SINDH’S sugar cane sector continues to face a crisis-like situation, with millers refusing to accept the government-notified price and growers selling their produce on the cheap.

Primarily, it is the medium and small sized sugar cane growers who are the most vulnerable.

They are forced to sell their produce through the middlemen at prices much lower than the notified rate of Rs182 per 40 kilograms or stopped harvesting crop.

Medium and small cane producers are the most vulnerable to exploitation by middlemen who buy the produce at lower rates for factories

The Sindh High Court put its weight behind growers when it directed millers in December last week to purchase sugar cane at Rs172 per 40kg till further orders and deposit the differential amount of Rs10 per 40kg in the court as security.

On their part, sugar millers say the rate is not viable. They have also yet to receive the payment of Rs10.70 per kg subsidy on exports allowed by the federal government for 500,000 tonnes.

The exports were allowed on Sept 14 by the Economic Coordination Committee (ECC) of the Cabinet, and the subsidy was to be equally shared by the Centre and provinces.

On Nov 28, the committee allowed exports of another 1.5 million tonnes of sugar at the same rate of subsidy, ie Rs10.70 per kg — or Rs16.05 billion on overall exports.

However, Sindh later announced an additional subsidy of Rs9.30 per kg on sugar, under which each mill could export a maximum of 20,000 tonnes.

Moreover, Asim Ghani, chairman of the Pakistan Sugar Mills Association’s Sindh chapter, says the federal excise duty of Rs6 per kg is unfair, as it should be 10 per cent of the production cost under the fixed tax regime, ie Rs4.20 given the current cost of Rs41-42 per kg.

Until Jan 15, the retail price of sugar was Rs53-Rs54 per kg against the wholesale rate of Rs50.20 per kg inclusive of the transportation cost.

Growth of mills

But despite the claims of hardship by sugar millers, the number of mills has increased in recent years. There are 38 sugar mills in Sindh and 45 in Punjab, mostly owned by powerful political families.

The government also tends to take sides with mills. No serious regulatory action has been taken as millers continue to refuse notified prices, which are Rs180 per 40kg in Punjab and Rs182 in Sindh.

Sindh has witnessed both horizontal and vertical growth of sugar factories. In one case, a powerful mill owner is believed to own four sugar mills in Ghotki district, a rich cotton zone.

Another powerful industrial group owns more than 15 factories in lower Sindh. With all the right connections and clout in the government, it dictates terms as government looks the other way.

A couple of years ago two factories were occupied under police patronage. Cops forced farmers to supply sugar cane to the mills owned by the group.

The Sindh government has lately put a moratorium on setting up new sugar factories, according to an official.

As many as 32 mills are operational this year compared to 35 last year.

Given the combined crushing capacity of 204,800 tonnes a day last year (or 30m tonnes during the entire November-March season), Sindh sugar mills crushed 22m tonnes of cane in the 2016-17 season — including supplies from Punjab — compared to 18m tonnes a year ago, which is also the average annual crushing.

Threat to cotton

Veteran growers say growth in mills is an encroachment on the cotton sector which is struggling to survive owing to inadequate prices, declining per-acre yield and a lack of quality seeds.

“Sugar cane is seriously impacting strategic crops such as cotton which helps earn foreign exchange and wheat which ensures food security,” said Sindh Abadgar Board President (SAB) Abdul Majeed Nizamani.

Medium and small cane producers are the most vulnerable to exploitation by middlemen who buy the produce at lower rates for factories. Growers, unable to hold the crop for long as it needs a lot of irrigation water, have to comply.

“The middleman will make cash payment to growers to buy their crop for Rs150 or so per 40kg and sell it for Rs155 to mills. I myself got payment at the rate of Rs130,” SAB vice-president Mahmood Nawaz Shah said.

Weak regulation

Advocate Shahab Usto contends that the Sugar Factories Control Act of 1950 needs to be revisited as it is a weak law. He said growers are at a disadvantage as they have to agree to lower prices. “It has now become a game of subsidy. It’s time we looked into the whole gamut of the sugar industry.”

Ibrahim Mughal, who heads the Pakistan Agri Forum, said there should be no subsidies for the sugar industry. “Let millers close their factories if it is a loss-incurring business for them. We can import sugar for Rs35 per kg while saving our cotton crop.”

A meeting of Sugar Cane Control Board chaired by Sindh agriculture minister on Jan 19 under Sindh High Court’s directive to settle the issue remained inconclusive as millers and growers stuck to their positions. The meeting is now scheduled for Jan 22.

Published in Dawn, The Business and Finance Weekly, January 22nd, 2018