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September 4, 2020

Proposed Sugar Factories Act 1950 amends jeopardise cane growers interests: PSMA


September 4, 2020

LAHORE: Pakistan Sugar Mills Association (PSMA) Punjab said the interests of the cane growers would be jeopardised if the sugar industry is deprived of its unfettered working and remains prone to the unnecessary interference of the administration as a result of the proposed amendments in the Punjab Sugar Factories Control Act 1950.

The PSMA in a letter to the Punjab food secretary, a copy of which is available with The News stated that proposed draft of amendments in the Punjab Sugar Factories Control Act 1950 (“Sugar Factories Act”) approved by the provincial cabinet and the food department has been further directed to review the relevant legislation for enactment.

The sugar industry, being a major stakeholder, has not been engaged at all, let alone consulted, in the process of making these proposed amendments to the detriment of its business. Most of the sugar mills are public listed companies and their shareholders have made huge investments in the business for a reasonable return on equity. Furthermore, the interests of the shareholders are also compromised as a result of policy shift in various laws, which are promulgated from time to time, being at variance with the incentives given to promote investments in the country.

At the time of Partition, there were only four sugar mills operating in Pakistan and the subject law was enacted for the purposes to promote the sugar industry in the country, to encourage the agriculturists/growers to cultivate sugarcane in the country, and have their interests safeguarded by law.

Subsequently, it resulted in the growth of sugar sector under the policies of the government, which afforded protection to all the stakeholders ie consumers, growers and the sugar industry along with its shareholders. The relevant state functionaries at the time of enactment of the original Sugar Factories Act were aware of the fact that sugar industry works for a limited period of time in a year and the produced sugar caters to the requirements of the consumers for the whole year. The government, in order to ensure payments to the growers and availability of sugar to consumers, was buying the entire stocks of sugar which supported the cash flow and helped in making timely payments to the growers in the stipulated period of time. As a result, the growers were afforded protection for their payment at the support price within 14 days. Similarly, the sugar so purchased was thereafter made available to the consumers at subsidised rates, thereby satisfactorily guarding the interests of all stakeholders until a few decades ago.

However, the government is now following a policy of partial regulation of the industry whereby the support price of the sugarcane is fixed whereas the price of sugar is left at the mercy of the market forces. As a result of policy change, the government is not buying entire stocks of sugar, yet the regulation to make payments to the growers within 14 days remains in force under the Cane Act 1950. This has eroded viability of the sugar mills, especially in the central and northern Punjab where several sugar mills have gone bankrupt.

The letter further said the price of sugarcane constitutes about 80% of the total cost of the refined sugar, which is required to be paid by the sugar mill to the cane grower within 14 days. Such payment within a short span of time is not commercially sustainable for any sugar mill. The changed policy/law by the government adds to the difficulties faced by the sugar mills which ultimately result in delayed payments to the growers and the end result is that the sugar mills and their managements are exposed to large number of cases both civil and criminal every year.

The delays in making payments to the growers occur only in the aftermath of the government’s change of policy to buy the entire sugar stocks to pay to the growers in time, which it had undertaken at the very beginning when Cane Act was promulgated, however on the contrary, the government takes different measures to keep the price of sugar at a lower rate, including the imports and releasing its own stocks in the market, or selling the sugar at subsidised rates, below the market price, at the Utility Stores, which are owned and controlled by the government, and such conduct of the government remains indifferent and discriminatory towards the entire sugar industry, the letter stated.

The PSMA said the partial regulation and its discriminatory nature is further evident from the fact that under Section 16 of the law only the floor price of the sugarcane is notified without any ceiling which means that whenever there is lower production of sugarcane, the growers charge price on the basis of market forces. During the recent crushing season, the growers charged as high as Rs350 per 40kgs, whereas the notified price had been Rs190 per 40kgs. Therefore, the government is not justified in fixing any whimsical price of sugar. While there is excess production of sugarcane, sugar mills remain bound by the law not to buy at a price lower than the support price fixed by the government.

The PSMA stated that the proposed amendments are only being implemented in Punjab and no other province has neither proposed nor introduced any such stringent, harsh and arbitrary amendment to the law, although circumstances for the sugar mills in other provinces are the same as in Punjab, therefore, the proposed amendments are repugnant to the spirit of Article 25 of the Constitution of the Islamic Republic of Pakistan, 1973.

The PSMA said the government instead of addressing the core issue ie deregulating the whole operation relating to sugar sector and leaving it to be determined by the market forces, is still following partial regulation. Consequently, the industry is blamed for the default and repeatedly targeted with additional stringent actions through legislative interference and executive actions, which will not rectify the situation but rather lead to ultimate collapse and annihilation of the sugar industry.

The PSMA stated the provisions relating to criminal prosecution and enhancement of penalties are not only vague but excessive and coercive in nature as well.

The proposed amendments to the law fail to define the actual violations, orders or rules as offence, however; the same had been made liable to punishments. In addition to above, the proposed amendments are more stringent and harsh punishments have been proposed, which are violative to the fundamental rights of the members of PSMA.

The PSMA sought engagement of the industry, being a major stakeholder, in the process of any legislation/proposed amendments. The unilateral decision-making should be eschewed by the government, the letter concluded.

On the other hand, Punjab Food Secretary Asad Gilani said engagement process with the PSMA was continuing while federal minister Hammad Azhar and provincial minister Aleem Khan were holding talks with the sugar industry.

“Range of issues including the reduction in sugar price, fixation of ex-mill sugar rates and others were discussed and the PSMA is on board being a stakeholder,” he added. Further, the government has informed the PSMA to corporate otherwise it will use alternate ways as the government has to look after the citizens interests. However, they did not listen and the government is in the process of amending existing Sugar Factories Act to reform the sugar industry. “We have given all fair chances to the PSMA to calculate the ex-mill price and actual sugar cost but it did not corporate,” he further added.

To a question on amendment alone in Punjab will not affect the overall sugar industry of the country as sugar mills are also operating in Sindh and KP, Gilani said Punjab always initiate reforms so in the case of amendments in the Sugar Factories Act other provinces will follow suit. “We want to protect our farmers and consumers while other provinces will gauge the outcome of the reforms being introduced in Punjab and protection to the sugarcane growers. If Punjab succeeds in protecting the farmers and consumers then other provinces will act accordingly,” he added.