LIKE last year, selling sugarcane remains a huge problem for farmers owing to the Sindh government’s indecisiveness on setting a support price for the crop.

The provincial government is busy persuading sugar millers to agree to a fair price for producers. Meanwhile, Punjab has notified a support price of Rs180 per 40kg.

On the other hand, the Economic Coordination Committee (ECC), in its meeting last Monday, decided to give a subsidy of Rs7bn (Rs13 per kg) to millers to export 500,000 tonnes of sugar. The ECC has reportedly done this to stabilise the domestic market in view of the commodity’s falling prices. It has allowed those millers to export the sweetener who have cleared the outstanding dues of farmers and have started crushing sugarcane on a full scale.

The ECC, in principle, has also decided to deregulate sugarcane pricing from next year so that the subsidy can be eliminated.

Around 31 sugar mills had started crushing sugarcane in Sindh by last Tuesday. Even mills that have not yet started crushing (though most are crushing now) or are not interested in exporting sugar would benefit from a stabilised domestic market.

Factories in Ghotki district are said to be paying Rs180 per 40kg to sugarcane growers as they are closely located to Punjab and keep on buying the crop from the neighbouring districts of Punjab. Sugarcane producers from Khairpur and Sukkur also prefer to sell their crop to these mills instead of those located their own areas.

Sindh Chief Minister Qaim Ali Shah met farmers’ representatives on November 17 and sought time to issue a notification when the growers urged him to fix the support price at Rs185 per 40kg. They said Shah had agreed to it on the grounds that they were seeking a reasonable price.

There is a dire need for linking the unusual subsidy with sugarcane’s minimum support price, its timely payment and the commencement of the crushing season

However, this is still awaited. Meanwhile, the millers, like last year, are hell-bent on getting the price fixed at Rs160 per 40kg.

Growers say factory owners are better off if their profits are actually assessed. Yet, they complain that they are given the benefit of subsidy out of public money without considering their margin of profit or their per-kilogramme cost of sugar production.

“Has the finance minister pondered over what will happen once the government deregulates sugarcane pricing,” asks Mahmood Nawaz Shah, vice-president of the Sindh Abadgar Board (SAB). The government owes an explanation as to why this huge subsidy is allowed for exporters when millers are in no mood to pay a fair price to Sindh’s farmers, he says.

He fears that if sugarcane pricing will be done away with, there will be a cartelisation in the sugar milling industry. The growers may be forced to stop cultivating sugarcane altogether as they can still grow other crops in the same season. “Will the government be comfortable with importing sugar every year,” he asks.

Sindh Chamber of Agriculture’s Nabi Bux Sathio points out that the industry is obsessed with its exceptional profit margins. According to his assessment, the price of sugar until recently was Rs55.3 per kg, considering the fact that 10.5kg of sugar is produced from 100kg of sugarcane. This means that the millers get Rs580 by selling 10.5kg of sugar at Rs55.3 per kg. Had they agreed to pay Rs182 per 40kg to growers last year, they would have paid Rs455 for 2.5 maunds of sugarcane, he says.

He explains that a price of Rs55.3 per kg is on the lower side as sugar was sold for Rs62 per kg. After deducting milling charges of Rs125 per 100kg of sugarcane, the millers saved Rs75, besides earning from sales of multiple by-products of crushing and from the production of energy.

While 31 mills, according to Sindh Cane Commissioner Agha Zaheer, have started crushing, barring Ghotki-based mills, others are paying only Rs155-160 per 40kg to growers. On top of this, sugar factories deduct weight on the basis of approved/unapproved varieties. Farmers say the mills are interested in buying the variety that has the potential for over 10pc sucrose recovery.

Shah argues that there is a dire need for linking the unusual subsidy with sugarcane’s minimum support price, its timely payment and the commencement of the crushing season, whereas the price of sugarcane should be fixed while considering the benchmark recovery of sucrose content in Sindh (8.7pc) and Punjab (8.5pc). It is a fact that the recovery ratio of some mills has gone up to 11pc.

The millers are currently purchasing sugarcane from farmers under different names at the lowest price of Rs155-160 per 40kg to avoid paying the full differential amount if the Sindh government notifies a price of Rs182.

According to reliable calculations, an average size mill crushes 12m maunds of sugarcane in 100 days, or 120,000 maunds in a day. This indicates that around 4.5m maunds of the crop can could be crushed in 30-40 days. If the mills have purchased sugarcane on their own terms or through fake names, the loss for farmers can easily be assessed. They cannot legally claim the differential amount once the price has been officially notified.

Published in Dawn, Business & Finance weekly, December 14th, 2015