Sugarcane support price termed irrational, unfair

HAMID WALEED & ZAHID BAIG

LAHORE: The sugar industry in Punjab is past the threshold of chaos because of the lack of a level playing field, as the Punjab government fixed the sugarcane support price at Rs170 per maund, hiking the production cost out of proportion and setting a new crisis into motion, industry sources said.

Prices in the domestic and global sugar markets are already tumbling because of a glut in production in Brazil, India and Thailand.  Sugar mill owners contend that starting off the crusing season after procuring sugarcane at Rs170 per maund was “next to impossible”.

The ex-mill sugar price in the country declined to Rs48 from Rs65 per kg and $540 from $700 per ton on the global front.

Citing output estimates of six million tons during the current season, millers complained that the current sugarcane procurement price, which was increased by Rs20 per maund against last year’s figure, was “too low”. 

Terming the support price set by the Punjab government irrational and unfair, industry sources said that it had been done just to gain political mileage ahead of general elections.

They said the industry was caught between the devil and the deep sea, as growers would be demanding early procurement and quick payments and banks would be twisting millers’ arms to meet mandatory margins (prevailing market price less excise duty plus 25 per cent margin) on pledged stocks.

One sugar miller said only prudent measures, under the current circumstances, would result in a win-win situation for all stakeholders, including the government. Terming last year’s bailout package defective, he said that there was a mismatch between ex-mill price of sugar and its price on Utility Stores counters.

Last year’s domestic sugar production, he said, was 4.75 million tons against a “constrained consumption” of 4 million tons.

He said that the government temporarily intervened and the Trading Corporation of Pakistan (TCP) procured 700,000 tons of sugar, leaving mills with the bulk of surplus stocks.

“Only millers with sound financial strength endured the disaster, as the ex-mill sugar price on carryover stocks dropped to Rs48 per kg this year against Rs67 per kg on an average for the previous year. The surplus global stocks of sugar also pulled Pakistan from exporting sugar.”

TCP procured sugar at Rs50 per kg from mills and supplied to USC outlets at Rs57 per kg, which sold it at a subsidised rate of Rs42 per kilogram. As a result, inventories at mills piled up, as the market refused to lift sugar at Rs48 per kg from mills. The sales slowed down despite a relief of upfront payment against stocks lifted by the TCP.

In the meantime, unscrupulous elements wreaked havoc with the strategic intervention of the State Bank of Pakistan (SBP) by consenting to export 200,000 tons of sugar on the principle of First-Come, First-Served basis. Fictitious quotas were allotted for exports and actual export of sugar was far less than the quantity announced. One of the major flaws in the SBP policy was its failure to stipulate a timeframe for sugar exporters.

The industry sources pointed out that if they bought sugarcane at Rs170 per maund in accordance with the government announced support price and if they were able to extract sugar with a sucrose recovery of 9 per cent, sugar in its final form would cost millers at Rs59 per kg ex-mill against the prevailing average ex-mills price of Rs50 per kg. The industry itself would be crushed if it sold sugar at a loss of Rs9 per kg.