LAHORE, Oct 14: The Pakistan Sugar Mills Association has proposed to the government to levy an excise duty of Re0.60/kg on sugar mills on the basis of (domestic) consumption of 3.4 million tons a year to “finance export of surplus sugar stocks to release pressure on its prices in the local market.”

“It’s kind of self-financing of sugar export from the country. If the government agrees to implement this proposal from the next year, we hope that it would generate revenue of about Rs2 billion that is good enough to offset the losses on the export of 500,000 tons of sugar through the Trading Corporation of Pakistan (TCP),” Punjab PSMA chairman Javed Kayani told Dawn here on Tuesday.

He said the PSMA had proposed to the government to export some 100,000 ton sugar this year and another 400,000 tons next year in order to stabilize the prices in the local market which are under pressure for several months. He claimed that the government stood to generate more tax revenue if it agreed to export sugar through the TCP as proposed by the PSMA. “The sugar export would increase the local prices to a reasonable level and the government will be getting an additional sales tax of Re0.54/kg on the local sales,” he said.

“If we manage to export half a million ton sugar by next year, sugar mills should be able to sell their stocks at the break-even price,” he said.

It is relevant to recall that the government turned down every previous proposal offered by the PSMA to somehow export surplus sugar stocks to shore up the prices and steer the industry out of the current crisis.

In Nov 2002, the government had agreed to lift 300,000 tons of the commodity through the TCP for export. “But the TCP has bought only 100,000 tons (of which 19,950 tons sugar is still lying with mills) against the government announcement,” Kayani said.

Later on, the PSMA suggested that the government formed a Sugar Board and imposed levy of Re0.22/kg on mills to finance export on a self-help basis. The proposal was also rejected.

Another suggestion which called for declaring it mandatory for each mill to export 15 per cent of unsold stocks (as on April 30) was also turned down.

“Both proposals have now become infructuous because the stocks situation has drastically changed since,” he said. The PSMA, he said, had unofficially been communicated a government decision that would allow the TCP to lift 300,000 tons of the commodity in next few months to create a buffer stock.

“But the creation of a buffer stock would not help release the pressure on the prices. The surplus stocks have to be sent out of the country to stabilize the market sentiments and rates,” Kayani insisted.

The PSMA says the mills will have about 436,750 tons of unsold sugar on Nov 1 that, just like the past several months, is likely to keep its prices under pressure. The PSMA says a USDA report has forecast sugar output of about 4.030 million ton next year, which means additional surplus stocks of 600,000. “This kind of unsold stock lying with mills is surely going to be a big problem for the industry, putting more pressure on the prices and making the mills unviable,” said Kayani. “We do need to do something about the situation. We can’t start crushing early next month in these circumstances,” he said.

The PSMA claims that the mills are selling sugar at Rs18.25/kg (ex-mill rate) that was far below their production cost. They put the break-even cost (in Punjab) at Rs20-21/kg. The mills in Sindh are said to be doing a bit better in terms of production cost due to a high sugar content recovery rate, and is said to be hovering around Rs20/kg. It may be recalled that ex-mill rate of sugar was quoted at Rs17.25 before the PSMA announced to delay the crushing till as late as Dec 10.

The only way to push up the prices to the break-even level, an official of the PSMA said, is to “rid” the industry of the unsold stocks.