Sugar Policy: Special Development Package

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The policy would be enforced by September next when the sowing of sugarcane is started

From Shamim Ahmed Rizvi,
Islamabad
Apr 02 - 08, 2001

It is really heartening that the government has, at last realised the need of framing a policy to protect and promote the Sugar Industry which has been in turmoil during the last 5/6 years due to lack of any coordinated effort and imprudent adhoc decisions. The Federal Minister for Commerce and Industry disclosed at a press conference in Islamabad last week that a new long term policy titled as "Special Development Package" would be announced to take care of the various interest of sugar industry, cane growers and the consumers.

According to the Minister the policy would be enforced by September next when the sowing of sugarcane is started. The new policy is understandably being prepared against the backdrop of declining sugar production at around 2.3 million tonnes annually over the last two years as against the country's consumption requirement of about 3.1 to 3.2 million tonnes, indicating a substantial shortfall and necessitating resort to imports which have been draining out foreign exchange to the extent of $250 million.

The industry which is the second largest after textile has been a victim of either sheer neglect or whimsical and important adhoc measures to meet some crisis. The decision makers are very sensitive to any increase in sugar price but are least bothered about spending millions of dollars on till-timed import of sugar. Another lobby wishes to protect sugarcane growers by simply increasing its (sugarcane) support price but resist any increase in sale price of finished product.

The millers faced problems whether there was a shortfall in sugarcane supply or surplus production of sugar. Out of last six years, four witnessed shortfall in production of sugar mainly due to shortfall in supply of sugarcane. Output ranged from 2.379 million tonnes to 2.450 million tonnes as against an estimated demand ranging from 2.7 million tonnes to 3 million tonnes per annum. In the other two years, sugar production exceeded demand and the country saw a surplus of around half a million tonnes. During the period of surplus, the situation was even worse as the mills carried huge inventory and were not able to make timely payment to sugarcane growers. Despite entirely opposite scenarios, problems faced by sugarcane growers, millers and consumers remained the same.

Salient features

The salient features of the upcoming new policy, as explained by the minister, would include the decision not to revive the sugarcane zoning system in the face of opposition from the growers and the Ministry of Agriculture. It may be pointed out that the sugar mills have recently raised the demand to revive the zoning system which ensures supply of sugarcane from a given zone to the sugar mills operating in the zone. However, following the abolition of the zoning system about five years ago, the growers have been enjoying the freedom to sell their crop to mills in other zones located in distant areas and thus they have been in a better bargaining position price-wise. The minister declared that the zoning system would not be revived under the new policy but, instead, he proposed that an option would be available to the growers to enter into a contract with any sugar mill in surrounding areas for the sale of their crop during a given crushing season. In return, the sugar mill concerned would offer credit facilities to the growers under the contract for the purchase of fertilizer and other inputs in addition to investment for land development aimed at increasing per acre yield.

This arrangement, the minister felt, would develop a better relationship between the growers and sugar mills of the area which might help eliminate the tussle between them in respect of the determination of the price of sugarcane. The minister further declared that the new policy would not favour fixation of a maximum price for sugarcane but this aspect would be left to the market forces and the relationship between the growers and the sugar mills.

The minister indicated that 8 per cent sucrose content would be taken as a base for the determination of the price of the sugarcane and improvement over this quantum of recovery, say at 8.5 per cent, would be allowed a higher price. In this way, he expected that a mechanism for motivating the growers to improve per acre yield and sucrose content would be created. It may be pointed out here that the existing policy allows a premium over and above the official price of the sugarcane in the event of a higher sucrose content to growers. This premium is paid by the sugar mills through verification of the sucrose content by the provincial government officials. The minister did not make it clear as to whether this arrangement is still in force or it has been abandoned in the face of open bargaining by the growers with the sugar mills for obtaining a higher price of their cane supplies.

The policy should also ensure a fair market price for the sugar industry keeping in view its production cost plus a reasonable economic return on equity. The policy planners accept and plead that sugar is a basic commodity and its demand must be met even through expensive imports. However, they do not accept another fact that the industry is also over-taxed. The component of tax in sale price of sugar is around 17 per cent. If the government is really serious in keeping sugar price at modest level, it should cut down level of tax.