July 04, 2007	Wednesday	Jamadi-us-Sani 18, 1428

LAHORE, July 3: The sugar industry has urged the government to take a cue from India and defer sales tax on the sweetener for 36 months beginning from July 1, 2007 to help the mills improve their cash flow.

In addition, the industry wants immediate withdrawal of 15 per cent regulatory duty on the sugar export to Afghanistan to allow the millers recapture their share in the Afghan market.

“These two measures are essential for the survival of the industry,” former Pakistan Sugar Mills Association (PSMA-Punjab) chairman Javed Kayani told Dawn on Tuesday. These measures will ease the pressure on the mills and increase their cash flow needed for repayment to banks and farmers, he added.

The ex-mill rate of sugar has already slipped to Rs25-25.50 per kg during the last several months because of the government’s intervention in the market through the Trading Corporation of Pakistan (TCP).

The millers claimed that the government had agreed with them at the commencement of sugar harvest last November that the TCP would not intervene in the market as long as ex-mill price of the sweetener did not cross Rs31 a kg and the retail rate Rs34 a kg.

They said the government breached its agreement as early as March, while the sugar harvest was still on, when it increased the quantity of sweetener sold at subsidised rate of Rs26-27 per kg through the utility stores to 70,000 tons a month from 32,000 tons for providing cheap sugar to the lower income groups.

“That depressed the market and as a result the ex-mill price slid to Rs29-30 per kg. The government also failed to achieve its stated objective because its intervention in the market benefited bulk users like confectioners and beverage makers more than the lower income groups,” Kayani said.

The TCP is currently offloading an average 60,000 tons a month through utility stores at a subsidised rate of Rs25 per kg under the government’s food subsidy programme announced in the current budget on June 9, against the retail price of Rs29-30 a kg in the open market. This further depressed the sweetener’s ex-mill price.

“At present, we are incurring a loss of Rs5-6 per kg,” he said

The mills now have an unsold stocks of around 1.6 million tons and the TCP about 400,000 tons, sufficient for the next six months. The millers say the government intervention in the market through its network of utility stores will make it difficult for them to offload their stocks before the start of next harvest.

“In all probability, we shall have to defer commencement of next crushing to end December or beginning of next year,” says an executive of the PSMA on condition of anonymity.

India, which has a surplus of around 13 million tons this year, has already created a buffer stock of five million tons, deferred excise duty on the sweetener for two years and announced a $35 per ton export subsidy to manage the surplus and help its industry avoid incurring losses.

“On the current stocks of 1.6 million tons with the mills, the government will have to defer sales tax equivalent to only Rs5.76 billion,” Kayani said adding: “But that will give a lot of space to the mills to make payments to the banks and growers.”In Punjab alone, the mills are yet to pay around Rs5 billion to the growers.

The decline in the international molasses market to around $38 per ton from $70 has also wiped out the mills’ advantage to recover their losses from the sale of their by-product.

“With the next harvest also expected to be bumper one, the government must lay out a long-term sugar policy to protect the interests of all stakeholders – mills, growers, banks and consumers,” Kayani suggested. “The interests of all the stakeholders can be protected only by deferring sales tax for three years, removal of regulatory duty on export to Afghanistan to facilitate offloading of unsold stocks, creation of a buffer stock and issuance of ration cards for the lower income and poor consumers using utility stores,” he said.