WEB DESK: Sugar industry in the country continues to be under the spotlight for one reason or the other. According to well-informed sources, Pakistan Sugar Mills Association (PSMA) has now sought a three-month extension in the validity of sugar exports with a rebate due to expire on 31st March, 2016 as export of sugar still remains unattractive despite a rebate of Rs.13 per kg. This rebate, it may be recalled, had been approved in the ECC meeting on 7th December, 2015 for export of 0.5 tons of sugar until 31st March, of which contracts of 253,000 tons of sugar has so far been registered with the SBP.
The PSMA has also complained that the SBP was not accepting claims for rebate of Rs.13 per kg against export of sugar but had advised the authorised dealers to hold claims until funds were released by the Ministry of Finance. Besides, the PSM contends that export of sugar was still unattractive despite the rebate and sugar mills would have exported the entire approved quantity of 0.5 million tons within the stipulated period if the international market was lucrative. On the other hand, it is believed that sugar tycoons would be able to pocket undue profits both in the domestic and international markets if they could convince the government to extend the deadline for exporting sugar with the existing subsidy beyond March 31, 2016.
The ECC had allowed a subsidy on export of sugar when its price in the international market was around $ 414 per metric ton. As the price has gone up by 46 to about $ 460 now, sugar industry is likely to earn excessive profits. Defending the sugar industry, the Chairman, PSMA, however, said the government had fixed sugarcane price at Rs.180 per 40 kg which resulted into cost of production of Rs.50 per kg. By adding taxes of Rs.4 and production cost of Rs.8 to Rs.10 of sugar mills, the minimum sugar cost goes up to Rs.62 per kg on the domestic market.
It would seem that the government is in a tight spot and would have to find a way to get out of this complex situation as the deadline of 31st March for the export of sugar with a subsidy draws near. Of course, there are various stakeholders who would vie for a pie to keep themselves in an advantageous position. Sugar mills would greatly benefit if the sugar prices in the international market continue to rise and the present level of subsidy is retained till June, 2016.
It was estimated that the stocks of 3.55 million metric tons of sugar currently available in the country were sufficient for domestic consumption till 30th November, 2016 when the new crop would be ready for harvesting. As such, the availability position of sugar stocks during Ramazan and beyond would remain satisfactory and there will be no harm if a part of stocks is also exported. The interest of consumers was, however, quite different. Prices in the domestic market could escalate from the present level of about Rs.62 per kg due to higher international prices and the extension in the government subsidy and this would be hard for consumers as well as for the government which often takes credit for lowering inflationary pressures in economy.
The government could also see its budgetary position weakened if it offers any subsidy beyond the present deadline. The present situation, in our view, calls for a careful consideration of the relevant factors in order to arrive at a reasonable decision. First of all, there is no justification for not accepting claims being submitted by the sugar industry for a rebate of Rs.13 per kg against the export of sugar when a commitment to this affect has already been made by the government. Obviously, sugar industry would remain cash strapped if rebate was blocked, resulting also in delayed payments to sugarcane growers. Secondly, if the period of rebate is to be extended, the amount of subsidy should be reduced proportionately in accordance with increased prices of sweetener in the international market so as to lessen the burden on the budget and keep the prices of sugar in the domestic market at a reasonable level.
And thirdly, if the government was obliged to fix the sugarcane prices every season under the pressure of agriculture lobby, it should also fix factory prices and retail prices of sugar to allow a fair deal to all the stakeholders. Nonetheless, it would be best for the government to keep itself aloof from the business of price determination and let the market signals decide the allocation of land between various crops. Such a policy would ultimately benefit the economy through optimal utilisation of resources and reduce the burden of subsidy on the budget.
Source: Business Recorder