What was behind fixation of sugarcane price, sugar export?

The newly-appointed Minister for Industries and Production, Hammad Azhar is reportedly going through all the documents of Sugar Advisory Board (SAB) which led to fixation of sugarcane price and sugar export, well informed sources told Business recorder.

The removal of Abdul Razak Dawood as the Prime Minister Advisor on Industries and Production was due to sugar-related decisions including 0. 3 million tons export to China, taken on the advice of the influential Pakistan Sugar Mills Association (PSMA) which according to Minister for Railways, Sheikh Rashid Ahmed also "threatened" him while he was in China.

On March, 28, 2019, Secretary Food Punjab, Shoukat Ali, reminded Secretary Commerce while citing the decision of the ECC held on October 2, 2018, requesting that as sugar prices have increased from Rs 50.50 per kg on December 9, 2018 to Rs 58.60 per kg, sugar stocks, export position and price situation be reviewed through a ECC constituted committee fortnightly. However, his request was not entertained and the committee did not hold regular meetings and allowed increase in prices.

On January 16, 2020, PSMA conveyed in clear terms to the then Advisor to Prime Minister on Industries and Production Abdul Razak Dawood that at Rs 190/40 kg price of sugarcane ex-mill price of sugar at around Rs 72-73 per kg would fetch zero rate of return for the mills.

"With reasonable margin for mills, ex-mill price would be 80/ kg. The reason PSMA cited for increase from the previous estimate of Rs 63/kg as increase in sales tax and price of sugarcane," the sources added.

The MoI&P has calculated cost of one kg of sugar at Rs 55 at the sugarcane price of Rs 191/ 40 kg. However on the basis of sugarcane average rate of Rs 209, sugar price is calculated at Rs 59 per kg.

The Association which used its influence on the MoI&P by using different channels, also argued that consumption in 2020 will go down by 5 per cent due as they had argued due to variety of factors. They further stated that previously allowance for buffer stocks for two months used to be included in the calculations but now it is not because estimates are made till November 30 instead of September 30. Moreover, sugar millers were of the opinion that if estimate for consumption is revised to reflect the true situation closing balance at the end of the crushing year 2019-20 will be more than 0.5 million tons instead of MoI&P estimate of 0.35 million tons.

A high powered Sugar Commission headed by Director General FIA, Wajid Zia recently released its report and the forensic audit will be submitted to the Cabinet on April 25.