Apropos a news item 'not so sweet sugar' carried by Business Recorder in its January 30 issue, the Pakistan Sugar Mills Association has clarified: "Ab-initio, intro of the news is not correct, on the basis of which the item is run and converted into comments, in the process distorting the basic norm and character of the former!
"Price of sugarcane, to recall as reminder to BR readers, was raised by Rs 24/40 kgs. from Rs 43/40 kgs. in 2004-05 to Rs 67/40 kgs. by 2006-07 in two seasons, (Rs 60 in 2005-06 and Rs 67 in 2006-07). Similarly, it was followed by increase of Rs 20/40 kgs. in Punjab and NWFP, from Rs 45 and 48 to Rs 60 and Rs 65 respectively in 2005-06 and 2006-07.
This unprecedented 40% price increase in 2005-06 and further 12% in 2006-07, on average 28% a year, distorted semblance of sugarcane-sugar price equation. This pushed national sugar industry into deep financial distress.
"Such a steep increase in sugarcane price was defended on FoB sugar prices in global market soared from US $276/ton in November 2005 to US $355 during December 2005 and further to US $492 during May 2006.
Then, due to domestic shortage of about 400,000 tons, the Government of Pakistan allowed about 1.581 mln tons imports by the Trading Corporation of Pakistan and trade with an assurance of enabling conditions to have them sugar price at cost plus. Volume of imports and assurances were simply baffling.
"Now the world market prices have been bearish and offtake sluggish due to higher production of 165 mln and 170 mln tons, particularly in importing countries and a global surplus at 12 mln plus tons of sugar during 2006-07, 2007-08 each, on the back of carryover surplus, keeping huge stocks afloat.
A logical and economic response to it was to reduce sugarcane price in Pakistan proportionately, as this was raised on shortage and price rise in global circuit. This corrective measure was not taken, since sugarcane price remained a subject of provinces to decide sugar price has been a concern of the federal government. This has left sugar industry in the lurch, to suffer.
"Sugar industry falling victim to policy and price distortions urged the authorities to protect it from perils by economic measures, as administrative remedy was said not to be in place. No change in sugarcane price fixed was considered for reasons other than economic.
In this context, so as to retain sugarcane price as fixed by provinces, a strategy at federal level for picking up surplus, to earmark partly for export and to keep balance as strategic stock for sugar security was designed, after a prolonged discourses between federal government and PSMA. This being a matter of record and more than once having appeared in the media, it is not to be reiterated here.
"In these discussions, at a given price of sugarcane Rs 60/40 kgs," cost of sugar production was assessed at Rs 30/kg, yet no change in sugarcane price was seen feasible. "Your scribe's calculation based on sugarcane price at Rs 60/40 kgs, forming Rs 19 as one component of sugar production per kilogram is fair.
However, his assuming Rs 1,250 as cost of sugarcane processing, other inputs cost, depreciation, general sales tax, incidentals etc is nothing but a fairy tale or a disturbing dream. No person of acumen can think host of manufacturing costs and operating expenses sales tax etc to be Rs 1.25 per kilogram of sugar. This Rs 1.25/kg processing cost etc cannot be even for a roadside cabin crudely crushing sugarcane and making retail sale of sugarcane juice in glass!
"Sales tax at 15% on Rs 19 of sugarcane cost in sugar making will alone add Rs 2.85/kg. As this simple calculation has been ignored what else to think about a number of sugarcane processing inputs. It leads us to conclude that the person has no grasp about costs involved in production, being wages and salaries, depreciation, inputs, repairs and maintenance and operating expenses.
"Financial cost is sizeable in sugar industry for holding sizeable inventory for a long time. Sugar sales have an inelastic demand. Each month on average sales of eight percent against production of 25% leaves inventory pile up by 18% of production rollout. Sugar industry has a seasonal working of four month. At the end of crushing spell, sugar inventory accumulated at 68% of production one can look at debt servicing charge of financing so much inventory.
"The cost working that your scribe has carried is too simplistic to be astute and to make it a substance to blame and accuse a well-organised, the second large-scale manufacturing sub-sector of our economy, is a blunder.
"You may be aware that it is sugar alone which has at present price lowest of the past four years, while prices of all commodities, services etc have soared. Inflationary pressures and tight money policy have hugely added further to sugar processing costs and distribution expenses."