How to stabilise sugar prices?

By Javed Kayani

THE unprecedented rise in sugar prices has led to a blame game among the stakeholders. If
appropriate policies were pursued, the consumer prices could be stabilised at a certain level
throughout the year.

Sugar producers had warned the federal government about the impending shortages of 1.2
million tons of sugar at the very beginning of the crushing season 2009/10. The sugarcane crop
was short and the industry could only produce 3.1 million tons.

In November, the season commenced and the minimum support price of sugarcane was notified
at Rs100 per 40kg. But the initial buying by mills started at a price of Rs150 per 40kg which
eventually reached more than Rs300 per 40kg due to cane shortage.

The industry ended up paying very high prices for cane resulting in higher cost of production. The
component of cane price in sugar production cost is about 85 per cent.

Responding to international sugar market trends, the sugarcane prices continued to escalate and
reached a 30-year high of $767 fob. Growers wanted a commensurate price for their produce.
The international market remained high in view of the shortages, especially in India and Thailand.

Then the season came to an abrupt end in the first week of March due to inadequate sugarcane
supplies. The Pakistan Sugar Mills Association (PSMA) had urged the government to allow import
of raw sugar during the crushing season for refining but the proposal was brushed aside due to a
misperception that raw sugar import would discourage the industry from procuring cane from
growers.

The perception that raw sugar is the replacement of sugarcane is not correct. The industry cannot
operate without sugarcane because it is a prime source of raw material to produce sugar.
Sugarcane bagasse is used as fuel for burning boilers to produce steam for turbines to generate
electricity, without which no sugar mill can run, as alternative fuels are economically not viable.

The industry can do refining of 10-15 per cent of raw sugar of its daily cane crushing capacity,
taking advantage of the steam and electricity wasted as a result of non-optimal utilisation of the
capacity on account of cane shortage. Raw sugar is cheaper compared to refined white sugar in
the international market and one should avail this opportunity to save foreign exchange and
harness the potential of industry.

In March 2010, the price of sugar plummeted in the international market to $423 which was
almost 55 per cent lower than its peak rates. As a consequence, local market of sugar also
crashed to Rs56-57 a kilo, way below the production cost. In a shortage year, the landed cost of
imported sugar determines the local price.
The industry was constrained to sell it at a lower price for three months to meet its cash flow
requirements but was unable to discharge outstanding liabilities of growers as the sale value
could only partially retrieve cost of the cane. The pledge limits from banks did not suffice in view
of the price increase of cane since the procurement cost had almost doubled.

Contrary to the decision of the Economic Committee of the Cabinet, the Trading Corporation of
Pakistan was neither able to import nor made a business decision to buy from the domestic
industry when the commodity was selling below cost to facilitate payments to growers and
maintain the strategic reserves which could be offloaded from time to time in the open market as
and when the price spiked to ease the supplies. In the meantime, they could continue to import to
build up further stocks as international sugar price remained at the lowest level during that time
for the season. The buying from industry could immediately enable the TCP to control the price
hike.

The commercial and industrial importers also remained active when the international market was
at its lowest. But due to an element of uncertainty created by last year`s intervention in sugar
price, which proved extremely counterproductive, the domestic private sector remained reluctant
to take long term import positions. They were apprehensive and the fear continued to loom. The
shortages resulted in an imbalance of supply and demand; that is why price of sugar continued to
spiral with depleting stocks.

Now the recent floods have inundated about 12 districts in Punjab damaging crops, cattle and
livelihood. The scarcity of food items is inevitable and their prices would remain under constant
inflationary pressure.

About 20 per cent cane crop is estimated to have been devastated and water logging in the fields
is eroding sucrose recovery. The lower sucrose content and reduced availability of cane will
further impact the price of sugar which is going to be a serious cause of concern for the poor
consumers who are already faced with insurmountable problems.

The next crushing season is approaching and it is imperative to take immediate steps to preclude
shortages and ensure availability of sugar at a reasonable rate to the general public. The
government should allow duty free import of 500,000 ton raw sugar to meet the anticipated supply
requirements in view of the flood-inflicted calamity and as a precaution to keep the sugar price
under control and manage the next season well in advance without any chaos.

The writer is Chairman, Pakistan Sugar Mills Association, Punjab

KARACHI: The sugar crisis is going to deepen in coming days because eleven sugar mills
in Sindh have heated up their boilers to start crushing were unable to produce sugar for
want of sugarcane.

