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June 1, 2020

Sugar millers object to findings of Inquiry Commission

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June 1, 2020

ISLAMABAD: The sugar millers have raised objections over findings of the Inquiry Commission and blamed the minimum support price as one of the major cause for creation of distortion into the domestic market.

“The sugar report has failed to comprehend that the sugar sector in Pakistan has a unique regulatory regime whereas the price of production is controlled by the government through fixing of minimum support price of sugarcane, but the price of product is left to be determined by the market forces,” was crux of the detailed 46-page reply submitted by the millers before the Sugar Inquiry Committee that was later on converted into Commission to share their point of view on major findings.

The sugar mill owners blamed the sugarcane growers and argued that it was consistent view of PSMA that the support price was in fact kept artificially high to appease the influential farmers lobby.

Firstly, the governments unduly favour farmers by incorrect and inaccurate estimates keeping estimated input costs high and estimated yields low. Secondly, the profit margin of the growers is kept constantand in fact they are guaranteed a fixed return on the estimated cost whereas the real profit margin for different grower is multiples of this.

On the other hand, the reply said, the price and profit margins of eventual product i.e. sugar moves up and down. This inefficient unfair sugarcane pricing mechanism has been objected to many times by PSMA and sugar mills and is also subject of pending litigations into the superior courts including high courts and Supreme Court of Pakistan. However, the government stubbornly and for extraneous and political reasons insists on following this policy for sugarcane support price. “At this stage, the support price only acts as a floor and farmers exploit mills by charging prices much in excess of support price,” they argued.

In sugar surplus seasons, which periodically occur, the millers said, the sugar mills are constrained to sell sugar at below cost of production. In such times, the governments intervene through measures such as export permission and sugar subsidy to clean excess stocks and make payments to sugar growers. Similar permissions and subsidies have been regularly given by the past by successive governments in sugar and other sectors and there is nothing unique or extraordinary about the one given in 2018-19.

They said the Inquiry Commission also failed to understand another unique aspect of sugar manufacturing sector business in that 100 percent of raw material procurement and production of finished product of sugar is done in a short time in the crushing season usually 90-120 days from November to March. As compared to this, they said, the entire production of sugar cannot be sold during this limited period due to inter alia lack of demand/consumption and is sold usually over the balance of year. “During times of surplus sugar, mills may actually start the next crushing season with carryover stocks as well. Consequently, low or higher prices in any month or few months are not indicative of anything and it is weighted average sale price over the entire year which would be better indicator of any mills profit/loss. Therefore, any estimated ex-mill prices that too of only a few select months are highly misleading.

The millers said there has never been sugar crisis or shortages in the period under consideration by the Committee. “It is also matter of record that ex-mill price of Rs51.64 per kg determined by the Committee for December 2018 was very low on account of glut of sugar in Pakistan, was below cost of production and not viable/sustainable in the long term. Export of sugar was allowed by the ECC based on the assessment of sugar stocks by the relevant ministries and the decision of ECC was ratified by the federal cabinet. There was never any shortage of sugar in the domestic market at any time during the period under review and it was freely available in the retail stores. As supply and demand for sugar equalised due to corrective measures of the government, the ex-mill price returned to more reasonable levels. Therefore, any inferences or assertions to the contrary in the report are not only incorrect and erroneous but also self contradictory.”

The millers said such corrective measures would not be required if the government annually fixed the minimum sugar price in addition to existing practice of fixing only the minimum price of sugarcane or if both sugarcane and sugar prices are deregulated without government interventions as is the case with nearly all other major crops.