Reserves boost: 250,000 tons of sugar may be procured

The federal government is likely to procure 250,000 tons sugar from local mills at ex-mill price of Rs 62 per kg to build strategic reserves, well-informed sources in Ministry of Industries told Business Recorder. The Economic Co-ordination Committee (ECC) of the cabinet has criticised the Ministry of Industries and Production (MoI&P) for allowing import of sugar without calculating actual requirements, the sources added.
"Sugar was imported without calculating the actual requirement and the government had to pay a subsidy of Rs 7 billion. Therefore, in future an elaborate exercise shall be carried out in consultation with the stakeholders to work out the actual requirement," the sources revealed the ECC as directing. To ascertain overall sugar situation and finalise the sugar procurement plan, Secretary Finance, Waqar Masood Khan presided over a meeting on Wednesday.
PSMA was represented by its Chairman Javed Kayani who revealed that until 28th February, Punjab had produced 1.914 million tons, Sindh 1.010 million tons and Khyber Pukhtunkhawa (KP) 188,000 tons making a total of 3.112 million tons so far. Initially, the government will procure 100,000 tons of sugar in March mainly to ensure timely payments to growers and requested the government to initiate buying of at least 100,000 tons in March. Javed Kayani further revealed that crushing was still continuing and it is envisaged that season would come to a close by 20th March; by that time an additional quantity of 450,000 tons in Punjab, 250,000 tons in Sindh and 50,000 tons in KP is likely to be produced making an estimated 3.862 million tons. The TCP chairman stated that existing inventory lying with the sugar mills is 452,000 tons.
"The consensus was that sufficient quantity of sugar is available and there is no shortage as far as availability is concerned," the sources added. The PSMA chairman briefed the meeting that during the current crushing campaign about 40 million tons of sugarcane would be procured.
This implies an industry average purchase price of Rs 200 per 40 kg of sugarcane and a price quantum of payments to growers of Rs 200 billion. Out of this amount Rs 150 billion will be cleared by the close of season against sale of sugar and availing cash finance against pledge of sugar from banks; however to facilitate payments of the remaining Rs 50 billion it was requested that the government purchase sugar at the current level of price at around Rs 62 ex mill which is the lowest in the world given the landed cost of imported sugar between Rs 85 to Rs 90.
The sources said, the meeting agreed that the Government of Pakistan (GoP) must maintain a strategic reserve of at least two months consumption and build up inventory by taking advantage of low price of sugar prevalent at present. The sources said TCP already has a stock of 452,000 tons therefore it would be most appropriate that GOP considers buying 250,000 tons of sugar from the sugar industry to facilitate timely payments to growers.
MOI&P Additional Secretary Javed Iqbal Awan, a grade 22 officer, inquired about the modality of purchase of sugar and suggested making the penalty clauses more stringent to avoid defaults in delivery at the appropriate time to ease the market. The PSMA chairman proposed 100 percent penalty for non-performance to safeguard the interest of the government and the consumers of the country.
Kayani proposed that procurement and offloading should only be made through open public tenders, adding that the industry''s production cost is about Rs 72 ex mill and at present sugar is selling below cost due to distress sale to make payments to growers. According to official documents, at present sugar market is stable. In January 2011 sugar was sold at around Rs 67 in the open market. The wholesale price at Akbari Mandi, Lahore is Rs 61 per kg.