The sugar industry has once again started pressing the government to either purchase or allow the export of its surplus stock, estimated at around 700,000 tons as wholesale prices consistently stay below Rs50 per kg.
The latest move from the influential millers comes just after 10 days of the government’s decision to buy 378,000 tons of sugar from the mills in an attempt to provide much-needed liquidity to them.
The demand was made by Javed Kayani, the chairman of the All Pakistan Sugar Mills Association (PSMA), the sugar millers lobby, in a meeting with Finance Minister Abdul Hafeez Shaikh, said officials privy to the development.
However, analysts criticise such favours that on the one hand place an extra burden on the national exchequer and on the other provide financial cushion to the millers.
If the government decides to purchase the entire surplus commodity, it will have to spend at least Rs32 billion based on the rates quoted in the last sugar tender.
Analysts have also criticised the government’s earlier decision of purchasing sugar at Rs46.25 per kg. The government largely buys the commodity for supply to the state-owned Utility Stores Corporation – a nationwide retail chain of thousands of stores – at less than the market price. Currently, prices in the retail market are around the same level at which the commodity has been purchased by the government, which provides a subsidy on sales at Utility Stores, putting a burden on the exchequer.
“PSMA has requested the government to procure more sugar as prices in the retail market have slipped below Rs50 per kg and even the cost of sugarcane purchase cannot be recovered now,” claimed Kayani while talking to The Express Tribune.
He said mills have stocks of 500,000 to 600,000 tons from the last crushing season while estimates show a similar quantity would be in surplus this year too due to a bumper sugarcane crop. Of the expected surplus of 1.2 million tons, the government has already bought 378,000 tons at Rs46.25 per kg.
Kayani said PSMA has asked the government to float another tender to buy the surplus quantity that would also help it in keeping strategic reserves. He said the millers have also sought permission for export of the commodity.
In the current season, sugar production is estimated at 4.8 million tons against average annual consumption of 4.2 million tons. Owing to a bumper crop in Punjab, growers are compelled to sell the crop at rates lower than the official price of Rs150 per 40 kg.
On January 3, the Economic Coordination Committee of the cabinet decided to procure 378,000 tons of sugar at a cost of about Rs17.5 billion. Kayani said the government has not yet paid the Rs17 billion that has caused liquidity crunch as payments would have to be made to the growers.
In 2008, when sugar prices skyrocketed, the millers refused to deliver the booked sugar to the government. Seven mills still owe Rs2 billion to the government.
Countering this, Kayani said the Trading Corporation of Pakistan (TCP) had flaws in its documents that provided an opportunity to the millers to slip away by paying only 25 per cent penalty.
Published in The Express Tribune, January 15th, 2012.