Sugar sector to experience chronic crisis

Sugar sector to experience chronic crisis - price of sugar


ISLAMABAD: The sitting government will be facing a chronic sugar sector crisis in the coming months because of record sugar production of 7.1 million metric tonnes for the first time in the history of Pakistan during the crushing season of 2016-17.

The current status is that the country has a surplus of 1.8 million metric tonnes incorporating 0.3 million metric tonnes as strategic stock after domestic consumption of 5 million tonnes of sugar per year.

Instead of exporting surplus sugar the decision was kept on pending by the Commerce Ministry for months and despite repeated requests from the sugar industry to allow export of one million tonnes of sugar out of surplus two million tonnes without subsidy as the international prices were favourable at $540 per metric tonne.

Sugar millers believe that apparently it was a deliberate attempt not to allow the export of sugar on the false pretext that the domestic sugar prices may shoot up. Whereas reality is that the government fixes the sugarcane price at Rs 180 per 40kg which constitutes 85% in the cost of sugar coupled with government tax of Rs 6 per kg. The sugarcane and taxes alone stand at Rs 55 adding up another Rs 8 being the manufacturing cost renders the breakeven price of sugar at Rs 63 per kg.

Surplus sugar has crashed the domestic prices to Rs 49 (ex-factory price) per kg creating a major financial disaster for the sugar mills and huge outstanding payments to the farmers. The sugar industry starts crushing in the month of November but with the current surplus and anticipation of yet another record production will also crash the sugarcane prices, increasing the sufferings of the people associated with the agriculture sector.

The farmers’ community, which already is protesting against lack of support price for crops and canal water, will be facing this additional challenge of non-payment of their payables from last season as well as not getting the sugarcane price fixed by the government in the absence of sugar export.

Pakistan Sugar Mills Association Senior Vice Chairman Iskander Khan while talking to Daily Times said that despite recommendations of sugar advisory board to export 1.2 million metric tonnes of sugar against the surplus of 1.8 million metric tonnes has not been allowed. In the meantime, international sugar prices have crashed from $540 to $400 per tonne. “It has to be investigated that why 1 million tonnes of sugar was not exported when international prices were high, causing a loss of $140m to the country. Now with the low international prices, sugar cannot be exported without the subsidy of Rs 15 per kg, aggregating Rs 27 billion,” Khan said.

He added that in the next three months there “is no way the country can export 1.2 million metric tonnes of sugar and there is serious question mark that how will the next crushing season commence with the huge unpaid working capital liabilities by the sugar industry to the banks and it will not be possible for the millers to pay Rs 180 per 40kg sugarcane price as the current ex-factory price of sugar does not allow sugarcane prices to be over Rs 120 per 40kg”.

“Let me be very frank with you. It was purely a political decision. If exports were allowed, the domestic sugar prices would shoot up to Rs 70 per kg at the retail level, which was not acceptable to the government, especially in the holy month of Ramazan and at a time when the next elections are round the corner,” a senior official at the Ministry of Commerce told Daily Times, requesting not to be named.

Millers say that without subsidised exports, mills won’t be able to start next crushing season before February 1, 2018, and even if they start crushing they won’t be able to pay more than Rs 120 per 40kg to farmers.