RISING SUGAR PRICES

The current crisis is the outcome of lack of understanding of the importance of this agro-based industry

By SHABBIR H. KAZMI
Apr 24 - May 07, 2006

According to the latest information the country has spent about half a million dollars since September 2005 on the import of sugar. The crisis seems far from over. According to some estimates the country needs up to one million ton sugar to meet the indigenous demand and sugar import bill may touch as high as one billion dollar. They are also of the view that the prices at which TCP is buying sugar can only push the prices up. The government's decision to allow sale of sugar at subsidized rate from Utility Stores has added to miseries of the common man. Now one can see long queues either outside the banks for payment of utility bills or outside the Utility Stores for the purchase of sugar.

The blame game has also heated up as none of the stakeholders is ready to take the responsibility of the crisis. Analysts are of the view that the three stakeholders, namely the government, the millers and the growers are responsible for the crisis and the economic managers have completely failed in discharging their responsibility. It was simple demand and supply equation because the local production of sugar was estimated around 3 million tons as against a demand of 3.5 million tons. Therefore, the supply gap was to the tune of only half a million tons. The millers had made this point clear to the economic managers, who completely failed to respond to the SOS.

According to informed sources the Trading Corporation of Pakistan (TCP) has approved the latest tender for import of sugar around US$ 500 per ton, whereas last year international sugar prices were hovering around US$ 250 per ton. The intensity of pinch is further aggravated because Pakistan imported less than 300,000 tons sugar and the quantity for this year may be as low as 500,000 tons or a the maximum 800,000 tons. It is very surprising that against industry estimate of 500,000 tons, actual imports may exceed 800,000 tons. This should not be surprising for the analysts because at least three countries i.e. Iran, Afghanistan and even India get sugar from Pakistan due to highly porous borders. Sugar has been moving out of Pakistan in the past and just cannot be stopped due to various reasons.

The prevailing situation raises a question why the international sugar prices are at such a high level? According to an analyst it may be surprising for the common man but fully comprehendible for the people related to sugar trade. It was known to all that this year there would be shortfall in quantity produced or the available surplus may not be very substantial. Therefore, all the countries having the slightest doubt about the potential shortfall were prompt in placing the order. As against this Pakistan's economic managers neither paid any attention to the SOS raised by the sugar industry nor were even ready to take immediate corrective steps. One mistake after another and the delay in placing order has forced them to buy sugar at fabulous rates. It is also being said that Indian traders were initially interested in exporting sugar to Pakistan but subsequently declined to fulfill their commitments.

It is also being said that the government policy is tilted towards the growers. This is not an exaggeration but statement of the fact. The historical data proves that the government has been increasing the sugarcane support price without realizing that this also pushes up cost of production. The official quarters have been saying that increase in support price was necessary because input cost has gone up. However, they were never ready to accept the fact that cost per ton of sugar is high because per acre yield is poor, half the yield achieved in India. If the yield is poor the cost per ton of sugarcane has to be higher. Therefore, the rationalization that cost of inputs has gone up is a bitter pill to swallow.

The blame for poor yield also goes to government because all the agriculture research and development institutions are under governmental control. It is on record that sugarcane yield in Pakistan is almost half of the Indian yield. It appears a bit strange because climatic conditions and soil composition of the two countries are very similar. The higher yield in India is only because the researchers have worked harder to develop new and high yielding varieties. As against this Pakistani researchers may have developed some varieties but have certainly failed in promoting their cultivation.

It is necessary to reproduce a quote from one of previous write ups. A sugar sector expert had said, "The mother of all evils is the government policy of fixing support price of sugarcane. Pakistan is called 'Cotton Country' because its economy and exports are highly dependent on cotton. Despite this the government has stopped fixing cotton support price more than a decade ago. Initially some problems were faced but the fact is now growers look at New York cotton market rates before selling cottons to ginners. As against this, the government still fixes sugarcane support price. The irony is that despite the increase in sugarcane price the mills are not allowed to raise sugar price."

Some of the news items appearing print and electronic media also hold millers responsible for the hike in sugar prices. They say, "The millers have formed cartel and are responsible for the hike in sugar price. They also blame some of them for enjoying the political power and ability to turn the table in their favor." However, the fact is that some of the feudal lords as well as the millers are either politicians or enjoy the full support of the policy makers. Therefore, at time one of the pressure groups succeed in getting policy decisions in their favor and on other occasions the other group manages to tilt the decisions in their favor. Whatever may be true but the fact is that sugar consumers are being exploited to the worst level.

The overwhelming consensus is that the government fails to prove that it is following the policy of deregulation, liberalization and the market-based policies. Virtually every federal and provincial ministry and even local governments are ready to intervene but when it comes to decision making, every one abstains from taking 'unpopular' decisions. The present state of the industry is the true reflection of an old saying 'Too many hands spoil the curry'.