CCI rejects proposal on sugar export rebate

The Council of Common Interests (CCI) has reportedly agreed to lift ban on export of sugar permanently keeping in view surplus production but rejected a proposal on increase in export rebate from Rs 10.70 per kg to Rs 20 per kg, well informed sources told Business Recorder. "The proposal of Sindh government to increase export rebate to Rs 20 per kg was turned down after Commerce Ministry forcefully opposed it. Chief Minister Murad Ali Shah was unhappy with the decision. The Punjab government preferred to stay neutral after supporting Chief Minister Sindh initially," the sources added.
The export of sugar, organic brown sugar, is banned under the Export Policy Order. The ban on export of sugar was aimed at stabilizing prices in the domestic market and ensuring sufficient supply of sugar due to the deficient domestic production of sugar. According to sources, over the years, sugar industry has an installed production capacity of around 8.5 million metric tons against a 5.1 million metric tons of estimated annual domestic consumption of sugar.
For the last three consecutive years, there has been surplus production of sugar in the country which had to be offloaded/ exported with heavy freight support outlays. Recently, after a series of decisions by the ECC allowing export of 425,000 MTs of sugar without subsidy, the ECC decided on 14.9.2017 to allow export of 500,000 tonnes of sugar with a cash freight support of Rs 10.70 per kg which forms around 25% to 27% of the FOB value of sugar exports.
As per the information available from the State Bank of Pakistan, some 33 sugar mills have availed of this facility in 461 export contracts totaling 418,215 MTs, utilizing 84% of the export quota, out of which more than 196,000 MTs was exported as of 21st November, 2017.
CCI was informed that on the request of Pakistan Sugar Mills Association (PSMA), a meeting of the Sugar Advisory Board (SAB), was held in Ministry of Industries & Production (MoIP) on October 27, 2017 with Secretary MoI&P in the chair. The SAB observed that the production of sugar in 2016-17 was 7.00 MMT and in the upcoming season it is expected to increase to 8.00 MMT and after deducting expected consumption of 5.100 MMT around 3.00 MMT sugar would be surplus. It was proposed that 1.5 million MTs of sugar may be allowed for export.
Commerce Ministry maintains that the continuous and ever-increasing surplus production of sugar has been induced by the high procurement price of sugarcane fixed by the provincial governments, which pushes the cost of sugar upwards, along with the legal compulsion on sugar mills to buy all sugarcane offered by farmers. The water-intensive sugarcane crop has been reducing the space for the crucial crops like cotton, oilseeds and others by using precious land and water resources.
It has created distortions in the economy. On one hand, there is surplus production of high cost sugar, which cannot be sold in the global market without 27% subsidy and on the other hand, there is a shortfall of 4-5 million bales of cotton production annually which is affecting the raw material base of the textile sector. In addition, there is a reduced production of oilseeds, and other crucial crops increasing their share in imports.
CCI was informed that as the country has moved from the deficit to now an extraordinary surplus production of sugar, there is a need to revisit the policy paradigm to cater to the new economic realities. Commerce Ministry in its summary submitted the following proposals to the CCI: (i) CCI may advise the ECC to consider lifting of ban on export of sugar permanently by amending the Export Policy Order.
In an unlikely event of shortage of sugar in the country, the ECC can always intervene, as is the case with other food items;(ii) provincial governments may be advised to consider discontinuing the intervention in the pricing mechanism of sugarcane, which induces over production and distorts cropping patterns in the country;(iii) in case any provincial government continues with the practice of intervention in the pricing of sugarcane, it may make provision for freight support for the export of surplus sugar out of its budget; and (v) the federal government may provide its committed share of 50% in the freight support for the exports of sugar made during the current fiscal year 2017-18, ie upto 30th June, 2018, to the extent and as per the mechanism approved by the ECC decision of September 14, 2017. This arrangement may be discontinued for any future sugar exports.
According to an official statement, on the issue of export of surplus sugar, CCI decided to recommend to the ECC to allow export of 1.5 million tons with existing subsidy level which is Rs 10.70 per kg. The sources said, on the proposal to lift ban on export of sugar permanently, CCI agreed in principle. However, a final decision will be taken by the appropriate forum ie ECC.