AT a time when there is neither a shortage of sugar in the market nor a major pricing issue, the industry is still suffering from a crisis. It is the crisis of a surplus.

The sugar industry has been producing surplus stock for the last four years. Production reached a new record of 5.33 million tonnes this year. The season started from November 1, 2013 and closed on April 15, 2014.

The commerce ministry had submitted a summary to the Economic Coordination Committee (ECC) of the Cabinet for exporting 0.5 million tonnes of surplus sugar. This was firmed up at a recent meeting of the Sugar Advisory Board which recommended further exporting 0.5 million tonnes, as the country will have 0.8 million tonnes of surplus sugar due to the bumper crop.

Faced with excess stock, sugar millers are demanding that the government not only allow them to export an unrestricted quantity of the commodity, but also restore export subsidies at last year’s level

The crisis stems from the producers’ anxiety to get rid of the excess stock. But they would not do so unless they are provided subsidy on the exportable stock, as was the case last year. Without this subsidy, they say, the export will not be viable for them and they would not be able to clear the dues of cane growers.

The ECC allowed export of 250,000 tonnes of sugar on first come first served basis in April. But as per the notification issued by the ministry on April 3, sugar mills were denied any incentive or subsidy on the export.

The Pakistan Sugar Mills Association (PSMA) justifies the stance of the millers, linking subsidy with payment to growers, by claiming that the industry is facing a financial crunch because it is being allowed to export an insignificant quantity while the commodity produced by it is quite significant. Under the relevant law, mills are bound to continue crushing as long as sugarcane is available.

Another reason cited for the financial stress is that while market rates of sugar continue to remain unchanged for the last couple of years, the price

of sugarcane has increased from Rs80 in 2009 to Rs170 per 40 kg. Hence, they should be allowed a raise in the ex-mill price of sugar from Rs45 to Rs60.

The third reason stated for their predicament is the lowest minimum prices they are getting by selling sugar to the Trading Corporation of Pakistan (TCP), which is then sold at utility stores. This hardly helps them clear payments to growers. It is argued that most sugar mills are at break-even position under existing conditions, and that four or five sugar mills have been sold because of continued losses.

Only unrestricted export of surplus stock, says the PSMA, can provide them the needed relief. In fact, as recently stated by the association’s Punjab chief, all surplus sugar should be allowed to be exported without any intervention by the government.

But sugar is one commodity that is daily consumed by everyone, be they rich or poor. Any tampering of prices or supply can create a near crisis-like situation for the government. Thus, policymakers have adopted a cautious approach.

On May 26, Commerce Minister Khurram Dastgir Khan held a meeting with a PSMA delegation on the question of exporting excess stocks. But both sides failed to reach an agreement after the minister asked the mill owners to submit their cost sheets for a third party evaluation.

The PSMA insists that the government should extend $40 per tonne subsidy for exporting 0.5 million tonnes of sugar, which will bring $300 million. The Indian government, it points out, is providing a subsidy of $54 per metric tonne to their industry, as well as Rs6.6 billion in interest-free loans.

Meanwhile, in a letter written recently to the ministries concerned, the PSMA has suggested some changes in the existing sugar export policy for what it calls achieving long-term positive results. The export policy, it says, should not be time bound so that the industry is able to plan its future investments accordingly.

According to the Pakistan Bureau of Statistics (PBS), sugar exports plunged by 27pc in quantity and 37pc in value in the first 10 months of the current fiscal year; exports stood at 564,960 tonnes ($248m) compared to 778,775 tonnes ($393m) in the same period last fiscal. This export data also included export shipment of over 60,000 tonnes made in July-September 2013-2014.

When the government allowed export of 500,000 tonnes of sugar on September 7, 2013, 400,000 tonnes were exported to various foreign destinations on the same terms and conditions as of last year.

However, in March this year, the government allowed further export of 250,000 tonnes, but took away all the benefits, withdrawing SRO 77 and inland freight subsidy. And exports were further hit by the rupee’s appreciation against the dollar.

By June 15, only 50,000-60,000 tonnes would be exported as per contracts with foreign buyers.

Published in Dawn, June 9th, 2014