CARTELISATION IN THE SUGAR INDUSTRY

KANWAL SALEEM
(feedback@pgeconomist.com)
May 31 - June 6, 20
10

Sugar industry in Pakistan has always remained under criticism mainly on the grounds of earning huge profits through cartelisation.

The opponents of sugar industry always termed the sugar industry as a "mafia" which had only concern of earning profit.

On the other hand, those associated with sugar industry remained critical of policies of the government. They always advocate their case on the basis of logic and facts and figures.

Sugarcane growers had always complained of delayed payments by the sugar mills owners on one pretext or the other. However, the sugar industry in Pakistan is facing host of problems due to tactics used by other stakeholders. A good number of sugar mills have become bankrupt and also defaulters of sugarcane growers.

There is undeniable fact that sugar mills across the country are owned by influential families and individuals. In the recent sugar crisis, only the poor consumers had to suffer, as neither sugar mills owners nor policy makers as well as sugarcane growers had shown any inclination to push back from their already drawn lines.

Currently, the government is procuring sugar from other producing countries through Trading Corporation of Pakistan (TCP) for ensuring provision of daily-use item to masses through USC outlets. On the other hand, businessmen have also been allowed import of cheaper sugar in country, which created hurdles in the sale of local sugar stocks. This resulted in a deep sense of concern among the sugar owners who refused to pay around Rs40 billion dues of crisis-hit growers across the country due to non-release of its stock in the market. Sugar manufacturers have refused to clear the dues owing to poor sale of the commodity in the wholesale markets and retail shops.

According to market players, Pakistan would be the country, where custom duty had been imposed on the import of raw sugar while finished product is exempted from any tax. Sugar millers are pressing the government to impose flexible import duty on sugar, but it is not paying heed to this issue, resulting in non-payment of growers dues.

On the other hand, they claimed that the sugar mills owners are also being blackmailed by the commodity dealers in the wholesale markets and they forcibly released their stocks into the market to pay off the bank's outstanding dues, which they borrowed for crushing season 2009-10. The government needs to help the local sugar industry from becoming bankrupt, they added.

In order to survive in the competitive environment, Pakistan Sugar Mills Association (PSMA) had recommended the government to impose 35 per cent regulatory duty, which was suggested to be fixed according to international sugar prices, sources in PSMA said.

Elaborating reasons of hike in ex-mill price, they said the government had increased minimum support price of sugarcane up to 22 per cent from Rs81 per maund to Rs101 per 40 kilogrammes for crushing season 2009-10. Keeping shortage of the crop in view, the growers have increased the support price up to Rs220 per maund to Rs240 per 40 kilogrammes doubling the production cost, they added.

PSMA, Punjab Zone, Chairman Javed Kayani asked the government to restrict commercial and industrial import of sugar, as it is adversely affecting the sale of local sugar production besides making it impossible for the sugar industry to pay huge dues of growers still outstanding against the sugar industry.

He was of the view that Trading Corporation of Pakistan (TCP) should only be allowed to import sugar in order to maintain strategic reserves and bridge the gap to meet any anticipated shortfall.

"During the current crushing season, local industry purchased 34 million tons of sugarcane worth Rs140 billion. The industry paid 75 per cent of the total payable amount while 25 per cent is still outstanding, which is around Rs35 billion," he added.

Regarding the plight of sugarcane growers due to non-payment of their dues, Kayani said that the sugar industry was not responsible for delay in payments, as its millers were not willful defaulters but unabated commercial and industrial import of this commodity by the local industry had halted the sale of local sugar.

During the crushing season 2009-10, the international sugar market remained at around 767 dollars per metric tonne (FOB), a 30 years high. The international prices were high in anticipation of big import orders from four countries including India, Indonesia, Iraq and Pakistan. Due to this situation, farmers in Pakistan also received higher prices of their produce as compared to the announced support price. Contrary to support price of Rs100 per 40 kilograms in Punjab and NWFP and Rs103 per 40 kilograms in Sindh, the industry had to purchase sugarcane at more than Rs250 per 40 kilograms besides the sucrose contents were low as compared to last year resulting in further increase in cost of production. These facts are of worth consideration, he said.

Kayani alleged that the international sugar market has plummeted to 478 dollars per metric tonne (FOB), making it attractive for the commercial and industrial importers to dump sugar in Pakistan at zero rate import duty.

Regarding the local production and stock situation, Kayani said that out of 34 million tons of sugarcane, industry produced 3.1 million tons of sugar and on September 31, 2009 it also had a carryover of 866,000 tons, thus leaving total available stock of 3.9 million tons. He said that domestic sales had consumed 2.4 million tons of sugar out of it by May 20 and 1.5 million tons was still in the stock.

Regarding Value Added Tax (VAT), he proposed that if government wanted to introduce VAT on sugar industry then it should be imposed from the next crushing season. However, he said that world over food items, children's clothing and educational books were exempted from the VAT. "Our consumers cannot bear the burden of VAT," he said.

Moreover, PSMA Punjab Zone Chairman in a letter addressed to the Prime Minister Syed Yousuf Raza Gilani drew his attention to the sugar industry's problems. He also proposed introduction of 40 per cent countervailing duty to curb the influx of commercial and industrial imports to protect the interests of all stakeholders.

In this backdrop, it is necessary for the government to address genuine concerns of local sugar industry so that growers in particular and consumers in general may not suffer.