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Sugar industry problems and solution
M.A Siddiqui
For the last three years the sugar industry in Pakistan and specially in Sindh is facing an unprecedented crisis. This crisis has affected the three factors of production, raw material suppliers, employees and owners
equally.
The growers complain of not getting price which they demand, delay in payment, employees are not getting the benefits which they used to get and shareholders equity has eroded and converted into negative.
Liquidity problem being faced by the mills is so acute that in most of the cases, the mills are unable to clear their legal liabilities.The banks are reluctant to advance to the sugar mills in view of the general situation. Why all this happened to an industry working satisfactorily till 3 years back and what are the reasons?
In previous articles on the subject by me, I gave various reasons of this crisis which include higher cost of production due to higher
prices of raw materials, depressed international prices, excessive imports during the year 2000-2001, demand and supply factors and dual policy in fixation of cane price in Sindh and Punjab.
There is no doubt the growers will like to get maximum return from their product. However, it has to be related with the price of finished product.For the last three years the mills have been selling sugar below cost of production due to market situation whereas the government is fixing cane prices without linking with sugar price.
Moreover, there is a difference in cane price of Rs 3 per 40 kgs between Punjab and Sindh making sugar production in Sindh more costly. The mills in Sindh are also required to pay quality premium @ 50 paisas per point one increase from base recovery of 8.70% whereas
such payment is not applicable in Punjab.
The cost of raw materials per ton of sugar in Sindh at 8.70% recovery at Rs 43 per 40 kgs cane price works out to Rs 12,356 whereas in
Punjab it works out to Rs 11,765, making sugar in Sindh costlier by Rs 591 per
ton.
The sugar market in Punjab and Sindh mills have to bear transport and transit expenses but the former fetch lesser price of their product as compared to the Punjab mills.
This is a serious problem and the government of Sindh has to see the logic instead of insisting on establishing its writ.Immediate solution of the problem is; The government of Sindh should fix cane price on the basis of sugar price but in any case not higher than Punjab.The sugar industry at its own should export 500,000 tons of sugar to fill the demand/supply gap and to stabilise market.
The government should consider high rate of sales tax on food items, especially in view that it is resulting in miseries both for the mills and the growers.Long-term measures could also be suggested. However, this is the time when the patient is to be taken out from coma and vitamins could be suggested later on.
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Pakissan.com;
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