LAHORE, Dec 31: Sugar mills in the Punjab may not be able to make full payments to sugar cane growers from January if the product's prices continued to remain under pressure due to what millers say the "persisting glut."

The 37 mills (one remains closed) in the province that started current crushing season with surplus stocks of 176,855 tons as of Nov 30 have to make an average payment of Rs6 billion every month (during the five-month crushing season) to the growers from whom they are bound to purchase every stick of sugar cane under the law at the minimum support price of Rs40 per 40kg.

The sugar cane cost hikes up to Rs40.45 per maund if 0.45 paisa road cess and 0.20 paisa market committee fee (provincial levies) are also added to it. The millers say they are selling their sugar at Rs16.60 a kilogram (ex-mill rate), which is far below the breakeven price.

"We should be able to sell our sugar at least at Rs19 a kilogram or more at the current rate of sugar cane. Only then we will be able to make full payments to growers," Pakistan Sugar Mills Association (PSMA-Punjab) chairman Javed Kayani told Dawn on Wednesday.

"It's not that we are not paying anything to the growers. It's only that we'd not be able to make full payments when they become due in January because of the unsold sugar stocks. Where shall we pay from?," he asks.

Under the law the mills are bound to pay the growers in 15 days of issuing cane purchase receipt (CPR).

He says the mills could not make full payments to growers even if they pledge their unsold stocks with the banks. "Even by doing so we would manage to make only 75 per cent or so payments to the growers (by the end of crushing in April)."

The industry is in the grip of severe surplus sugar crisis for more than last one year. The sugar production increased from 3.22 million tons in 2001-02 to 3.674 million tons in 2002-03.

This is expected to go up to 3.90 million ton this year. "This means that the industry (across the country) would have surplus sugar to the tune of one million tons at the end of the year, says Mr Kayani.

The surplus sugar stocks in the country are blamed for the low prices in the local market. "The only way to ensure the sustainability of the industry and full payments to the growers lies in procurement of the surpluses by the government till a desirable level of rate is achieved," he says.

Though the federal government has procured 100,000 tons of the commodity through the TCP, it has not helped stabilize the rates. The TCP is also expected to buy another 100,000 tons in January.

The PSMA-Punjab has already suggested to the Punjab government to manage the "commodity surpluses" in the province by procuring the excess production on its own by adopting the Indian model in this regard.

"The Punjab is already doing it in the case of wheat. So what is the harm in extending the commodity support programme to sugar industry?," Mr Kayani wonders.

In India the union government collects Rs20 per 100kg from the mills. The Sugar cane Development Fund is disbursed to the states according to their share to support the commodity, and manage their surpluses. Last year the Indian government collected $130 million under the SDF levy.

The PSMA contends that it is "much easier for the provinces to handle their agricultural surpluses and support commodities" than for the central government. "If Punjab starts this programme, I'm sure that both Sindh and the NWFP would also follow," the PSMA chairman says.

Mr Kayani believes that sugar procured by the Punjab will not only help release the pressure on the prices and stabilize the market, but also cope with possible shortages next year.

"We're expecting farmers to switch to cotton next year because of its higher price this year. Besides, many would also choose to switch to cotton if they do not get the full price of their sugar cane," he says.