KARACHI, Jan 16: The bumper sugarcane crop of around 60 million tons for on-going current season is likely to produce about four million tons of white refined sugar which will take the total stocks of the produce in the country to about five million tons.

Contrary to wheat and rice shortages resulting in soaring prices, sugar would be available in abundance because supply will be exceeding the demand which would stay below four million tons.

However, industry sources say this would create its own nature of problem as huge stocks would further depress already lower sugar prices in the domestic market which would result in huge financial losses to the second largest industrial sector of the country.

When the current crushing season began in November last, there were around one million tons of opening stocks of white refined sugar. Of these, about 650,000 tons were with the millers and around 350,000 tons with the state-owned Trading Corporation of Pakistan (TCP).

Consequently, the industry on the one hand is confronting high cost of production, and on the other, plummeting sugar prices owing to imbalance between demand and supply were causing a financial crisis.

The ill-planned import of sugar during 2005-06 when a huge quantity of 1.5 million tons was imported, followed by an additional import of around 0.6 million tons during 2006-07, damaged the local industry, a spokesman for the Pakistan Sugar Mills Association said.

The industry is poised to achieve record four million tons production during the on-going 2007-08 season which would be sufficient to meet the domestic consumption.

It is being anticipated that by the end of this season, the industry would be holding a huge inventory of around one million tons.

It is also being argued that since sugar demand is in-elastic in consumption and stretches over a period of one year, but its production takes place in about four months, piling up stocks at 17 per cent of production rollout per month, adding up to 68 per cent by the end of sugarcane crushing campaign.

As a result of this situation, the industry comes under severe financial constrain and bears significant debt-service.

The PSMA demanded that the government should come forward and rescue the industry by lifting surplus stocks which would also be in line with worldwide practice of creating strategic stocks of food items in the form of buffer stocks.

On the contrary, the industry has complained that the TCP is unloading sugar stocks which is also causing adverse impact on price structure, thereby depressing prices further.

The industry claims that the wholesale prices of sugar presently pitched at the lowest level of Rs22 per kg which include Rs3.15 of sales tax and Rs0.21 federal excise duty, thereby leaving a net revenue of Rs18.64 per kg as against verified cost of production at Rs25.84 per kg, excluding sales tax.

This incurs a loss of Rs7.20 per kg to the industry, they added.

There are strong indications that as the crushing season progresses and sugar stocks keep accumulating, prices would also keep coming under pressure. Therefore, it is being feared by the industry that it would further deepen their financial crisis. The PSMA spokesman also indicated that many mills have already exhausted finances and would shortly be confronting the situation of no funds to pay for sugarcane supplies, and they were bound to bring sugar industry to a grinding halt.

The PSMA (Sindh zone) drew the attention of the Sindh and the federal authorities about the alarming situation that has emerged and urged them for a positive intervention to avert the crisis taking an ugly turn.

It also warned that the sugar industry in Sindh cannot continue its on-going sugarcane crushing owing to fast deteriorating financial position.