Friday June 24, 2022

Sugar industry reels under crisis after multiple probes

August 07, 2020

ISLAMABAD: Close to half a dozen state agencies are feverishly busy in investigations to frame and build cases against sugar barons, identified in the sugar commission for causing the scam.

The Federal Investigation Agency (FIA), National Accountability Bureau (NAB), Federal Board of Revenue, Security Exchange Commission of Pakistan and Anti-Corruption Establishment have separately opened probes against the sugar millers. The government referred the relevant portions of the sugar commission findings to them for the purpose.

When the sugar commission inquired into the sugar scam, the commodity was selling at Rs80/kg while it has now touched Rs100/kg with reports of further surge in the coming days.

Informed circles say that the sugar industry is spiraling into a serious crisis as some reputed audit and chartered accountancy firms in a bid to avoid their involvement fearing any implication by any investigative agency are resigning from sugar groups and banks are reluctant to give working capital to an industry in trouble.

Industry experts say the big traders are no longer interested in the commodity trade of sugar. On an annual basis, the sugar mills take bank loans that they consume to purchase cane, pay their utility charges and bear their operational costs.

Every year, the traders purchase sugar but let the commodity remain in the godowns of the mills because they have the large facilities to stock them. As the traders sell sugar, the buyers directly pick up the commodity from the mills. But now the traders are reluctant to come in saying that they do not want to face questions from investigation agencies. The whole value chain has been made topsy-turvy as only prosecutorial lenses are being used as far as the sugar industry is concerned. The mills are hesitant to keep the stocks in their expansive warehouses sold to the traders on the ground that the raiding investigation teams assert that they have hoarded the commodity.

The sugar sector is .5 percent of national GDP. Any negative impact on it affects the rural economy and GDP, an official said.

Experts say that the mills produce sugar in only three months – December, January and February – while the commodity is consumed throughout the year. They see the next season difficult for cane growers and sugar millers at a time when, according to the US Agriculture Department, Pakistan is getting increased cane production of around 10pc this year due to good crop.

They claim that it will be a problematic situation if the sugar millers land in a position for not getting working capital from banks where they could not buy cane from the farmers.

Official estimates show that Pakistan has approximately 450,000 tonnes of monthly sugar consumption. Of this quantity, 30pc sugar is used by the households while 70pc is consumed by beverages, toffees, bakeries, sweets, marquees, wedding halls etc.

Because of COVID-19 pandemic most of these businesses have been shut resulting in less consumption of the sugary items. But in its summary to the Economic Coordination Committee (ECC) of the Cabinet, which became the basis of the decision to import 300,000 tonnes of sugar, the Ministry of Industries and Production said from mid-June till mid-July 2020 the consumption/offtake was 1.041 million tonnes/month as against normal consumption pattern of 442,000 metric tonnes/month. It also showed sugar stocks depleting from 3.365 million metric tonnes on May 11 to just 1.685 million tonnes on July 22.

Officials say if the government overcomes all the procedural requirements including exemption from Public Procurement Regulatory Authority (PPRA) for quick sugar import, the commodity will be available sometime in September.

The Trading Corporation of Pakistan (TCP) has told the government that it can’t import sugar in a hurry because it has to follow the PPRA rules. Confronted by this problem, the government has formed a committee under the finance secretary’s chairmanship to review and recommend the mechanism for early sugar import to overcome the anticipated shortfall.

Experts say it will be a challenge for the government to significantly bring down the sugar price even after import of the commodity because the international prices are currently quite high compared to domestic price. They say the landed cost per kilo will be around Rs80. Then, the government will be required to give subsidy to reduce the price or even maintain it at its current level.