Sugar mills face default, bankruptcy on high production cost

KARACHI: High production cost may force sugar millers to default on bank loans in a latest sign of disparity in cane and sugar prices in the country, taking heavy toll on producers of the sweetener, an industry official said on Friday.
Iskander Khan, chairman of Pakistan Sugar Mills Association said dozens of millers would report heavy losses in the current production year “as they are selling the commodity below their cost of production.”
"Some 20-30 firms may go bankrupt," Khan said. "They are selling sugar at ex-factory price of Rs60/kg against their cost of production at Rs64/kg."
"It is premature to say (the likely) bankruptcy would cause permanent closure of anyone of the mills."
Some 84 mills produced around 5.1 million tons of sugar in the season ended in March 2015.
Khan said millers in Punjab and Khyber Pakhtunkhwa are likely to bankrupt. Besides, the country was having a carryover stock of around 900,000 ton from last year production.
“Millers in Sindh are safe as the provincial government has provided Rs12/40kg subsidy to the mills on purchase of sugarcane from farmers at Rs182/40kg,” Khan said. "The cost of cane in sugar production stands at 80 percent during the season."
He said high cost of production was due to exorbitant prices of cane fixed by the provincial governments. Provincial governments have fixed minimum purchase price at Rs180-182/40kg.
"These are one of the highest cane prices at world across. Accordingly, price of Pakistan's sugar is one of the highest at world," he said
Khan said the government should either de-regulate the cane prices or link the pricing mechanism with recovery of sugar content from the cane. "For years, mill-owners are bound to pay the fixed support price whether recovery from cane comes at seven percent or 12 percent."
He said the government, if it wants to continue with the mechanism of fixing support price of cane every year, should also fix ex-factory price and retail price of the sweetener accordingly. This mechanism would help saving sugar mills from incurring losses. "Either the entire sugar production chain (cane price, ex-factory price, and retail price) should be regulated or de-regulated," Khan said.
Khan said sugar mills should be treated like an industry and should not be politicized in the name of commoner, who consume little amount of the sweetener. "Of the total 4.2 million tonne estimated local consumption per annum, some 70-75 percent sugar is consumed by confectionery industries," he said.
Pakistan Bureau of Statistics reported the country made 10 percent higher export of sugar at 708,968 tons in the fiscal year ended June 30, 2015.