DELAY IN COMMENCEMENT OF SUGARCANE CRUSHING
Export of locally produced sugar is necessary to optimize its cost pf production and improve profitability of the mills
SHABBIR H. KAZMI
Oct 14 - 20, 2002
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 40-kilo.
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?