LAHORE, June 11: The government’s decision to sell sugar for Rs25 a kg at the utility stores wrecked the market sentiments and slowed down sales when the market reopened on Monday after the announcement of the federal budget for 2007-08 at the weekend, millers and commodity traders said.
“Mills across the province struck fewer deals on Monday than on any day during last week or before because both the wholesalers and bulk buyers like beverage companies and confectioners are hoping the ex-mill prices to further drop owing to the government decision,” an official of the Pakistan Sugar Mills Association (PSMA), who asked not to be identified, told this reporter.
“The mills are selling their stocks for Rs26 a kg against the ex-mill price of Rs31 fixed by the government last year to convince the producers to commence early sugar harvest,” former PSMA-Punjab chairman Javed Kayani told Dawn.
“Commodity traders and bulk consumers of the sweetener have slowed down their purchases following the government decision to slash sugar price by Rs2 per kg at the utility stores from Rs27,” a sugar dealer from Akbari Mandi said.
“The decision has created a kind of sentiment in the market, which will make the ex-mill sugar price to fall further by at least Re1 a kg this week,” he said.
Sugar prices are under pressure in the domestic markets since the start of last harvest due to its import in the second half of last year by the government in large quantities to bring down the retail rates.
The retail price of sugar peaked to Rs43-48 a kg in the first half of 2006 because of the poor sugar cane harvest in the country. The ex- mill price also touched its peak levels of Rs40-42 per kg during the same period.
The millers say the sweetener price had peaked because of short sugar-cane crop during 2005 and the extremely high rates ranging between Rs95 and Rs120 per 40kg at which they bought sugarcane from the farmers.
The government had agreed to fix the ex-mill sugar price at Rs31 a kg and retail price at Rs34 at the start of the last sugar harvest in November 2006 when the millers threatened to delay the crushing beyond December because of the pressure on their prices brought up by the government intervention in the market to hold down the sweetener’s retail rates.
“The government had agreed to fix the ex-mill rate at Rs31 a kg because it had also increased the minimum sugarcane support price by 33 per cent to Rs60 per 40 kg from Rs45 the year before,” insisted the PSMA official.
The government sold its stocks imported through the Trading Corporation of Pakistan (TCP) at an average Rs38-40 per kg at subsidised rates in the market through utility stores for Rs27 a kg to bring down the market by improving supplies.
The millers allege that the government continued to violate its agreement with the sugar industry, which is considered to be politically well-connected, and kept interfering with the market by offloading the imported sweetener through the utility stores. As a result, they claim, the industry never got the ex-mill rate of Rs31 per kg fixed by the government itself.
“From March last onwards, the government almost doubled its supplies to about 60,000 tons a month from 30,000-32,000 tons and also began to sell the stocks even to bulk buyers at the highly subsidised rate, which was Rs4 a kg less than the agreed ex-mill rate of the sweetener. That intervention crashed the market and we were forced to sell our stocks at a loss of Rs2-2.5 a kg for Rs25.5-26,” said Kayani.
He said the industry was not opposed to providing relief to the poor people. But the government has adopted a wrong mechanism for helping the poor. He said the government must directly subsidise either sugarcane growers or sugar manufacturers, as is the norm around the world, if it is interested in reducing the prices.
“The subsidy being offered by the government is not reaching the low-income segments of society the government actually wants to target. It is benefiting the rich, bulk buyers like confectioners and beverage manufacturers, who lift large quantities from the TCP sales centres,” Kayani said.
The PSMA official claimed that the country had sufficient sugar stocks for the next six months. He said around 1.8 million tons of sugar was lying with the industry and another 500,000 tons with the TCP.
“Instead of offloading sugar through utility stores at this time and forcing the industry to accumulate huge losses, the government must create a buffer stock and use it to stabilise the market if and when its ex-mill price increases beyond the agreed rate of Rs31 a kg,” Kayani said.