Problematic surplus sugar
 By  ASHFAK BOKHARI

SUGAR is one of the essential items whose export needs to be regulated to keep the prices of the commodity stable for the domestic consumers.

It is in this context that the sugar millowners’ demand for more exports was rejected by the Economic Coordination Committee (ECC) of the cabinet last month.

The ECC explained that a sufficient quantity of surplus sugar needs to be stored in the country to meet any emergency situation that may arise from its shortage, often created by hoarders, and sudden price hike for various reasons.

Many millowners happen to be politicians, sit in parliament or have close connections with them. The industry often tends to operate as a cartel to dictate its terms in the sugar market and extract benefits from the government.

Pakistan mostly exports white refined sugar to UAE, Bangladesh, Iran, Sri Lanka, Yemen, India and some African countries and expects to earn about $500-- $550 million from exports in the current season.

The surplus stock in 2013-14 is predicted to be around 667,000 tonnes. And the decision about how much more sugar be exported will be taken in September-October period when final figures of production and unsold stocks become available.

This will be in addition to what the Sugar Advisory Board’s recommended (and permitted by the government), i.e. export of 0.5 million tonnes. But the millowners argue that there is room for more exports.

Their representative body, Pakistan Sugar Mills Association (PSMA), has been vigorously pursuing for long with the ministries concerned for what it calls ‘the timely outflow of left-over sugar stock’ and was successful in the last fiscal year in persuading the government to allow more exports.

Pakistan’s sugar industry has witnessed surplus production for the third consecutive year. In 2012-13, sugar exports were revised to 1.1 million tonnes from the previous estimates of one million tonnes which left behind reserve stock of around 0.6 million tonnes.

The PSMA argues that the production in 2013-14 will be in excess of six million tonnes and since its home consumption cannot go beyond 4.5-4.8 million tonnes, a surplus of over 1.5 million tonnes is available for export.

So, what the millowners want is that they should be allowed to export at least one million tonnes of sugar.

Their request is based on the narrative, which the ECC has refused to currently entertain, that sugar mills were incurring losses by selling the commodity at prices fixed by the government which they claim do not meet the cost of production.

 Hence, under the circumstances, they would not be able to make payments to the growers for cane suppliers which only more exports can enable them to do so.

However, in a letter written to the ministries concerned, the PSMA has suggested some improvements in the existing sugar export policy for what it calls long-term positive results.

The export policy, it says, should not be time-bound so that the industry could plan its future investments accordingly. Export incentives were given for sugar export in 2012-13 and these should be continued in 2013-14 as well.

Besides, the government should allow export of sugar to Afghanistan and Central Asian Republics with the federal excise duty rebate, as this region is the export destination from Punjab and KP. Exports to this region are eligible to inland freight subsidy.

Regarding building of buffer stock, the ECC has already in its January meeting allowed Trading Corporation of Pakistan to procure 75,000 tonnes from the sugar mills in the first month and subsequently 50,000 tonnes every month.

But the PSMA wants the TCP to purchase a total quantity of 500,000 tonnes of sugar from the industry. The ministry of industries fears that sugar stocks may not be enough to meet the domestic needs of 4.8 million tonnes.

The PSMA also wants the government to ensure the viability of the industry, claiming it suffers from imbalance of supply and demand. It warns that without disposal of sugar of over 1.5 million tonnes in excess of domestic demand for the current year, the entire industry faces the risk of a financial crisis.

In 2012-13, the sugarcane crop benefited from a larger area under cultivation, and a slight improvement in yields. Fearing floods, farmers preferred sugarcane over cotton and rice.

Major gains were made in Sindh, where area under cultivation recovered from 2011-12, and yields also improved sharply.

Against the target of 59 million tonnes, the overall production reached 62.7 million tonnes — the second highest after 63.9 million tonnes recorded in 2007-08.

Pakistan is the world’s sixth largest producer of sugarcane in terms of acreage, and the 12th largest producer of sugar. The sugar industry is the country’s second largest agro-industry after textiles.

In addition to sugar, sugarcane is used in the production of pharmaceutical ethanol, fuel ethanol and bagasse for paper and chip board manufacturing.

March, 2014

Source:  The DAWN