ISLAMABAD: The Economic Coordination Committee (ECC), scheduled to meet on Monday, is likely to approve a bailout package of over $25 million for sugar millers with a green signal for exports and subsidy, officials say.
The Ministry of Industries and Production will seek the ECC’s approval for a subsidy of $50 per ton on the export of 500,000 tons of sugar in a bid to facilitate the millers, who are arguing that prices have dropped in the international market and they need a subsidy to stave off potential losses.
The government had earlier given permission for export of 500,000 tons to the powerful lobby of sugar millers. However, it reduced the subsidy to Rs1 per kg in September 2013 from the Rs1.75 per kg given by the previous Pakistan Peoples Party-led government.
“Now, the Ministry of Industries is pressing for the ECC’s approval of a Rs5 per kg subsidy,” an official said, adding it was also seeking the go-ahead for export of 500,000 tons.
“This will be another bailout package for the sugar millers; beneficiaries of this subsidy will neither be consumers nor farmers; only the sugar barons will be the sole beneficiaries.”
According to an official of the Ministry of Industries, the millers had called on the government to allow export of one million tons, but the industries ministry agreed on recommending a quantity of 500,000 tons.
He said the ministry had not sent a summary to the other ministries concerned for review, rather it would directly present the paper during the upcoming ECC meeting.
As the industries ministry is hoping for the incentive for sugar exports, the government has already removed subsidy on sugar sale at utility stores, which has caused a sharp decline in demand at these outlets.
The millers also enjoyed the Ramazan package this year and made an extra income of millions of rupees when utility stores purchased sugar from them for sale at concessionary rates during the month.
In an earlier meeting on May 21, the Ministry of Industries had told the ECC that the sugar millers appeared to have formed a cartel as they quoted an average price of Rs60.40 per kg, higher than the wholesale market rate of Rs55-58 per kg.
Pakistan Sugar Mills Association Chairman Iskandar Khan, however, said sugar subsidy would actually benefit the farmers by absorbing the high cost of production and dismissed the perception that the mills would be the major beneficiaries.
A free market mechanism required that sugarcane price should not be fixed as the difference in sucrose contents in sugarcane in each province led to varying production costs, he said. “As prices are determined by demand and supply, this rules out the possibility of forming a cartel.”
According to Khan, a surplus production of 1.5 million tons depresses prices and results in heavy losses to the industry. Therefore, sugar should be exported as the surplus poses a threat to the start of new crushing season.
In the previous season, he said, the low sugar price and high cost of cane had resulted in massive losses to many mills as well as bankruptcy of over 10 mills in Punjab. The commodity was sold at prices below Rs64 per kg, which was the cost of production including taxes.
News source: The Express Tribune