KARACHI, Aug 4: As the Trading Corporation of Pakistan is set to issue the first tender for the sale of 100,000 tons of sugar (25,000 tons each) from its buffer stock of 470,000 tons to stabilize prices , sugar millers have urged Finance Minister Shaukat Aziz to reconsider the decision.

The millers have forecast a sugar production of 3.4 million tons for 2004-05 (15 per cent less than last crushing season's production) because of drought and reduction in sugarcane crop area. The shortfall is likely to continue in the crushing season of 2005-06.

Pakistan Sugar Mills Association (PSMA) chairman Iskandar M. Khan in a letter to the finance minister on Wednesday said that the government must think about the situation before the corporation released the tender for sugar sale in the local market.

He said the buffer stocks held with the TCP would ensure price stability during 2004-05 "as the mills may not be able to produce even 3.4 million tons in the current fiscal year because of drought and reduction in the sugarcane crop area.

He urged the government to release the buffer stock during the deficit sugar production year to ensue stability in price. It is apprehended that the release of buffer stock at this stage will delay the commencement of crushing season during November 2004.

"The buffer stocks should only be released when the ex-mill sugar price crosses the Rs21 per kg mark. This will ensure adequate buffer stock to meet the sugar crisis on account of drought caused by the below average monsoon rains in the country," he added.

The PSMA chief said that the government should consider the following facts before the TCP released tender for sugar sale in the market. The present ex-mill prices range between Rs18 and Rs19 per kg and the market price at Rs21 per kg is in conformity with the sugarcane support price.

Prior to this, the sugar mills sold their 50 per cent stocks at Rs15-15.75 per kg that was below the cost of sugarcane. The present ex-factory price has no direct impact on inflation as the sugar prices have come down drastically during the last two years.

Internationally, the sugar production is likely to decline. India, one of the largest consumer/producer, is facing a shortfall of 31 per cent - a scenario that is faced by the sugar producing countries world wide. Due to this, the October 2004 FOB price of London sugar closed at $255 per ton whereas the spot price is quoted at $308 per ton, the association added.

Accordingly the imported sugar will cost Rs31 per kg to the consumers as compared to the present price of Rs21 per kg. The international prices are expected to reach $400 per ton levels during 2004-05.

The TCP has procured the white crystal sugar from the sugar mills at different rates during the last sugarcane season. The corporation is planning to issue a tender in the next few days for the sale of 25,000 tons of sugar from the total 470,000 tons of buffer stocks to ensure price stability.

The government has asked the TCP to sell 100,000 tons of sugar in the local market and the corporation intends to sell the required quantity through four tenders of 25,000 tons each. The mills produced more than 4.020m tons of sugar during 2003-04, of which 1.221m tons of sugar were produced by Sindh, 2.599 million tons by Punjab and 176,252 tons by NWFP.