANSAR employs strategies such as policy outreach, activism capacity building, research 路and networking. The above pages document the initial research work done in sugar sector, which visibly affects lives of large number of population in these countries. While trying to identify with the CSR issues in counties which are at different levels of understanding and praxis of sustainability issues, we create a platform to discuss, share, learn and implement CSR to reduce structural poverty. This would 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 Centre Bangladesh, Mujeeb Niazi of Centre for Afghan Civil Society Support, Afghanistan who have extended their whole-hearted support even within their busy schedules to make the pillars for this network made. We are hoping that more and more organisations would join this network to realize 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 Shatadru Chattopadhayay, Dr Bimal Arora, Prof. VasanthiSrinivasan, Dr MC Gopinathan in helping us with their valuable inputs and guidance whenever needed.

Pramod John Prakruthi , India 27th March 2012

y68

Challenges in Sustainability and Corporate Social Responsibility The Sugar Industry in Bangladesh 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'.

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.

ISBN: 978-81-908155-8-1

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