The growers have reportedly stopped harvesting in order to get higher price for their produce,
industry sources revealed.

The industry sources complain that the mills, which became operational, were hardly getting 10 to
15 per cent of cane supplies against their respective capacities. Consequently, much needed
relief to consumers won`t be forthcoming if the supplies held back by the growers did not
approve.

There are 31 sugar mills in the province, which normally start crushing from the middle of
November each year. However, looking at the on-going sugar crisis mills started the current
crushing season 15 days earlier.

Pakistan Sugar Mills Association Sindh zone chairman Deoomal A Essarani contacted by Dawn
confirmed that mills were facing difficulty in getting supplies because growers have stopped
harvesting sugarcane and are demanding price much higher than the government-fixed minimum
price of Rs127 per 40kgs.

Sugar prices have already soared to Rs120 to Rs130 per kg in different parts of the country on
short supply and high demand but delay in arrival of sugar from new season will further aggravate
the situation, a leading sugar dealer Shamsul Islam Khan said.

Mr Deoomal said that growers were demanding much higher price for
sugarcane ranging from Rs150 to Rs200 per 40kg against the
government-fixed price of Rs127, which is 25 per cent higher than
last year. Therefore, non-supply of sugarcane to mills by growers was
disrupting crushing season, which has just commenced.
He further said that millers were ready to pay the official price for sugarcane and were striving
hard to narrow the demand and supply gap, which will help to bring down sugar prices and would
benefit consumers across the country.

The PSMA Sindh zone chief said that the industry had approached the Sindh chief secretary and
secretary Agriculture and sought their intervention for sorting out the issue at the earliest.

He said that Sindh government had been asked to convene a joint meeting of growers and sugar
millers to help smooth and early production of sugar so that pressure is eased on prices in the
interest of the consumers.

Presently, the growers are making partial supplies of cane to meet their financial needs and this
practice is hindering smooth production of sugar mills, which are incurring losses on running
boilers without producing sugar.
Responding to a question, he said millers were not holding a single ton of sugar as they
exhausted their stocks of around 260,000 tons of sugar by middle of October. However, Mr
Deoomal said presently, only state-owned TCP is holding stocks of around 350,000 tons, which
are sufficient to meet one month consumption demand in the country.

LAHORE: The Punjab chief minister has accused the federal government of failing to act in
time to check the sugar crisis as the Council of Common Interest (CCI) has decided to
immediately market 350,000 tonnes of sugar stock of the Trading Corporation of Pakistan
(TCP).

“This (price hike) will be the result when there is no control on corruption, plundering of national
resources and prices of electricity and diesel are increased steadily,” Shahbaz Sharif replied
angrily when asked that a federal minister (Babar Awan) had blamed the provincial government
for failing to control prices.

“There are some ‘extra characters’ out to waste time of others while they themselves have no
relation with the problems of the poor. They should search their own souls as their mega
scandals are hitting the headlines daily.”

Talking to the media here on Monday on his return from Islamabad where he attended the CCI
meeting, the Punjab chief minister said he had been writing to the prime minister since Sept
2009, urging the federal authorities to import sugar well in time as Punjab would be facing around
one million ton shortage of the commodity before the next season.

Admitting that devastation of sugarcane crop during recent floods in southern part of the province
was a factor behind the crisis, he said daily raise in oil prices was the major reason behind
inflation.

He told a questioner that had sugar been imported in time, the local per kg price of the commodity
would have not been gone beyond Rs50 to 55.

Regretting that the federal agencies did not implement the decision taken by the federal cabinet
in November 2009 for import of sugar, the chief minister said he had urged the prime minister to
penalise the officials, who failed to act in accordance with the decision to the great disadvantage
of the masses.

He said a federal minister raised the issue in the CCI meeting that controlling prices was the duty
of provinces on which he (Sharif) replied that an effective control required a balance between
supply and demand.

He said on his suggestion, the prime minister decided to market all the sugar stock the TCP was
holding to control the prices for one month as with the start of sugarcane crushing season the
local supplies would stabilise the prices in the coming months.
Taking credit for averting levy of import duty on sugar, he said he had opposed the tax as an anti-
consumers step.

Replying to a question about hike in poultry products’ prices, Sharif said his family owned a
poultry firm and for this reason he did not write to the federal government to exempt the industry
of general sales tax notwithstanding the demand of the Poultry Association.