Sale of 200,000 tons of sugar: Rs 59 per kg should be the benchmark: Pakistan Sugar Mills Association

Lahore: The sugar industry in Pakistan wants Rs 59 per kilo to be the benchmark for sale of sugar to the government. On the other hand, government wants the rate to be reduced by another two rupees to purchase 200,000 tons of sugar from the domestic sources, it is reliably learnt. Trading Corporation of Pakistan issued a gallop tender for purchase of 200,000 tons of sugar on 4th November 2011.

Last season (2010-2011) the average cost of sugarcane was Rs 190-195 per 40 kg translating into sugar cost of Rs 63/64 per kg, says the sugar industry. In early November the retail price of sugar was around Rs 65 per kg. The 27 mills of Pakistan Sugar Mills Association submitted bids in the TCP tender of Rs 65-66 per kg. Since sugar is produced in 4 months and mills carry stocks for 12 months, the financed cost of carry-over is around 22 paisa per kg.

The mill owners felt that price submitted to TCP was fair. But ECC was informed that sugar was available at Rs 58 per kg in Islamabad. Therefore, the decision on the TCP was deferred. Since the member mills of PSMA has dropped their prices to get rid of a portion of 600,000 tons stock lying with them, ECC is expected to agree to the reduced price as the cost of imported sugar would be Rs 20 per kg more.

Analysts argue that there is a perception that the sugar lobby in the country is politically very well connected and is out to fleece the exchequer. Sugar mills indeed are owned by very powerful political figures but the government has to take a decision that does not kill the local industry and push them in default with banks but also the million of farmers who rely on sugarcane as a cash crop. According to PSMA, at present there is no level playing field for the industry because the government has imposed restriction on the export of sugar and the industry is not in a position to export its surplus.

It operates in a highly regulated environment where price of sugarcane is fixed and sugar industry is obliged to lift the entire sugarcane from the growers fields and convert the same in sugar and in return have to pay to the farmers on time for sugar produced in four months and sold in twelve calendar months. This necessitates that the industry borrows from the banks to pay to the growers against pledge of sugar as it cannot sell its produce over night.

The role of Trading Corporation of Pakistan is also very important as it works to stabilise the prices of agricultural commodities like wheat and cotton. When prices move downward purchase is undertaken to support the farmers similarly in the event of price spiral these commodities are off-loaded in the market. Sugar produced in the country is in fact the sugarcane crop which remains available in the shape of sugar.

The small and poor growers are dependent for their existence on the sale of sugarcane therefore it is the prime and foremost responsibility of the Government to take care of their interests first. During the last two years, PSMA strongly advocated that sugar should be imported to meet any likely shortages in the country but now it has a surplus carry-over and a bumper crop ahead.

There is an estimated production of 4.8 to 5 million tons in the current crushing season. With a carry-over and after meeting the domestic requirement of 4.2 million tons there would still be a surplus of over one million tons in the country and it is imperative to dispose it of in order to make payments to growers.

Now the government of Pakistan wants to build its reserves for two months requirement i.e., 700,000 tons to cater for utility stores and off-loading in the open market to intervene against any price spiral. The government through purchase from local industry would save precious foreign exchange besides helping the farmers of the country.

The government would save about 6 billion rupees on the purchase of 200,000 tons of sugar contrary to alleged loss of 2.5 billion as explained in a meeting with price reasonability committee by PSMA.

However, if the industry is allowed to export it gets an export parity of Rs 59 so this price should serve as a minimum bench mark to purchase from the industry as against landed cost of imported sugar at around 88-89 rupees per kg. Therefore, if the government does not want to buy from the industry, it should be allowed to export which is their legitimate right without which the growers would be deprived of their payments in view of a large sugarcane crop ahead, says PSMA.

For more information, contact:
Mr. Mutahir N. Pasha
Pakistan Sugar Mills Association
# 2 Happy Homes, 38-A Main Gulberg, Lahore
UAN: +9242 111-207-207
Fax: +9242-35752940, 042- 35877634