IT has become almost an annual ritual. The sugar industry is sitting on a surplus carryover; sugarcane-crushing is about to pick up pace; farmers are impatient to offload their hard-earned produce at the first available window; and consumer prices are rising again amid calls for a subsidised export of the commodity.
But that is not all. The whole supply chain continues to operate under a 1950 law notwithstanding the massive devolution since then. The sector is run partially on a ‘free market’ basis when it suits the powerful and in a ‘controlled’ manner when it supports the influential.
The number of sugar mills keeps on growing even though the industry’s average capacity utilisation seldom goes beyond 60pc. There is always a hue-and-cry over millers not paying farmers; yet, the area under sugarcane cultivation keeps on rising. In fact, it is encroaching upon area under cotton (and sometimes wheat) cultivation.
Despite the imposition of a ban on new mills 10 years back, those in control have no apprehensions about building a new sugar mill in the heart of the country’s cotton-producing region. As a result, the number of mills has risen to 84 from 60 before the ban was imposed.
The powerful — from within the ruling PML-N, PPP, PTI, the Askari Welfare Trust, leading agriculturists and known industrialists — all have their sugar mills.
While sugarcane prices are almost uniform across the country, these are not based on the quality or sucrose content of the crop. A policy announced half a decade ago to link the pricing of sugarcane with the crop’s yield failed to take ground because the so-called ‘efficient’ sugar millers got a stay order. Investigations, suo motu notices and even judicial commissions bore no fruit.
No wonder then, Pakistan maintains its 6-8th position among the world’s 10 largest sugar/sugarcane producing, consuming and exporting countries in the world. But it ranks at a low 15 in terms of per-hectare yield, managing only 47 tonnes. The country’s sugar yield per hectare is also among the lowest at 3.9 tonnes against leader Columbia’s 14.5, India’s 7.9 and China’s 6.5.
Meanwhile, retail sugar prices fell below Rs55 per kg a fortnight ago, only to be given a boost by a summary prepared for the Economic Coordination Committee (ECC) of the Cabinet that called for an export subsidy of $50 per tonne to clear the domestic sugar glut. While the summary did not reach the ECC for unknown reasons, sugar prices rose by Rs10 a kg.
The number of sugar mills keeps on growing even though the industry’s average capacity utilisation seldom goes beyond 60pc
According to Pakistan Sugar Mills Association Chairman Iskandar M Khan, the industry had a carryover stock of 1.1m tonnes until a couple of weeks ago. And production this season was
‘officially’ estimated at 5.1-5.3m tonnes — taking total stocks to 6.4m tonnes against an estimated domestic consumption of 4.8m tonnes.
This meant that there would be a minimum surplus of 1.4m tonnes by the end of the season, said Khan. The government should consider exporting about 500,000 tonnes now, and depending on actual numbers, consider exporting more in March.
But to make the local industry competitive in a bearish global commodity market, the government has to provide about Rs6.5bn in subsidy, which comes to Rs13 per kg of sugar. The government has kept Rs1.3bn in the budget to subsidise sugar exports.
Khan did not agree that non-payment to farmers was an issue, as the industry had cleared over Rs240bn in payments last season and only Rs3bn (1.2pc of the amount) was currently outstanding. Meanwhile, nine defaulting mills have been sealed.
“It is mismanaged on false pretexts and presumptions,” he said about the sugar sector. He claimed that a 30pc per kg price variation on both sides resulted in an impact of only Rs200 per person per annum, but it made political nuisance.
He said it was also incorrect that delays in sugarcane crushing resulted in any benefit for the millers, and asserted that weather patterns had changed dramatically over the years and the winters were now setting in by end-December against end-October a few years ago. The cold weather has a direct bearing on sugar output because the sugarcane crop matures and its sucrose content increases when it gets cold by end-November.
Pakistan is loses 200,000-300,000 tonnes of sugar production every year because of the pressure on mills to start operating earlier, he said.
It is in this background that Prime Minister Nawaz Sharif had to intervene himself before the ECC could take up the issue. He has constituted a ministerial committee to look into the matter and has prevailed upon his miller friends to start crushing the crop.
His own family is reported to have lost a couple of billions of rupees last year in the sugar business, as the industry could export only 500,000 tonnes against the target of 650,000 tonnes as international prices plunged.
In initial meetings, members of the committee — comprising the ministries of commerce, industries and production, national food security and finance — are reported to have only contested production and carryover numbers. The amount of subsidy and exportable commodity would come up in subsequent meetings.
Based on a holistic audit of the entire supply chain through trustworthy institutions, the government should either regulate the entire sector under tight scrutiny or leave it completely at the mercy of market forces, instead of continuously doling out subsidies.
News source: Dawn