PSMA seeks extension in deadlines for settling credit lines

LAHORE: The Pakistan Sugar Mills Association (PSMA) has appealed to the State Bank of Pakistan to extend the deadline for settling outstanding credit lines of sugar mills with commercial and Islamic banks until December 31, 2024.

In a statement, a PSMA spokesman noted that the association has written a letter to the governor of the central bank regarding this matter, explaining the current precarious condition of the sugar industry.

The letter states that sugar mills produce a year’s worth of sugar within a short span of three months, while they must make payments to all growers within 15 days of the delivery of sugarcane. It is not feasible for the sugar mills to manage such large payments within three months for an entire year’s production. Commercial and Islamic banks support the sugar industry through seasonal credit lines against pledged stocks, providing working capital to ensure smooth operations and timely payments to sugarcane growers.

The sugar industry had 7.54 million metric tonnes (MMT) of government-verified sugar stocks available after the crushing season of 2023-24, against a domestic consumption of 6 MMT. Since then, the PSMA has been requesting the government to allow the export of approximately 1.5 MMT of surplus sugar to facilitate timely payments to growers and to repay bank loans. However, despite earnest appeals from the sugar industry, only a meagre quantity of 0.15 MMT of the surplus has been permitted for export.

In the current circumstances, it would be impossible for sugar mills to clear approximately Rs200 billion of outstanding credit lines with commercial and Islamic banks by September 30, 2024 unless the industry is allowed to export the surplus sugar. Due to existing stocks, sugar mills may be compelled to delay the start of the crushing season.

The PSMA has requested the State Bank of Pakistan to issue instructions to all banks to extend the deadline to December 31, 2024, to sustain the local sugar industry, which substitutes nearly $4 billion in imports.

The PSMA believes that the government is underestimating the brewing crisis that could erupt at the start of the crushing season due to the enormous surplus sugar stocks. The industry will not be able to commence the crushing season in a timely manner until the present surplus sugar stocks are sold in the market.

Recent developments in Brazil have led to an increase in international sugar prices by about $60 per tonne, reaching $586 per tonne. This presents a crucial opportunity for the government to rectify its earlier mistake of not allowing the export of surplus sugar, potentially avoiding a loss of $600 million in foreign exchange.

Deregulating the industry will alleviate the problems faced by the sugar sector, ultimately benefiting growers and domestic sugar consumers while saving the industry from collapse. Farmers and the country’s economy will significantly benefit, and sugarcane growers will receive better prices for their cane.