|
Convoluted cane and cotton policy
Syed Shahid Husain
Cotton is grown over three million hectares and production averages between 11 and 12 million bales per annum. Sugar cane is grown over a million hectares of the most fertile land and its annual production averages 50 to 55 million tonnes. Both these major crops appear to be faced with a perpetual crisis situation, most of it man-made.
First the sugar cane. There are reports that the reported failure of the sugar mills to start crushing has led to a deepening crisis for
the growers of sugar cane because they are stuck with their unsold crop besides the land which may not be used in time for the sowing of wheat crop, thereby causing double jeopardy to them.
One of the reasons is a huge unsold stock of sugar (over 400,000 metric tonnes) lying with the sugar mills. Obviously sugar mills
don't want to add to their problem of lack of liquidity by manufacturing more sugar.
For each kg of sugar they produce they add to their losses. They are trying to coerce the government to procure their stocks at the
expense of the taxpayer. Their cost of production being too high for exports and their avarice standing in their way of reducing prices for the domestic market, they want the taxpayer to bail them out.
They are pressing the government either to buy their sugar through TCP or to provide them a huge subsidy for being able to export.
Unless that is done sugar cane will not be crushed, and the growers will grow restless. The latest reports are that the government has submitted to their blackmail.
Sugar cane growers on the other hand would like their crop to be lifted by the mills and would want a prompt payment at the officially designated price of Rs43/40 kgs. Because of the feudal colouration of the government, the federal minister for food and agriculture ordered the mills to start crushing latest by first November.
Such orders are usually given and are conveniently ignored and soon forgotten. The Cane Act of 1950 like many other unimplemented laws has no teeth and will be of no avail. Previous efforts at assuming more power failed. After all, there are laws of economics that refuse to obey orders of ordinary mortals.
Mills have an excess crushing capacity. At no point did the mills crush the entire crop. In 1980-81 they crushed 8.33 million tonnes
and in 1998-99, the amount had increased to 27.7 million tonnes. They would require five months to crush the entire crop, going to the end of March 2004. If that is not done, space for sowing wheat will not have been created. This reflects on poor performance of the mills. They are the legacy of Ziual Haq's era of political bribes to the favoured families at public cost.
The mills base their claim for state subsidy on the misguided government policy of fixing a very high sugar cane support price.
When "we are neither allowed to control our production (of sugar) nor the prices of inputs (sugar cane), we are justified in seeking
government's help in time of crisis. We are not asking for a subsidy. We are just asking, that the government collects money from us on our behalf and export are surplus".
There never was a more blatant twisting of facts. The mills never pay the support price fixed by the government. The support price is a
joke and at best is notional figure meant to give the strong landlord a handle to use his political influence to get that price. But by and
large the mills pay what the market can support, and no more. And the government is left with egg on its face. If the government stopped fixing the meaningless support price, the mills will have no excuse to blackmail it with.
Then there is another concurrent crisis facing another major crop i.e. cotton. Whether we have a surplus or a shortage, we confront a
crisis every year,. Last year we had a crisis as we had a good crop. This year we have a crisis because we expect a bad crop. Last year cotton prices had fallen and government had to intervene by buying a substantial quantity. Soon after his take-over in a 'counter
coup', the Chief of Army Staff had promised in Multan, without realizing the enormity of his statement, that the government would
buy the entire national cotton crop.
However the irony is that the government will not have to buy the crop because the prices are good but then farmers did not have the
crop to sell. Widespread damage has reportedly been caused by pest. The government of Punjab has belatedly woken up to the need and has ordered chemicals to be flown home to combat the menace.
Enter the textile mills. The interest of cotton growers and textile mills is at variance. Growers want higher prices, mills want lower
prices. In view of very high prices for cotton this year mills are demanding that import of cotton should be allowed duty free. At present it is subject to 25 per cent import duty. The loss of duty will be an indirect subsidy to the textile mills. Another option is the use of polyester staple fibre (PSF), a substitute to cotton, and the mills are likely to buy more PSF in case they are not allowed duty-free import of cotton.
Delay to decide on duty relief, which is more than likely, will deepen the crisis for the textile industry which is the mainstay of
our export earnings. Price difference between cotton and PSF is substantial. However, this switch can cause problems to the machinery
and may not be an unmixed opportunity for the mills.
What this all leads to is a focus on poor policy options adopted by the government mostly as a part baggage based on ad hocism. The
government is acting under the mistaken notion that it can fix the laws of economics like those of politics. All it needs to do is order. Unfortunately, the laws of economics including the basic law of demand and supply are as immutable as the law of gravity. They cannot be suspended through a government edict.
What is required is a cool calculated consideration by the government of the entire gamut of issues to arrive at a sensible solution i.e.
to allow the market to determine the allocation of resources to optimize the outcome. Artificial measures at controlling the allocation of resources can cause deep distortions.
If support price is not fixed for sugar cane, the mills will lift the crop at a price depending on the supply of the cane. A lower price
for sugar cane will cause the entire crop to be lifted, and the marginal growers will stop growing resulting in lower acreage next year. That should save enormous amount of water that it costs to produce sugar cane.
Revenue per rupee of inputs specifically an acre-inch of water used gives an income of Rs.368 in sugar cane as against Rs.463 for cotton
and Rs.471 for wheat. Comparative economics of sugar cane and the competing crops at prices realized by the growers do not favour sugar cane production at all. For each rupee of inputs, cotton plus sunflower yields Rs3.04 as against Rs2.97 for sugar cane.
For each day of crop duration the comparative figures for the two crops are Rs63.23 against 43.03. For each acre - inch of irrigation
water cotton plus wheat farmer derives an income of Rs596.36 against Rs353.23 for sugar cane. These are the figures for Punjab. Sindh
figures are just about the same. Why then do the growers not shift? One reason is almost free water for which they do not pay.
On purely economic grounds sugar cane is an uneconomic crop because it is too heavy on water, and causes water logging and salinity. We may not have to adopt devices like threats or bullying or outright payment of ransom, euphemistically known as support price or export bonus, to the mills.
A lower sugar cane crop will mean lower output of sugar and the surplus with the mills will over a time disappear, until such time as
the prices rise to encourage marginal mills to produce. The mills' excess capacity will also disappear through attrition and the most uncompetitive units will close down.
The balance mediated by the laws of demand and supply will have beneficial effects all around on the economy through sensible allocation of resources without burdening the government with ad hoc senseless decisions. As for cotton, government's failure is stark in its primary duty of checking pest attack on the crop. Instead of involving itself in price fixing over which it has no control, its focus of attention should be on extension services and ensuring timely availability of quality inputs.
|
Pakissan.com;
|
