Added problems are increase in sugarcane
procurement price and inability to acquire additional fund to pay the
By SHABBIR H. KAZMI
Oct 29 - Nov 04, 2001
Sugar mills in Pakistan are expected to commence
2001-2002 crushing season in November but country has around 0.65
million tonnes sugar — mainly comprising of imported commodity.
Mills in general will not be able to pay sugarcane growers in time. On
top of this government has increased sugarcane procurement price which
will further increase the cost of locally produced sugar.
Sugar industry experts say that only government can
be blamed for the current crisis, because traders were allowed to
import sugar, particularly from India, against the advice of Pakistan
Sugar Mills Association (PSMA). On top of this, government also
lowered duty on imported sugar. Therefore, a lot of funds of mills are
stuck in huge inventory of sugar. Though, the government is insisting
on starting of crushing season in early November, mills will find it
very difficult to make timely payment to growers even if they commence
sugar production next month.
Sugar industry experts say that since the current
situation is the outcome of government policy, the government should
help sugar industry. They suggest two alternatives: either the
government should buy the remaining sugar produced during last
crushing season or the central bank allows commercial banks to lend
additional funds to sugar mills.
The government has allowed Trading Corporation of
Pakistan (TCP) to intervene in cotton market to ensure minimum return
to growers. Therefore, TCP may also be given a mandate to buy sugar
and subsequently sell it in the local market. However, some financial
sector analysts do not approve this policy. They say that since
additional funds have to be arranged for the TCP, it is not a prudent
approach. Therefore, additional funds should be extended to sugar
As regards, additional funds for sugar mills, the
option does not seem workable under the current policy followed by
State Bank of Pakistan. The central bank has little control on
commercial banks when it comes to extension of credit. Banks have to
make their own decisions and also hedge their risk as per prudential
laws. The only way out could be relaxation of these rules for a
Analysts, believe that a large number of mills have
already borrowed to the maximum possible limit and even if they are
given additional funds, their financial charges will be too high and
out of proportion. There are some chronic cases also. These are: mills
not having positive CIB reports and those which have recently
concluded rescheduling agreements.
In a recently held meeting of PSMA members with
Governor State Bank, Dr. Ishrat Hussain had assured of sympathetic
attitude of banks. However, he also warned that sugar industry should
not expect any exceptional favour at this time.
There was a suggestion in the past that central
bank should allow a general moratorium of one year for all the sugar
mills. Some analysts, were of the opinion that moratorium should be
allowed only to those mills which suffer from financial crisis.
Whereas, other oppose this policy because it penalizes those who
follow good governance. Therefore, they suggest that if a moratorium
has to be given it should be for all the mills.
Analysts believe that since the GoP is following
the policy of bring down average lending rates, sugar mills would also
be the beneficiary of this policy. However, this policy would only
yield results in the long run, whereas the mills need the funds now.
According to some sector experts, the GoP has not
been able to envisage and implement long-term sugar policy. At the
best, efforts being made now or made in the past are only adhoc
measures. Therefore, the GoP must develop a long term policy in
consultation with all the stakeholders.
The GoP is fully aware that sugar industry mainly
suffers due to less than 50 per cent capacity utilization. This has a
direct bearing on cost of production. Therefore, unless availability
of sugarcane is increased in the country mills will never be able to
achieve optimum capacity utilization and curtail cost of production.
The way out is, improving sugarcane yield at farm level and sugar
recovery at mills. Both the objectives can be achieved by cultivating
high yielding varieties and improving sugarcane procurement system.
Dr. Ishrat has hinted towards the right solution.
In his opinion, mills should act as mediator between sugarcane growers
and commercial banks. This is not a new philosophy as the policy was
followed in the past. However, after zoning system was abolished,
mills decided not to act as mediators because farmers were not bound
to sell sugarcane to specific mills.
Each policy has its pros and cons, but by and large
zoning system had played a very important role in increasing sugarcane
production and improving recovery in the country. Mills have once
again given a consent to implement this policy. Now it is the
responsibility of the government come up with a policy which can
minimize exploitation of farmers by the mills and the banks.