IN the cane crushing season this year, the industry produced a record, over 7m tonnes of sugar. However, as a result, farmers’ outstanding dues against cane supplies have also skyrocketed to Rs25bn and have created problems for millowners and growers.

The total production, as claimed by the industry in the recent federal Sugar Advisory Board meeting, is a little over 7m tonnes. Add the carry-over of 996,000 tonnes to the figure, and the total national stocks touch a massive 8.039m tonnes.

Taking out 600,000 tonnes for strategic reserves, and, another 400,000 tonnes allowed for the export, the country is left with 1.88m tonnes of surplus stocks.

The situation now demands a fresh look. One of the options is deregulating the cane prices, which may force the crop output to adjust to market realities

These huge stocks have become an excuse for the industry to delay payments to growers. As per farmers’ estimates, and the industry does concede the figure, the total outstanding amount hovers around Rs25bn.

Though no law allows the industry to delay payments of raw material, the industry is doing so citing its own fiscal woes and has stopped the payments.

The industry suggests a solution: the government should subsidise sugar export, as it did last year, to bring parity with international prices and help it clear the surplus stocks and enable it to clear farmers’ dues.

The industry maintains that the government fixes the price of cane and then forces the industry to keep crushing till the proverbial last cane. The resulting surpluses are not a choice but a compulsion.

So, the government must lend a hand to clear stocks. It wants a subsidy of Rs8/kg on exports because international prices have slid from $540 per tonne to $460 per tonne and are declining.

“The government forces the industry on two crucial points: the price of cane and crushing the entire crop regardless of national demand or consumption,” says Javed Kiani, chairman of Pakistan Sugar Mills Association (PSMA).

On top of it is the fixed tax regime, which charges Rs6/kg on the assessable value to registered companies and Rs10/kg to non-registered companies. With everything fixed — from cane price, crushing the entire crop and taxes — the industry has very little margin for maneuvering.

If the government has to decide everything for the industry, it should also get involved in hand-holding and help the industry export 1.2m tonnes of sugar by subsidising the differential between local and international prices, he demands, adding: “Some of the factories have already defaulted and opted out. More may follow if the situation remains the same.”

The farmers, on their part, are demanding their money, regardless of sale of sugar or the official help.

In the last few years, the cane crop area has expanded briskly: Punjab alone now sows on over 2m acres, up from 1.5m acres five years ago. The per acre yield has gone up simultaneously from 550 maunds per acre to 635 maunds per acre in the province. Rahim Yar Khan Division boasts of 800 maunds yield per acre — one reason why factories are shifting to the area and causing legal battles.

The recovery of sucrose now stands just a little under 10pc against 7-8pc till few years ago. In RY Khan, it is close to 12pc. It was due to all these factors that the crushing season in Punjab this year extended well into April — making crushing almost half a year activity, from November to April. The crop is now the best cash option for growers, even better than cotton.

The situation now demands a fresh look. One of the options is deregulating the cane prices, which may force the crop output to adjust to market realities. In fact, the prime minister approved the deregulation of the cane price last year, but the move was not implemented as the farmers opposed the idea.

Published in Dawn, The Business and Finance Weekly, June 26th, 2017