SURPLUS SUGAR CRISIS?

The one reason seems to be lack of coordination in the ECC


By SHABBIR H. KAZMI
Mar 22 - 28, 2004

There seems to be complete lack of coordination in the ECC as regard to managing the affairs of sugar industry. This apathy is adding to the problems of sugar mills. Not only that mills are posting losses payment to sugarcane growers are being delayed the worst suffers are sugar consumers. Retail price of sugar in Pakistan is far higher than its prices in other sugar producing countries.

It seems a paradox that the mills are operating below 50% capacity utilization and the figure would have been lower had the five mills, presently closed, were in operations. The key reason for low capacity utilization is inadequate supply of sugarcane. Another key factor adding to the losses of sugar mills is the persistent increase in sugarcane support price and their inability to increase ex-factory price of sugar due to glut of supply. According to a miller while there has been in cost of production, the ex-factory price of sugar has come down.

For the last three years, Pakistan has been experiencing glut of sugar. Initially it was due to huge import of sugar at highly inappropriate time. With the improvement in water availability sugarcane availability improved and mills made the best effort to crush most of the available sugarcane in the hope of getting permission from the government to export surplus sugar.

At the beginning of current season mills had approximately 600,000 tonnes sugar inventory. It is expected that mills will be able to produce around 3.8 million tonnes sugar during the ongoing crushing season. If one adds the carry forward stock, the total availability will exceed 4.4 million tonnes as against an estimated consumption of less than 3 million tonnes in the country or the surplus will be as high as around 11.5 million tonnes.

It is one record that for the last couple of years sugar mills have been expressing their inability to commence sugarcane crushing season as per the schedule they have been following for decades, mainly due to huge stock. However, government not only uses Sugarcane Act to force the mills to commence sugarcane crushing but also making certain promises. The irony is that none of these promises are fulfilled only because of complete lack of coordination among various federal and provincial ministries.

According to a sugar sector expert, "The country faces this situation only because during the nineties politicians were not only given permission to establish sugar mills with huge crushing capacities but funds were also provided through state-owned financial institutions. While there was manifold increase in installed capacity there has no been corresponding increase in sugarcane production. The industry has an installed capacity to produce around 7.5 million tonnes sugar as against a domestic consumption of less than 3 million tonnes annually. Therefore, the only way out to bring down cost of production is to optimize capacity utilization improve it from less than 50% to above 80%".

Production of sugar-cane only be increased if mills are allowed to export surplus sugar. The government has been resisting export of sugar on the pretext that it may cause short supply in the domestic market. The millers need some subsidy initially to commence export of sugar from Pakistan because cost of production is high. However, once export of sugar becomes a norm this subsidy can be withdrawn. The high ups in the government are not ready to even consider providing subsidy on export of sugar. They say, "The WTO Articles do not approve payment of subsidy in any form". Whereas people conversant with WTO Articles say, "The Articles do not approve hidden or undeclared subsidies. These Articles also stipulate that the cost of subsidy has to be borne by the government and not to be passed on to ultimate consumer".

OUTLOOK

Sugarcane is the second largest cash crop and sugar industry is the largest industry based in rural areas. It is the driving engine of rural economy. Therefore, the policy planners must resolve the problems facing the industry at the earliest and without failure. Since the biggest problem is huge inventory, there are two alternatives, either the government ensures export of surplus sugar or buy it under the doctrine of maintaining buffer stock of essential food items.

The government can use both the options under as make shift arrangement. However, the long-term strategy must address 1) increasing availability of sugarcane, 2) discontinuing fixing of sugarcane support price and 3) creating enabling environment for export of sugar. Export of sugar is not aimed at earning a few dollars but to achieve economies of scale bring down sugar price in the domestic market.

The government has recently constituted Sugar Board, now it is time to see how diligently it discharges the responsibility of resolving the surplus sugar crisis. However, it is necessary to remind its members that it has to protect the interest of all the stage holders that include sugarcane growers, millers and most importantly consumers, who have paying higher price of sugar due to bad policies of the government.