SUGAR INDUSTRY

The rift between the government and the millers

By SHABBIR H. KAZMI
Nov 01 - 07, 2004

Making the possible shortfall in water a pretext, the administrative machinery, particularly in Sindh, tried to pressurize the mills to commence sugarcane crushing earlier than the normal schedule. However, the nature turned in favour of the mills due to some rainfall. The field force was not willing to cut the sugarcane due to water standing in the fields. Earlier, the workers had refused to commence work in Ramazan. Now, it seems that most of the mills are in a position to commence crushing during the first week of November. However, it is yet to be seen how the field force behaves during the last week of Ramazan and Eid holidays.

It has been quite some time that mills informed the government about late commencement of crushing season because of low recovery achieved in October. But more importantly the mills were forced to contain number of crushing days due to inadequate availability of sugarcane in Sindh. Since availability was better in Punjab, mills were willing to operate the mills for longer duration. This year even the mills located in Punjab also expressed their inability to commence early crushing. However, it became an ego problem in Sindh, as the feudal lords were able to pressurize the chief minister to force the mills to start crushing earlier than the normal schedule. The farmers' lobby was fully supported by the administration, to be precise by the Cane Commissioner.

The provincial government used Sugarcane Act as the stick and the carrot was the promise to provide incentives for those who follow the instruction. According to a sector expert, "The Act has become virtually redundant. The objective for the promulgation of this Act was to protect the farmers because during those days there was oversupply of sugarcane. Besides, government was the major buyer of sugar and sugar-rationing system was in force. As against this, now sugarcane is in short supply. Therefore, the mills must be given the liberty to fix the commencement date for sugarcane crushing as well as the length of season. On top of this, the government is no longer the only buyer.

Many years ago the government decided to follow market-based policies. Following this, it also stopped fixing minimum price of cotton. However, the same principle is not being followed in case of sugarcane. While the government has been constantly increasing minimum sugarcane price, it has also been forfeiting the right of mills to adjust price of sugar proportionately. The result is that most of the mills have become sick (financially). There are unable to make timely payment to the growers. Since most of the mills are either posting losses or making marginal profit, the shareholders are also not getting any return on their investment.

Yet another irony is that sugarcane price is not uniform for all the three provinces. Interestingly, sugarcane price has always been higher in Sindh. On top of this mills also have to pay 'quality premium'. It was said in the past that since recovery was low in Punjab as compared to Sindh, sugarcane price has to be lower. However, the situation changed completely because in certain areas of Punjab recovery is even higher than the benchmark fixed for payment of quality premium in Sindh. It may be a little difficult to believe that while Punjab government decided to bring down sugarcane support price for the current season, Sindh government announced an increase.

It is often said, "The present regime believes in consultation with all the stakeholders. However, it seems that the mills, the largest stakeholders, are not being consulted at the time of formation of any policy. The government considers itself the largest stakeholder and also the custodian of rights of farmers. However, no one realizes that if mills do not operate, who will buy the sugarcane? This in no way implies that the interest of mills should be upheld against farmers. The bottom line is, prosperity of growers is dependent on the efficient performance of the mills."

However, another analyst says the situation reminds an old saying, 'Too many hands spoil the curry'. This is the crux of the matter. At least a dozen federal and provincial ministries and departments have to be consulted before making any decision. Interestingly, the objectives of various ministries often become conflicting and the ultimate result is either 'who cares' or 'least bothered' attitude. The ultimate result is that all the key stakeholders continue to suffer, the worst hit being the consumers.

Lately, it is being said that linking of sugar price with sugarcane price will solve all the existing problems of the industry. It is a totally incorrect impression being portrayed by people having vested interest. First of all, there is no need to fix sugarcane support price. Let the market forces fix the price. Second, any increase in sugarcane price creates a justification for a corresponding rise in sugar price. Is it not a fact that the price of locally produced sugar is too high as compared to its price in other sugar producing countries? Why should they be forced to pay for the inefficiency of sugarcane growers and the millers?