SUGAR INDUSTRY---Glut of sugar eclipses the industry
Need to protect the sugar mills against dumping
By SHABBIR H. KAZMI
July 30 - Aug 05 , 2001
Contrary to the forecast of economic managers, the mills in Pakistan produce above 3 million tonnes of refined sugar which was enough to meet the domestic demand. However, the influx of cheap sugar from India, at a wrong time also, has created a glut of commodity in the country and adversely affected lifting from the mills. The prospects for a bumper sugarcane crop have brighten with the recent rains. Though, there is a significant difference between the forecast by the mills and official quarters, the situation demand critical evaluation of the situation to save sugarcane growers from the miseries they have been facing in the recent past.
While the industry sources estimates 2001-2002 sugarcane crop size around 50 million tonnes, the forecast by official quarters indicates prospects for 35 million tonnes output. The first and the most important point needing detailed probe is the basis of estimates by both the sides and the objectives they wish to achieve by floating such forecast. Historically, whether it is cotton or sugarcane crop size, there is always a difference between the estimates of farmers and the industries. Farmers always tend to give a lower forecast to ensure higher prices for their crops and estimates of industries are on higher size to keep the buying prices low. Therefore, the difference in forecast by both the sides is always there but this time it appears to wide. According to industry sources, better forecast can only be made in late August and particularly after studying the impact of recent rains. However, yield and sugar percentage in sugarcane this season will be certainly higher than last year. Therefore, actual production of sugarcane and sugar will be much higher than last year.
Saying this much, it is imperative for the economic managers to closely monitor the situation and abstain from making any make shift arrangements. Recent import of sugar in large quantities from India and low level of sugar lifting indicates that while closing stock at the beginning of last season was around 27,000 tonnes, it will be as high as over 250,000 tonnes at the begenning of 2001-2002 season. Therefore, it is necessary to check and stop influx of sugar from India. This can be done by disallowing re-validation of letters of credit and imposing higher duty tariff. In 2001-2002 budget the GoP has reduced import duty on sugar which encourages commercial importers to import more and more sugar from India. Therefore, the GoP should enhance the duty level to minimum 20 per cent from present level of 10 per cent without any delay.
According to industry sources, based on a realistic sugarcane crop size, the mills will be able to produce between 3 to 3.5 million tonnes sugar during forthcoming crushing season. The mills also have the option to import and use raw sugar, alongwith sugarcane, and achieve still higher production. Last year the total sugar production was more than 3 million tonnes out of which over half a million tonnes sugar was produced from raw sugar. Therefore, this policy can also be followed this season to achieve economy of scale and cost optimization . However, the situation demands a clearly laid down procedure and schedule for import of raw sugar to protect the interest of sugarcane growers and mills. According to some sector analysts, mills located in the Punjab are not in favour of import of raw sugar. They say that they should use raw sugar for cost optimization and produce surplus sugar to help the country in achieving US$ 10 billion export target. This will also help in keeping retail price of sugar at realistic level and benefit the consumers.
Delay in payment to sugarcane growers has become a serious problem. However, mills are not entirely responsible for this phenomena. The GoP policies, particularly ill-timed import of sugar in large quantities, are the major reasons for slow lifting of sugar from mills. Unless these issues are resolved, the mills will never be able to make timely and full payment to sugarcane growers. However, to resolve the issue, the central bank should allow commercial banks to extend specific credit to sugar mills while the crushing activity is at the peak. On the one hand this will help in ensuring timely payment to sugarcane growers and on the other hand to avoid distressed sale of sugar by the mills.
SUGAR EXPORT POLICY
It is evident that if proper efforts are made local mills are capable of producing sugar much above the demand — at present mills operate at less than 50 per cent capacity utilization. Higher production and improved capacity utilization will also help in reducing cost of production. Therefore, the GoP must announce a comprehensive sugar export policy to allow the mills to crush maximum quantity of sugarcane produced in the country.
At the same time Ministry of Commerce and Export Promotion Bureau should initiate efforts to promote Pakistan as country capable of exporting sugar at competitive rates in the global markets. The GoP should also try to export sugar to Iraq under the UN programme. Local sugar industry has the potential, it is the time to exploit it.