Economic Co-ordination Committee (ECC) of the cabinet has reportedly declined to increase the credit line limit of sugar mills meant for expeditious payment to growers, sources close to Secretary Ministry of Industries and Production (MoI&P) told Business Recorder.
"State Bank of Pakistan has neither any role nor any mechanism to direct banks to set loans for the sugar mills' owners. One view was that sugar mills have no difficulty of cash flow, but they want to earn profit on public money," the sources added.
The ECC which met on March 16, 2011 under the chairmanship of Finance Minister Dr Adbul Hafeez Shaikh, was apprised that the local production of sugar up to March 15, 2011 was 3,333,950 MT, whereas old stocks were 16,646 MT. Out of the total, 1,223,971 MT of sugar had been sold and the remaining stocks were 2,126,625 MT.
The Committee was further informed that the TCP-imported sugar stocks were 445,984 MT and as such the total stocks as on March 15, 2011 stood at 2,574,610 MT, which would be sufficient till October 25, 2011 at the rate of 350,000 MT/month.
The private sector has opened letter of credits for import of 187,380 tons of sugar during the current financial year. The sugar retail price in the week ending March 10, 2011 was Rs 66.80/kg and the wholesale sugar price on March 11, 2011 was Rs 63.50 per kg. The international white sugar price has been fluctuating and since March 8, 2011 has fallen by approximately $60 per ton FoB from $706 per ton. At present the sugar situation is quite satisfactory in the country.
It was also stated that Pakistan Sugar Mills Association (PSMA) in a meeting on March 9, 2011 had apprised the Ministry of Finance that they had made payment to the sugarcane growers up to 75 percent of their dues and the credit line of the mills were about to exhaust.
PSMA, therefore, proposed that the government may consider buying 100,000 tons of sugar from the mills through TCP to maintain strategic reserves of sugar. It suggested that the stocks might be kept in the mills' godowns at no additional cost.
The MoI&P informed the ECC that direct purchase of sugar from the domestic market would lead to a price increase especially after increase in sales tax by the federal government.
Keeping in view the government policy of encouraging the role of market in price determination, besides keeping an eye on the affordability of price from the consumers' view and ensuring timely payment to the growers; the MoI&P submitted the following proposals for the consideration of ECC:
(i) State Bank of Pakistan (SBP) be asked to increase the limit of the mills' credit line facility for sugarcane purchase enabling them to make payment to the growers in time; (ii) Utility Stores Corporation (USC) may be enabled financially to purchase sugar from the market if it feels that doing so is a viable option subject to no involvement of subsidies on the part of the government; (iii) purchasing 100,000 tons of sugar from PSMA by TCP and keeping the stocks in the mills' godowns at no additional cost and;(iv) treating the stocks with TCP as strategic reserves for releases in case of need.
However, the ECC observed that the present sugar position is comfortable, as the current stocks are enough till October 2011 or till the onset of a new crushing season.
The ECC also observed that international prices of sugar have come down and sufficient stocks are available in the country and this year increase in production is also expected as compared to the last year. However, there is a need to keep a close watch on market regarding demand, supply and prices of sugar particularly during the month of Ramzan to avoid sugar crisis in the country.
Some participants of the meeting, emphasised that it is not the role of the government to involve itself into any kind of business like purchase and supply of sugar. The other view was that the government intervention was required at appropriate times. In this regard it was suggested that the matter of demand and supply and marketing of sugar be left to the stakeholders, such as general public, private sector, mills owners, importers/exporters etc.
In order to control the problems such as smuggling, hoarding and black-marketing of sugar, better mechanism may be evolved, ensuring the smooth supply of the commodity, sources quoted a few participants as saying.
Deputy Chairman Planning Commission Dr Nadeem-ul-Haq, a top gun of the incumbent economic team, is determined to scrap the role of Trading Corporation of Pakistan (TCP) in commodity operations. However, in case of urea import, his thesis miserably failed when the local fertiliser manufacturers and importers refused to import urea because of subsidy involvement.
Some of the ECC members were of the view that sugar mills have no difficulty of cash flow, but they want to earn profit on public money.
After a detailed discussion, the ECC took the following decision: To keep a close watch on market regarding demand, supply and prices of sugar particularly during the month of Ramzan to avoid smuggling, hoarding and black marketing of the commodity, MoI&P shall monitor the market prices and interest of all stakeholders by evolving a workable mechanism in consultation with provinces, including government of AJ&K and Gilgit-Baltistan. In case of any imminent sugar crisis, the Ministry may submit its report immediately to the ECC, enabling the government to take an appropriate decision.
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