THE PROBLEMS OF SUGAR INDUSTRY
A long-term policy with necessary incentives is needed to develop sugar industry
SHAMIM A. RIZVI, Islamabad
Dec 02 - 15, 2002
Sugar Industry which has the potential of becoming a major exporter has been reduced to crises ridden industry because of neglect and absence of a coherent policy covering the interest of all the stakeholder the growers of sugarcane, the Mill owners and the ultimate the consumers. The conflict of interest mainly of the growers and the mill owners lead top a controversy almost every year when the crushing season starts.
This year, however, the situation has become alarming specially in Sindh where none of the 27 Sugar Mills have started crushing as a result lacs of acres of land with million of tonnes standing sugarcane crop is blocked delaying the sowing of Rabi crop which may adversely affect the production of wheat. Mill owner are delaying the crushing as they are already having an unsold surplus of about 5 lac tonnes of sugar from last year production (over 2 lac tonnes in Sindh alone) and they have neither the storage especially nor the financial resources to pay to the growers for fresh purchases. Even some who have resources are waiting to cash on the financial difficulties of the growers.
Early last month sugar industry had proposed a two-pronged policy to the government for survival. It included much awaited decision on export of 0.5 million tonnes surplus stocks. The millers upheld this proposal as their first option. The second option related to the outcome of the first one. The policy indicated that the millers will opt for 'limited production' in 2002-03, a new concept in Pakistan, to avoid further increase in stocks in case the government fails to facilitate export of surplus stocks. The millers floated these options during their meeting with Finance Minister Shaukat Aziz and Commerce Minister Abdul Razak Dawood in Islamabad two weeks back. The PSMA delegation had pointed out four sluggish areas during last meeting with Shaukat Aziz and Abdul Razak Dawood making it clear that survival of the industry is subjected to removal of these irritants.
These were unmanageable surplus stocks of around 0.5 million tonnes, low prices in the local market, low duty on import and imposition of 3 per cent additional tax on unregistered buyer of sugar industry. The millers had informed the ministers that the huge stocks are blocking their working capital and making it difficult to enter into new crushing. They argued that the export of at least 0.5 million tonnes of surplus sugar is an answer to their problems. The millers also want deferment of sale tax of the first half of the fiscal for six months without penalty. The withdrawal of 3 per cent additional sales tax is their other major demand.
Later on November 12, an understanding was reached during a meeting between Finance Minister Shaukat Aziz and a delegation of Sugar industrialists, headed by Pakistan Sugar Mills Association (PSMA) Chairman, Iskandar Khan. As a result of this understanding the government has allowed export of 100,000 tonnes of sugar after a detailed discussion with the millers. A sum of Rs. 0.22 per kg was to be collected from the millers to facilitate the exporters and bridge the gap between the international local and local prices. This money will go into an export development fund, which will be managed by the federal government.
Food Minister Khair Muhammad Junejo, who was also present during the meeting, demanded of the millers to start crushing earlier to their schedule. The millers told the minister that lack of working capital was a big hurdle in starting the new crushing. The meeting was also told that at least 10 mills in Sindh could not start crushing as they are under embargo due to default on sales tax. The Finance Minister directed the CBR authorities, who were also present in the meeting, to provide relief to the desired millers to enable them to enter into new crushing. Soon after the meeting, the representatives of Sindh zone held a separate meeting with the Chairman CBR and Member Customs to settle the issue of sales tax.
The situation took an ugly turn when the Sindh Government issued show cause notices to the management of 27 mills on November 18 asking them to submit the cases of their failure in the start of cane crushing by November 15 the date fixed by the government for crushing season 2002-03. The notices threatened the management that if they failed to start crushing or submit cases for delay within one week, cases under section 21 of the sugar factories control act will be filed against them which provides for rigorous imprisonment of one year in case of condition. Cane Commissioner Sindh said in a press interview that the action had been taken in view of the delaying tactics of the sugar mills causing unrest among the sugar cane growers. The sugar mills has requested the government either to allow them to export their surplus stock as agreed earlier or arrange a bridge financing of 500 million to enable them to buy sugar cane from the growers and start crushing. So the dead lock is continuing.
The elected government should immediately intervene to end this dead lock and save the sugar industry from disaster. A long-term policy with necessary incentives is also needed to develop sugar industry on a sustained level and harvest its export potential. Only a few months back the former Commerce Minister Razak Dawood boasted at a seminar in Islamabad that Pakistan sugar industry was emerging as a major exporter in foreign trade and was expected to play a vital role in boosting country's export. This claim was not just rhetoric. In fact Pakistan is capable of exporting about half a million tonnes of sugar annually. Even today we have a last year surplus of 5 million tones in our godowns when the 60 sugar mills in the country are expected to produce over 3.6 million tones of refined sugar during this crushing season against its expected demand of 3.3 million tonnes. Federal Finance Minister Shaukat Aziz, in his recent meeting with the representatives of Pakistan Sugar Mills Association stated that along with the welfare of sugar industry, the government would also like to safeguard the interests of the consumer. In this connection he revealed that instead of giving subsidy, a system of one month " Bridge Finance" would be introduced in the sugar export trade.
Sugar mill owners, on the other hand, demanded to fix the minimum support price of sugar while doing the same in respect of sugarcane. And as soon as the open market price of sugar falls below its officially determined prices, the Trading Corporation of Pakistan (TCP) should enter the market to make purchases of sugar as it does in the case of certain other commodities.