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Government should not become hostage of sugar cartel

Sugar cartel has refused to commence cane crushing on the pretext that sugarcane price fixed by the government is high and also demanded some incentives to facilitate them in competing in the global markets. The delay is likely to adversely affect sugarcane growers, who are already suffering due to delay in payment by the millers. Let one point be kept in mind that millers owe billions of rupees to farmers and delay in commencement of crushing will damage the standing crop. Effort should be made to commence crushing as early as possible.

First of all effort should be made to find out who is at fault, millers or the government? Interestingly politicians are the largest growers as well as control bulk of the production capacity; the most prominent are Sharifs, Chaudhries, Zardari, Humayun and Tareen. An analogy can be drawn that leaders of all the leading political parties own mills. Due to their political influence, they have not been paying small farmers. The point that they owe billions to farmers and government should facilitate them in paying the growers is totally absurd.

The second question to be answered, is sugarcane price fixed really high? It is not a secret that in Pakistan legislative and executive is controlled by the politicians. Over the years, when mills were owned by businessmen they have been resisting persistent hike in sugarcane price fixed by the government. Now the politicians are objecting on hike in sugarcane support price. In my opinion the basic cause of high cost of sugar production is not high price of sugarcane but inefficiencies and misappropriation of funds by the owners. This fact can be established simply by going for ‘cost audit’.

Determining cost of production is not too complicated. For all the provinces benchmark of ‘recovery’ are available. If some of the mills are showing deviation from this benchmark, it could be suspected that there is an organized effort to hide production and sell the surplus off the books. It is estimated that half or one percent lower declaration of yield can help owners make millions of rupees off the books per day.

It is worth pointing that many mills have established refineries to process molasses as separate private limited companies. It is suspected that molasses is being sold to these refineries at a nominal price to siphon funds from public limit companies to private limit companies. It is also suspected that molasses is also exported at lower price to transfer funds outside Pakistan.

It is known to all and sundry that politicians were offered permission to establish sugar mills as political bribe. They were also offered loans at lower interest rate. As a result many mills have been established in ‘cotton growing belt’, particularly in Southern Punjab. This has adversely affected ‘sugarnomics’ because of low yield and recovery. If one compares recovery in certain districts of Sindh and Punjab, there is significant difference in recovery, which makes huge difference in cost of production.

Construction of sugar mills in the cotton growing belt has also affected cotton in the country. After touching an output of 12.8 million bales, the country has never been able to replicate this record. The real disadvantage is that cultivation of sugarcane in cotton belt does not bode well for the growers. Sugarcane needs large quantity of water as well as damp climate. It is also disadvantageous for the mills because they just crush dry sugarcane and waste their time and energy.

 

Nearly 20 years ago, sugarcane crushing capacity capable of producing 9 million tons refined sugar per annum has been established. Production of sugar has remained low due to non-availability of sugarcane. As a consequence millers purchased sugarcane at much higher price, as compared to the support price fixed by the government. Since growers were able to dictate their terms they hardly paid any attention towards increase production and productivity.

During the last two regimes of PPP and PML-N the sugar cartel became too strong. Millers delayed payment to growers and exerted pressure on the government to lift sugar and sell it through Utility Stores. In this process corruption was rampant and favoritism/nepotism was at the highest. The worst example is creation of cartels like Omni, which controls production of nine sugar mills in Sindh, the situation in Punjab in also not different.

Over the years mills have been producing up to 2 million tons surplus sugar. However, the successive government remained reluctant in granting permission for export of sugar. Another issue has been that local producers could not compete in the international markets. They have always been demanding subsidies, along with low support price of sugarcane.

In the past government also tried to improve performance of some mills by appointing administrators but little success was achieved as the industry continue to suffer from acute shortage of sugarcane. It is believe that mills enhanced crushing capacity to crush most sugarcane in least number of working days. This was a make shift arrangement but not a sustainable solution. Now the mills even do not crush sugarcane for 200 days.

In the past mills were exempted from payment of excise duty on sugar produced beyond the stipulated number days. The beauty of this policy was that mills used to facilitate farmers in growing larger quantity of sugarcane and also make them prompt payment. This arrangement worked best when there was ‘zoning system’ that assured mills that growers will not sell their produce to any mill located outside the zone.

Paying subsidy to farmers or mills will not make any difference unless efforts are made to contain cost of production at farms as well as mills. The cost audit system must also be introduced immediately. It must be kept in mind that sugar industry is driving engine of rural economy. No one should be allowed to take growers and government as hostage.

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