November marks the fourth month in a row for the country's sugar exports being at zero, as per the recent data from PBS. We continue to sit on our sizeable surplus with nowhere to put it - approximately 1.1 million tons. However, this has already begun to change, as December should put an end to this four-month dry spell.
Earlier this month, the news made headlines that the ECC has allowed the export of 0.5 million tons of sugar on Rs13 per kilogram subsidy. A first tranche of 0.2 million tons is expected to be exported by December end, while the cut-off date for the total amount will be March 31, 2016.
The problem with the sugar industry in Pakistan is the exorbitant support price on sugarcane. This leaves our mills uncompetitive in the international market and so the country is left with a surplus. Business Recorder reported earlier this month that the PSMA expects over 5.1 million tons to be produced in sugar season 2016, leaving around 6.2 million tons available for the year 2015-16 against the annual domestic consumption of 4.8 million. As a result, there would be around 1.4 million tons surplus sugar in the country in 2015-16.
PSMA Chairman Iskander Khan told BR Research that the cost of production (less sales tax) per kilogram of sugar is around Rs60 in Pakistan - the highest in the world. Meanwhile, the international price of sugar is around Rs45 per kilo.
He said mills in Pakistan are selling sugar at losses, and the export subsidies are needed to get the stock out of the country so that the next crushing season can begin and the farmers can be paid.
At the end of the day, the government ends up subsidizing these mills that are left uncompetitive by its policies. Assuming the subsidy of Rs13 per kilo and a target of 0.5 million tons, thats a burden of Rs6.5 billion on the public kitty!
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