The government has decided to take private sector on board while dealing with another expected sugar crisis in an effort to contain rising sugar price, informed sources told Business Recorder on Wednesday. The decision was taken at a high level meeting at the Finance Ministry convened in the light of Prime Minister Syed Yousuf Raza Gilani's serious concerns over the rising trend in the price of sugar.
The Trading Corporation of Pakistan (TCP) has been directed to revise its import schedule immediately so that the sweetener reaches Pakistan as early as possible. "We have decided to complete white sugar import by April instead of June as was the earlier decision," said one of the top officials who attended the meeting in the Finance Ministry.
The meeting with the private sector, including central and provincial chairmen of Pakistan Sugar Mills Association (PSMA) will be held on Friday (January 7). The sources said the meeting had also decided to raise sugar price to Rs 50 per kilogram at utility stores mainly to minimise difference in the prices of retail market and utility stores.
The meeting also decided to allow import duty-free import of one million tons of sugar (0.5 white+ 05 million tons raw) by the private sector. The sources said the TCP had also requested the government to allow it to import one million tons of white sugar duty-free.
According to official documents, Sugar Advisory Board (SAB), which met on January 4 to reverse the rising sugar price trend failedd to reach any final decision. The PSMA, drew the attention of the meeting to a number of issues and recommendations, including continued smuggling of 'Gur' that had led to a shortage of sugar in the NWFP in particular and the rest of the country in general; the linkage of price of sugarcane to sucrose content; the 'middlemen' reportedly responsible for the high price of sugarcane; and 'Cane Purchase Receipt' to be declared a 'negotiable instrument' to eliminate the middleman.
It was pointed out that due to sugarcane shortage, the mills were running at 40 percent capacity that would lead to low recovery. The association was of the view that total cane crushed during the current season was 967,600 tons and the sugar produced was approximately 0.8 million tons. The indicative price of sugarcane had been notified by Sindh and Punjab as Rs 102 per 40 kilograms and Rs 100 per 40 kilograms respectively, but the average market rate is Rs 140-160 per 40 kilograms.
The Punjab Food Secretary underscored that in some cases, the sugarcane price was said to be above Rs 200 per 40 kilograms (Rajanpur Rs 210 per 40 kilograms). It was also pointed out that after the closure of some mills, the sugarcane price per 40 kilograms fell by as much as Rs 40.
Notification had been issued by Punjab government with 8.5 percent sucrose content as base rate and introducing a premium of Rs 12 per kilogram for every percentage of sucrose above this base rate. Mobile labs are being set up to check sucrose content. In case the low recovery trend continues, Punjab would be short of 0.5 million tons of sugar in the current season. The NWFP Industries Secretary and Industries Director said that due to sugarcane shortage, five out of seven mills were operating. It was stated that there was no hoarding in NWFP.
He said that due to shortfall in production, NWFP would be short by 0.5 million tons. As regards 'Gur,' it was consumed locally in tribal areas and in Balochistan. The Sindh Agriculture Secretary pointed out that the monthly offtake from the sugar mills was abnormally high which was an indication that speculators were hoarding the commodity.
Normally, 60,000 to 65,000 tons of sugar should have been sold, whereas in the last month, 119,000 tons - almost double the required quantity - has been lifted. According to the documents, the Sindh government assured that it would take measures to ensure that this trend is checked in consultation with mills.
The representatives of the Ministry of Food and Agriculture (Minfa), in its presentation, briefed the meeting that approximately 3.4 million tons of sugar would be produced in case 80 percent of the sugarcane crop was crushed. They contended that shortage of 0.8 million to one million to tons of sugar was expected.
The sugar production could be even higher since better variety crops had been sown in 2009-10 as compared to previous years. It was underscored that comparison of daily 'sugar recovery' for 2008-09 and the ongoing season of 2009-10 on the same days were significantly lower for the current season. Such a low recovery rate might lead to lower production of sugar is an intriguing phenomenon.
It was also pointed out that in NWFP only three of the total sugarcane production was in Peshawar valley and the remaining was in DI Khan. As such only 10 percent of sugarcane were used for 'Gur' production in NWFP. The Minfa recommended that the government should subsidise the new variety of seeds for higher sucrose yield varieties for the growers to increase sugar production.
The participants were against capping or introducing a ceiling price on sugarcane even though it was selling at higher than the indicative rates determined by the Minfa and also notified by the provinces. TCP Chairman Saeed Khan explained that the TCP had ordered the import of 0.5 million tons of sugar, which after landing in Pakistan, would cost around Rs 62-63 per kilogram.
He stated that huge orders by India had rendered the international market bullish. He had submitted shipping schedule to the Ministry of Commerce for approval. The price of sugar in the international market was at a high, but the market may be corrected after entry of Brazilian and Chinese sugar by end of February 2010. He proposed that beverages and pharmaceutical sectors might be given concessions on tax to import sugar for their use that would make imported sugar cheaper than domestically produced sugar and ease the situation.
Taxes could be slashed if the sugar reached the country latest by March 31, 2010. He said that the rate of the TCP imported sugar was slightly higher since 80 ICUMSA grading sugar was imported as per the PSQCA specifications while in Pakistan, the sugar produced and consumed was of ICUMSA 100-120. Moreover, the size of bags was not of international specifications, which ruled out the possibility of participation of Brazil or China.
The Utility Stores Corporation (USC) Managing Director said that as per the decision of the Cabinet, the USC had to procure sugar directly from the sugar mills. Accordingly, a tender was floated.
There was no response to the tender dated November 2009. The next tender was opened on December 26, 2009 and the four mills responded but the lowest rate of Rs 64.75 was unacceptable since it was higher than the market price. Therefore, 50,000 tons had to be arranged from the TCP till the USC gets the sugar directly from February onward.
The USC Managing Director suggested that the differential between market and the USC price at any one-time should not be more than Rs 5-10 per kilogram as this would reduce many administrative problems faced by the USC. It was revealed that a summary to this effect had already been moved to the ECC of the Cabinet.
The State Bank of Pakistan (SBP) representative said that the sugar mills were yet to pay up Rs 5.8 million outstanding against 194,000 tons of 2008-09 sugar pledged by the sugar mills. The total loans availed were Rs 52 to 60 billion. He said that as regards the Cane Purchase Receipt, Pakistan Banking Association (PBA) and the PSMA had been asked to determine the features acceptable to both to give 'CPR' status of an acceptable 'Negotiating Instrument'.
The board felt that that it was inappropriate to try to cap the sugarcane price since it would not be in the interests of the growers. The meeting decided that raids and administrative measures to enforce 'price' as seen in the recent past proved counterproductive. Such measures in the past had led to a total disappearance of sugar from the market and 'jacking up' of the price.
The consensus was that the TCP had already tendered 0.5 million tons of sugar which must reach the country by February 2010 while another 0.5 million tons would needed to be positioned inside the country before the end of the crushing season. In addition 0.5 million tons would be imported for maintaining strategic reserves/buffer stocks as already approved by the Cabinet. The USC would be additionally procuring 0.5 million tons of sugar for intervention in the market through its outlets for the low-income groups.