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Last Friday, Punjab government notified the official beginning of crushing season in the province. This follows a dramatic escalation in minimum support price announced earlier, which was raised by Rs75 per 40kg - or 33 percent – over last year. MSP in Punjab now stands at Rs300 per 40kg, effectively matching the rate announced by Sindh government few weeks ago.

According to news reports, the sugar industry in Punjab is divided over timely beginning of crushing cycle. Some of the largest sugar mill-owning groups in the province such as Naubahar, Tariq Corp., Akhtar brothers, JKT, Umer group, RYK, Noon, and Sharifs have reportedly started crushing, although some are still holding out.

Earlier, some sections of the press had reported that the delay in notification of cane crushing season in Punjab had occurred as the sugar milling group commonly associated with chief minister’s family had high carryover inventory that it was unable to offload. Several provincial cabinet members were also reportedly unhappy due to the feet dragging by the federal government over the export decision.

Either way, it appears that the PTI-supported provincial government is not prepared to bet its political capital on the issue. In recent years, PTI leadership has earned recognition among the farming community for ensuring timely start of crushing by mid-November, despite opposition by some in the industry.

According to BR Research’s calculations, mills that have publicly reported beginning of crushing account for at least 40 percent of installed capacity in the province. Note that some farmer groups have raised suspicions on these announcements, claiming that although trollies are queuing up, factories have not started procurement in earnest. BR Research is unable to independently verify the accuracy of this claim.

Meanwhile, the industry association officially remains of the view that timely start of crushing remains contingent on permission to export surplus carryover stock from last year. PSMA representatives themselves have acknowledged that permission to export is fraughtwith political challenges, as the 2020-21 sugar price spiral episode is still very fresh in public memory.

BR Research has remained of the view that the Dar led finance team in Islamabad is counting on the seasonal drop in December to claim victory over inflation. Historically, sugar prices declined by an average of 6 percent month-on-month in December, bringing down headline CPI with it. The announcement of export decision at this stage may help rally sugar prices in the local secondary market, dampening the chances of seasonal decline in prices, and hence inflation.

Regardless of the timing over export decision, however, some key developments bear taking note of. Back in March 2022, sugar industry players had claimed that the country may be looking at an exportable surplus of as much as two million metric tons (MMT), given that national production had reached 8MMT. At that time, BR Research had cautioned that the quantum of surplus may be exaggerated, as a greater share of sugar produced becomes officially reported due to successful procedural changes to CPR issuance, and payment mechanism via banking channel.

Since then, the quantity for which export permission has been sought by the industry has become leaner and leaner, now down to 1 MMT. In fact, on November 15th, one industry representative claimed that industry has carryover stock that would last till mid-January. Based on consumption figures supplied by the industry in its annual report, that would be no more than 0.9MMT. If export is allowed up to 1MMT, surely industry would not want to start the upcoming marketing year with nil inventory for local market?

According to its last annual report, carryover + production during marketing year 2022 stood at 9.4MMT. Fresh estimates now suggest that 8MMT of this has been consumed over last12 months, against industry’s forecast of domestic consumption of 5.5 – 6 MMT.

That sugar trade must be de-regulated is adifferent debate altogether. But despite repeated cycles of surpluses and deficits, industry’s repeated failure to come up with robust local demand assessment needs to be forcefully questioned. Keep in mind that despite the damage from floods, industry has given no forward-looking estimate of production in the upcoming year (or damage to standing crop/yield, if any). Of course, the failure of governmental departments such as Crop Reporting in doing their jobs is indisputable. But if the industry wants to continue running itself just as ineffectively as politicians run their ministries, then it should brace itself for the consequences as well.


