Protecting the local sugar industry

Aug 19 - 25, 2002

The Economic Coordination Committee (ECC) of the cabinet levied Rs 5 per kilogram central excise duty on the import of raw sugar last week. The tax, one of the three options including regulatory duty and increase in the rate of sales tax from 15 to 20 per cent at the import stage proposed by the ministry of commerce was imposed to discourage import of sugar whose prices have fallen over the last year in the international market. This in turn was aimed at protecting the local sugar industry from imported sugar industry in particular and the agriculture sector in general.

According to the report the meeting headed by Finance Minister Shaukat Aziz was told that the FOB price of white sugar has fallen from $ 239 per ton last year to $ 227 per ton at present. The $12 decrease in the international price of sugar over the last year means a much lower landed price in the country due to massive erosion in the value of dollar which has shed around 7 rupee per dollar during this period.

The cost of protecting the industry, however, will be paid by millions of consumers in the country by denying them a much less costly, but certainly a better imported product, substitute. Moreover, it will benefit an industry which has failed to perform despite having access to inexpensive and abundant raw material the sugarcane. It will also benefit an industry which has seen it fit to play the bogey, whenever necessary, to protect its interests selling its product at as high a price as Rs 36 per kilogram (remember the sugar crisis a few years ago). The industry's justification to demand prices, which are high even by international standards, on high production costs deprives the consumers of their very basic right of access to less costly substitutes. The question is, do the consumers have no right and should their interests are not fit to be protected?

Let's calculate what the imposition of Rs 5 per kilogram CED means. The current international FOB prices of $ 227 per ton translates into Rs 13,620. The customs duty on import of both the refined and raw sugar was lowered to 25 per cent in Budget 2002-03. Thus the landed cost of a ton of sugar including the 25 per cent imports duty works out to be Rs 17,025 per ton, or Rs 17.025 per kilogram. With the imposition of Rs 5 CED on each kilogram, the landed cost of imported sugar adds up to over Rs 22, the current retail price of sugar in the country at present. Thus, the ultimate landing cost of the imported sugar totals over Rs 22 which after the inclusion of profit margin for the importer, wholesaler and retailer would touch Rs 26, a good Rs 4 over the prevailing retail price of the commodity in the country.

On the other hand, the Pakistan Sugar Mills Association says that after October the country will have a huge surplus sugar stocks of around 400,000 tons. According to a press release issued by the Association, Sindh sugar industry alone had a bulging sugar stock of 384,728 tons end last month. The stock was equal to the 41 per cent of the sugar production of 957,308 tons in Sindh, 572,580 tons already lifted, for the current 2001-02 season.

The figures don't match. "With an average sugar lifting of 63,600 tons per month, derived from the lifting in aggregate of 572,580 tons during the past seven months at a stretch, the disposal of the balance inventory at 384,728 tons could normally extend to a further six month." The figures don't match as 63,000 tons sugar lifted for 7 months don't add up to 572,580 tons. Instead it had taken nine months to lift 572,580 tons of the commodity. The mistake, inadvertently or otherwise, should be corrected as it gives a false impression about greater demand.

The fact that the landed prices of white sugar even after the inclusion of 25 per cent imports duty and Rs 5 per kilogram CED equals that of the retail prices of locally produced commodity speaks volume about the performance, or rather its absence,

The fact that year after year the industry has unabashedly use its influence to protect its costly product without doing whatsoever to cut its production costs, even in years when there was a bumper sugarcane crop, stresses the need for measures to bring its performance at par with the international standards in terms of quality as well as price.

If the consistent claims of the sugar industry about its perceived fear of low-priced imports and uneconomic production costs is really true, what can explain, the mushrooming of sugar mills across the country over the years? Certainly running a sugar mill is not a charitable organizations afford to keep functioning amidst losses.

Denying the consumers to inexpensive substitute by discouraging sugar imports by imposing CED on the pretext of protecting a non-performing industry is akin to injustice to consumers in theory even whether the bulging stocks necessitates the sugar imports or not. Isn't it right to protect the interests of consumers who are devoid of any voice in the policy making and are seen fit only to serve as an escape goat to protect the industry, sugar or otherwise.