THE SUGAR INDUSTRY
Grower interest should be protected by fixing a minimum price of sugarcane
From SHAMIM AHMED RIZVI,
Mar 15 - 21, 2004
Sugar industry of Pakistan which has the potential of becoming a major exporter has been reduced to a crises ridden industry because of continued neglect and the absence of a coherent policy covering the interests of all stakeholders — the growers of sugarcane, the mill owners and the ultimate consumers.
The concerned authorities have been taking adhoc measures to overcome the crises occasionally erupted in the industry during the past few years mainly to arrange payment to the growers withheld by the mill owners because of their financial difficulties. Since many years, the sugar industry is faced with serious problems of unsold stocks and high cost of production making export unfeasible without some support from the government in the form of export subsidy. Almost every year growers agitate for non-payment or delay in payment by mill owners for the sugarcane supplied. When the agitated growers come on the street, the government intervenes with some adhoc solution and overcome the crises temporarily. Last year when the growers blocked the roads after a long delay in their payment the government found a quick solution of directing Trading Corporation of Pakistan (TCP) to buy two lacs tonnes of sugar from the mills against cash (out of about 8 lacs tonnes of unsold stocks) and thereby help the mill owners financially to clear the dues of the agitating farmers. The mill owners were demanding either to give a subsidy on export of sugar or reduce the purchase price of sugarcane which has been fixed by the government and which according to the mill owners is the highest in the world. Sugar purchased by TCP last year is still lying the godowns of the concerned mills.
This year the industry is faced with the same crises in a much more serious form. Seventy one sugar mills in the country have over a million tonnes of unsold stock in their godowns. Financially weaker establishment have withheld payment of the grower. Some of them have started selling at low prices undercutting others resulting to a price crash brining down selling prices of sugar from Rs. 25/26 per kg. to Rs. 17/18. This scenario is threatening the future of sugar industry in the country.
As usual government has again intervened this year. The only redeeming feature is that this time, Prime Minister Mir Zafarullah Khan Jamali has personally intervened and under his instruction a committee has been formed having equal representation of the growers' mill owners and the government official to recommend both short-term and long-term measures to save the industry's future. The most demanding problems of sugar mills is the surplus stock of about one million tonnes. Pakistan Sugar Mills Association has demanded from the government for a subsidy of about Rs. 7 per kg on export of sugar and suggested that a fund may be created for this purpose through imposing a cess of Rs. 25 paisa per kg on domestic sale of sugar. The 71 mills are producing over 3.8 million annually against the domestic demand of about 3.3 million leaving a surplus of about half a million tonnes every year.
PSMA Secretary General Mr. K.A .Qazalbash told this corresponded that the cost of production of sugar in Pakistan is highest in the region because of high prices of sugarcane despite low recovery. The production cost ranges between Rs. 19.00 to 20.00 per kg depending upon the sugar content in the cane. "We are paying Rs. 43 per 40 kg for sugarcane in Sindh with sugar contents from 8 to 10 percent while in India and Thailand the price of sugarcane ranges between Rs. 26 to 28 equivalent with sugar content of 12 to 14 percent. Nowhere in the world the prices of sugarcane is fixed by the government except Pakistan. The prevailing prices of sugar in the international market is $210 to 212 per tonne (about Rs. 12,000) while our production cost is Rs. 19,000 to 20,000 per tonne (that includes 18% sales tax). How this surplus stocks can be exported without subsidy. If it is not exported, the mills will have to cut down their production causing panic among the growers, Mr. Qazalbash added.
Les us hope that this time the government will not feel content with adhoc measures only. A permanent and workable solution should be found to avoid reoccurrence of such periodic crisis. Sugarcane grower interest should be protected by fixing a minimum price of sugarcane but at the same the genuine problems of the mill owners and the future of industry must also be protected.