Ministry, industry cut 'informal' deal on ex-mill sugar price

Ministry of Industries and Production (MoI&P) and sugar industry are said to have reached an "informal" agreement to fix ex-mill price of sugar at Rs 80 per kg, keeping in view increase in sugarcane price and GST, well informed sources told Business Recorder

Sugar industry sources told Business Recorder that this year the harvest was slower than usual as the farmers held back the crop in order to ask for higher price in Sindh and some parts of Punjab with the situation in Sindh so bad that sugar mills shut down for a week. In Punjab rains also affected the crushing which aggravated the situation.

According to sources, at Rs 190/40 kg price of sugarcane, ex-mill price of sugar of around Rs 73 per kg would fetch zero rate of return for the mills. However, mills maintain that with a reasonable margin it would be Rs 80/ kg as 87 per cent of sugar is fixed by the government which includes fixation of sugarcane price and taxes.

A couple of years ago when the price of sugarcane was Rs 180/40 kg as per calculations of the Punjab government, total cost was calculated at Rs 73.47 per kg. With an increase in sugarcane price to Rs 190/40 kg, and with an increases in GST from 8 per cent to 17 per cent Rs 4 per kg was added to the cost in January 2017, and the price of sugar was Rs 65 per kg when there was a surplus of 2.5 million tons.

The increase in price from the previous estimate of Rs 63 / kg is an increase in sales tax and increase in the price of sugarcane. According to the information shared by the Provincial Cane Commissioners, on January 14, 2020, average ex-mill price of sugar was 68.95 per kg whereas retail price was Rs 75 per kg. However, the price of sugar reached Rs 80 per kg during this week.

Regarding supply-and-demand situation for the crushing year 2019-20 representatives of PSMA argue that they mostly agreed with the estimates of Industries and Production Division but they believed that the figure for estimated consumption for the crushing year 2019-2020 is inflated as according to them consumption will go down by 5 per cent as they had tough time selling sugar due to a variety of factors.

The representatives of Kissan Bachao Tahreek Pakistan (KBTP) in an appeal addressed to Prime Minister, Chief Justice of Pakistan, Chief Minister Punjab, Chairman NAB and Chairman FBR has accused the sugar millers of calculating the price of 100 kg of sugarcane at Rs 512 whereas the price of produced sugar, and by products is estimated at Rs 888 which implies that on every 100 kg sugarcane, mills earn Rs 376. The Association has also claimed that with unjustifiable increase in sugar price each mill is earning Rs 60 or Rs 70 million per day.

Ch Naseer Warraich, one of the representatives of the Association, told Business Recorder that since price of sugar has increased by Rs 25 per kg within two months, the sugarcane price should be fixed at Rs 300 per 40 kg for the remaining crushing season.

The Association has further claimed that sugar stock of Rs 75 billion is lying with the mills under fake names, and requested FBR to conduct an inquiry on this issue. PSMA, in a recent meeting with the Ministry of Industries and Production, conveyed that if estimate for consumption is revised to reflect the true situation closing balance at the end of crushing year 2019-20 will be more than 0.5 million tons instead of MoI&P estimate of 0.35 million tons.

The sources said Ministry of Industries and Production has convened a meeting of Sugar Advisory Board (SAB) on Monday (today) to discuss sugar situation and its increasing price across Pakistan.