Sugar and the 3Gs

The recent sugar inquiry committee report has exposed the intricacies of our sugar industry. It could be inferred from the report that there are four stakeholders in the entire sugar supply chain, starting from growing sugarcane to the final sugar product on the market shelves.

The stakeholders are the growers, the government, the general public and the sugar industry (sugar mill owners), so the whole chain could easily be categorized as the 3Gs (growers, government and general public) and the sugar industry. An interesting observation that comes to mind after reviewing the current report, and reflection on previous episodes of similar nature, is that in every sugar crisis, most of the 3Gs are mostly at a receiving end, while the sugar industry is always at a gain.

To explore this proposition, the sugar cycle needs to be analyzed in two possible scenarios. In scenario one, if surplus sugarcane is produced in the country, sugar mills procure the cane at a minimum possible rate, even ignoring the government’s notified support price on the pretext that it is not viable for them to give notified support price to growers; thus the poor grower bears the brunt of less price.

After procuring sugarcane at a low price, the mills pile up their stocks and subsequently export excess sugar after acquiring subsidy from the government, thus hitting public’s exchequer, hence surplus sugarcane results in loss for both the growers and the government but a gain for sugar mills.

In scenario two, if comparatively less sugarcane is produced in the country, sugar mills purchase sugarcane from growers at the government’s notified support price or a little higher price to build up their stocks. Subsequently, the sugar mills increased the ex-mill (market) price of the sugar on the pretext that they had acquired sugarcane at a higher price, thus hitting the general public hard this time.

On the contrary, the inquiry report suggests that higher support prices were paid to growers only this crushing season (2019-20), whereas the sugar prices had already been up much before the latest crushing season – hence, the logic provided by sugar mills for previous increase in sugar prices lacks substantial evidence.

Nevertheless, in scenario two, the sugar mills somehow increase the sugar prices and are also able to export sugar after securing subsidy from the government, thus causing loss to the public exchequer again. Consequently, less sugarcane in the country results in a loss for the general public and the government – but again ends in a gain for sugar mills.

It is imperative to stress why, in both cases, it is either the grower or the general public and the national exchequer which is always at a loss, while the sugar mills are always at a gain. Why is it that a subsidy worth in billions, if it is really needed, is always offered to sugar mills only and why it cannot be provided to poor sugarcane growers or the general public which is always working hard to make the ends meet?

On the other hand, when other agricultural products like tomatoes or onions are produced in surplus and if it is unviable to export them due to low international prices, the growers are never provided any subsidy. At the same time, every year whether there is a surplus sugarcane or insufficient sugarcane, the sugar mills are destined to get subsidy.

In the backdrop of this, the logical inference that comes to mind is that if a particular industry is consistently in need of support from the government, then either the industry is economically unviable and unsustainable on its own or the dynamics and particularities of the industry need to be looked into and a policy needs to be devised that should be sustainable and profitable for all the stakeholders – a policy to ensure that a particular industry is not run permanently on subsidies.

Another aspect of the sugar industry that needs to be emphasized is that it is not only sugar that is produced from sugarcane, but other byproducts as well namely bagasse, ethanol and press mud. The point here is not that these byproducts should not be encouraged to produce, or that they should be banned, but that these byproducts are made from the same sugarcane the sugar mills acquire from growers. So in that case, the rationale is that the growers should be paid extra support price for their cane because it is not only the sugar that the mills extract from it but other byproducts also. Otherwise, sugar mill owners should not grumble that they can not afford to pay support price to the growers because international sugar prices are low, thus a logical correlation needs to be developed in this aspect as well.

Finally, keeping in view the inquiry report, it is suggested that the government needs to formulate a balanced and robust sugar policy. There needs to be coordination between the federation and the provinces for the purpose of cultivation of sugarcane with regard to local consumption of sugar, international prices and possibility of export.

While devising the policy, an important aspect that needs to be accentuated is that if international sugar prices are not attractive then why is a considerable portion of land being constantly used for growing sugarcane (to produce excess sugar only to export after getting subsidy), whereas, alternatively with the exception of local consumption, the same land could be used for growing substitute crops like cotton, which could yield foreign exchange without any subsidy.

Hence there needs to be coordination between federal and provincial governments for formulation of sugar policy every year (just like the Hajj Policy which is formulated each year), Similarly, if because of a lopsided policy, only sugar mills are getting most of the profits, while the growers are sustaining considerable financial losses or the general public is getting expensive sugar, then it could be construed that there is definitely a problem with the policy.

Therefore, the government needs to make an objective and well-balanced policy through which not only would the sugar industry earn revenues and make profits but the growers would also get the notified support price and the general public would get sugar at a reasonable rate as well. It should be kept in mind that it is not only in recent times that a sugar crisis has surged but that there have been many similar incidents in the past as well. Therefore, an independent and unbiased approach needs to be taken by the government to prevent such a crisis in the future.

The writer is an ex-civil servant and a barrister.

Email: adeelms@hotmail.com