The forthcoming sugarcane crushing is expected to be
delayed in Sindh and add to the problems of sugar mills located in the
province. The main reason for this delay is the huge inventory that the
mills are carrying presently. However, some analysts say that the delay,
though not being appreciated by the government, is good for the sugar
mills located in the province.
The mills located in the province have been the worst
affected. Sindh has always been producing sugar much above the
consumption in the province. In the past the surplus sugar was sent to
Punjab. However, after Punjab attained self sufficiency, rather started
producing surplus sugar, the problems of mills located in Sindh have
aggravated. Not only that they are incurring huge financial charges, by
carrying large inventory, but are also incurring losses due to sale of
sugar at very low price.
According to industry sources retail price, including
GST, has gone down by at least Rs 4 per kilo. Most of the mills located
in Sindh are virtually selling sugar below cost. It is mainly because
the mills from Punjab are selling their sugar around this price — at
Rs 20.50 per kilo. The mills from Punjab are still making profit because
their average sugarcane cost was around the official support price,
whereas the average sugarcane procurement cost was as high as Rs 60 per
One may ask, why did the sugar mills from Sindh pay
such a high price? Two factors can be attributed for the higher price:
1) production of sugar in less than required quantity and 2) a very
strong lobby of sugarcane growers in Sindh. In order to keep their mills
working even at the minimum capacity, the management is forced to pay
higher price. As opposed to this, now Punjab produces a quantity of
sugarcane which is even above the requirement of sugar mills and
sugarcane growers are small and fragmented. Therefore, the mills are in
better bargaining positions.
Though, the present government has been giving all
the assurance to sugar mills located in Sindh to resolve their problems,
no concrete steps have been taken as yet. The key issue to be resolved
is, permission to export sugar from Pakistan. The millers from Sindh
say, "Since the mills from Punjab may not benefit from the policy,
people sitting in Islamabad are not keen. In the past, the mills from
Punjab were the biggest beneficiary of export of sugar to India.
Whereas, this time mainly the mills located in Sindh are expected to
benefit from export of sugar."
To assert their point of view, the millers from Sindh
say, "We are not asking for a favour. It is question of survival of
the mills located in the province. Our miseries are mainly due to poor
availability of sugarcane. Most of the mills in the province are working
at less than 50 per cent capacity utilization. The capacity utilization
can go down further, if we do not purchase sugarcane at above the
official support price."
While most of the analysts believe that the delay in
commencement of sugarcane is a bad sign, some term this a very prudent
decision. They say, "A little delay in crushing will improve the
average recovery of sugar, put some pressure on growers and ultimately
help in purchase of sugarcane at relatively lower price." Some of
the millers have been talking about curtailing number of crushing days
to contain cost as well as improve sugar recovery. However, they were
not allowed to reduce number of crushing days by the government.
According to some industry experts sugarcane
availability for the forthcoming season is as good (as bad) as last
year. Others believe that Pakistan will be able to produce a quantity
which may yield at least one tonne surplus sugar, including the
carry-over stock. Therefore, the government must announce a clear cut
sugar export policy now.
The last hitch, to be removed is said be the amount
of subsidy to be given on export of sugar. It is believed that Ministry
of Finance is seriously working on this proposal submitted by Pakistan
Sugar Mills Association (PSMA). It is also said that initially there was
a proposal to allow the exporters to recover the difference (difference
between the local price and export price) by charging higher price in
the local market. However, this proposal was considered workable.
Some industry experts say that providing a subsidy on
export of sugar is a prudent decision. Most of the sugar producing
countries have been able to export sugar only because of the subsidy
provided by the government. Even the US, the biggest opponent of
subsidy, provides the highest level of subsidy on agricultural produce.
Why shouldn't Pakistan government follow the same policy?