SUGAR INDUSTRY VICTIM OF BAD POLICIES

PSMA expresses inability of its members to commence next sugarcane crushing season

By SHABBIR H. KAZMI
July  21 - 27 , 2003 

Shunaid Qureshi, Chairman, Sindh Zone, Pakistan Sugar Mills Association (PSMA) was the first to express inability of sugar mills located in the zone to commence next crushing season. It was followed by the Central Office, meaning that it is the problem of the industry. Is the Central Office trying to exploit the situation? Or will their support help in resolving the issues faced by the mills located in Sindh?

The general consensus of mills located in Sindh is, "The worst problem is that no one seems to be responsible to oversee the affairs of sugar industry. While fixation of sugarcane price is provincial issue, allowing export of sugar in federal subject. If provincial government makes some policy decisions, the federal government often does not approve it. When federal government announce some policy measures, provincial authorities, make the best efforts to delay implementation. The industry has reached a point where the existence of mills is at stake. It is not the question of survival of sugar industry but the rural economy of the province. While federal government is partly responsible for the prevailing situation, the largest blame must go the provincial authorities."

The provincial authorities may feel offended by the above statement, but it is a reality. The support price of sugarcane has always been fixed in Sindh relatively higher as compared to Punjab. There has been no 'Quality Premium' payment in Punjab but Sindh provincial authorities made this payment mandatory. Both the policy did not pinch mills operating in Sindh, till Punjab was deficient in sugar production. However, once Punjab attained self-sufficiency in sugar production, rather producing surplus sugar, Sindh cannot sell its surplus sugar. Fixation of higher support price and premium payment, resulting in higher cost of production, does not allow mills operating in Sindh to sell their produce in adjoining areas of Punjab.

Historically, sugarcane support price in Sindh has been higher due to higher recovery percentage, as compared to average recovery attained in Punjab. However, now the average recovery has improved considerably in Punjab. The historical data shows that if Agriculture Price Commission suggests a price, Punjab government fixes one rupee lower price, at least. As against this, Sindh government sets price, one rupee higher. The higher support price and payment of the premium results in Rs 3 per 40kgs higher cost in Sindh.

Industry sources say, "The cost estimates by the Commission of sugarcane has always been taken at maximum while yield/production at the lowest. Besides sugarcane support price is to be calculated on the basis of input cost and not on the basis of recovery." On top of this Sindh government has been notifying Quality Premium at paisa 50 per 40kgs of sugarcane per 0.10% incremental sugar recovery over 8.7%. Punjab government has stopped payment of Quality Premium since 1995.

One can only record with deep regret grave apathy of Sindh government. It is a fact that Sindh has always been producing surplus sugar. Massive import of sugar in the recent past, disregarding PSMA advice, and Punjab attaining surplus production, ex-mill price of sugar has come down substantially during last three years. The whole sale price has come down from Rs 25,440/tonne in 2000-01 to Rs 17,690/tonne. This has caused serious dent in the revenue of sugar mills located in Sindh.

Being cautious of the emerging economic disarray, Sindh sugar industry expressed its inability to commence 2002-03 sugarcane crushing season. However, the mills were offered certain incentives for commencing sugarcane crushing as per schedule. These included:

a) arranging bridge-financing facility of Rs 3.5 billion at concessional mark-up,
b) enabling 500,000 tonnes export of surplus sugar of Sindh by providing subsidy in cost-price differential; and
c) getting Sales Tax on sugar reduced to 10%.

However, none of the three promises has been met by the provincial government. While the cost of sugarcane price was increased nothing has been done to contain losses of mills. The millers have expressed their inability to honour payment at Rs 43 per 40kgs. It is on record that payment to sugarcane are being delayed due to non-availability of funds.

It is suggested that the provincial government must try to resolve the problems faced by the mills in Sindh on priority basis. The government must accept the rescue plan offered by PSMA Sindh Zone. This include final payment at Rs 40 per 40kgs, withdrawal of quality premium, credit at concessional rate, lifting of surplus sugar mills by Trading Corporation of Pakistan (TCP). If these steps are not taken immediately, the mills will not able to commence next crushing season. Any interruption in payment to growers can lead to serious law and order situation in the province.