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SAMIR SARDANA Nov 29, 2022 07:16pm
STRATEGEM - 1 SUGAR FARMERS ARE THE VOTERS FOR PML AND PTI ! THE STRATEGY IS "DELIBERATE NON-PLANNING" TO KEEP THE GOP IN FEAR MODE ON TENTERHOOKS & ALWAYS "REACTING" & NOT PRE-EMPTING OR POSITIONING ! IF IN 75 YEARS SUGAR DEMAND & CANE PRODUCTION CANNOT BE ESTIMATED - THEN THERE IS A PROBLEM ! BUT THERE IS NOT ! THE STRATEGEM IS TO HAVE, THE MAXIMUM CANE PRODUCTION (FOR THE MILLS) The Sugar Mills make money at the highest capacity,and the lowest material cost.For that,there has to be overproduction of cane – & farmers have to be pampered,withthe “best” cane prices.High cane prices,are of no impact for the mill,as the cane price,is a defacto pass through,to the state. The excess sugar produced,from the excess cane – will HAVE TO BE exported – with the subsidy & the drawback,at the cost of the state. BY NOT ESTIMATING DEMAND & SUPPLY - RUMORS AND PUNTERS RUN WILD & SUGAR PRICES SPIKE - WHICH LEADS TO SUGAR SALES IN THE BLACK MARKET (OFF BOOKS). WINNA = MILLS .dindooohindoo
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SAMIR SARDANA Nov 29, 2022 07:23pm
STRATEGEM - 2 Cane payments are made from working capital loans from banks – and the loans would be liquidated from the export and domestic sale proceeds – and so, the NSR from exports and domestic sales has to be profitable.Otherwise,the mill is bust and the bank loan,is an NPA,and millions of cane growers have no buyer.- and PML and PTI will have no votes MILL OWNERS HAVE TRAPPED THE BANKS, POLITICAL PARTIES AND GOVTT OF PAKISTAN ! THE EXCESS AND SUB STANDARD SUGAR "HAS TO BE BOUGHT" BY GOP ! WHAT GOP IS HOLDING,HOW MUCH IS EATEN BY RATS AND WHO IS EATING THE RATS, NO ONE KNOWS ! MAYBE THE EXPORTS ARE NOT HAPPENING,AS IT IS SUBSTANDARD OR THERE IS NO STOCK - BUT THE EXCUSE IS,LOCAL PRICES ! THE BASIC PREDICATE, OF THIS SCAM = NO PLANNING ! IF THERE WAS PLANNING,THERE WOULD NO EXCESS STOCK, NO SUBSIDY/DRAWBACK LOSS. NO STORAGE LOSS, NO BANK NPA - WHICH MEANS,NO PROFIT FOR MILLS !
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SAMIR SARDANA Nov 29, 2022 07:37pm
STRATEGEM - 3 SUGAR MILLS HAVE OUTSOURCED PLANNING TO GOP - KNOWING THAT GOP CAN BE BOUGHT, IS INEPT,INSECURE,WORRIED ABOUT VOTES & UNREST & THAT THE POLITICIAN WILL TAKE ONLY "THE SAFEST BET"WHICH IS TO BOOST CANE PRODUCTION = MEANS THAT SUGAR MILLS WILL BE PAID MORE FOR SUGAR = MEANS THAT DELAYS IN PAYMENTS TO MILLS - BANK INTEREST WILL BE WAVED & CDR + OTS ! SO THE MILLS SPREAD AMBIGUITY & UNCERTAINTY ! SUGAR MILLS ARE A TOOL,TO BUY VOTES FROM FARMERS & THE USER PUBLIC , WITH MILLS, AS PAYMENT GATEWAY Pakistani state has no clue of the actual operations of the sugar & cane supply chain & value chain – from costing to manufacturing to stock.The perception of unviable sugar units,ensures that the sugar units can inflate costs, & hide stocks.This ensures that they keep getting subsidies.drawbacks,capital subsidies,soft loans,trade swaps, power export & wheeling incentives etc., & also,they can create shortages & price spikes, at will, in any part of Pakistan
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SAMIR SARDANA Nov 29, 2022 07:43pm
STRATEGEM - 4 There will always be excess cane production & excess sugar stocks,& since the state has to fix the purchase prices of cane & sale prices,in the open market – & also, the terms of loans & incentives to units – the state will always goof it up. When they goof – prices will spike – & that is when the mill owners sell the unaccounted sugar stocks.When there is a reverse goof,id.est,large stocks & working capital shortage – the mill owners push the state to export.At that time,the inflated cost sheets & perceptions of poor manufacturing operations & yields & storage losses,ensures the highest inflated cost.Highest inflated cost ensures maximum subsidy & also maximum ad valorem drawback. Hence,the state is a PE co-investor in the sugar mill,with a sweat equity stake,& no voting rights & no dividend The cane growers are bankers to the mill who give clean credit for 8-9 months and accept all the deductions made by the mill IS THAT WHY NETAS ARE MILL OWNERS ?
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