The Economic Co-ordination Committee (ECC) of the Cabinet has decided that subsidy of Rs 5 billion on export of 0.5 million tons of sugar will be shared by federal and provincial governments on a 50:50 basis.
Giving the background, the sources in Commerce Ministry told Business Recorder that ECC on December 28, 2016, March 28, 2017 and July 18, 2017 had allowed sugar exports of 0.225 million metric tons (MMT) with April 30, 2017 as deadline, 0.200 MMT with July 31, 2017 as deadline and 0.300 MMT without any deadline subject to a common condition that "in case domestic sugar price stability as compared to December 15, 2016, was not maintained the committee would immediately recommend to the ECC for stoppage or further exports".
On the request of Pakistan Sugar Mills Association (PSMA), a meeting of Sugar Advisory Board (SAB) was held under the chairmanship or Secretary, Ministry of Industries and Production on September 07, 2017. SAB observed that total sugar stocks available in the country were 2.788 MMT as of September 1, 2017.
Keeping a three-month (September 2017 to November, 201 7) buffer stock of 1.275 MMT @ 0.425 MMT/ month, SAB recommended export of 1.5MMT of sugar (2.788MMT - 1.275MMT = 1.513 MMT). It was argued that the price differential between the domestic cost of sugar production (worked out as Rs 52.46/kg by MoIP) and the international price of sugar (taken as USD 376.60 PMT as on 08.09.2017) was RS.10.70/kg, which may form the basis of a subsidy to sugar exporters.
According to sources, in pursuance of SAB''s meeting, a meeting of the inter-ministerial committee was held on September 11, 2017 under the chairmanship of Minister for Commerce. After detailed deliberations, the committee unanimously agreed to allow export of an additional 1.5MMT of sugar in three installments of 0.5MMT each, subject to the following conditions: (i) The committee constituted by the Prime Minister will meet during the first week or every month to review the sugar stock, export and price situation; (ii) in case of any abnormal increase in the domestic price of sugar from the level of September 7, 2017, the committee would recommend to the ECC the stoppage of further exports; (iii) export quota will be approved and monitored by the State Bank of Pakistan (SBP) on first come first serve basis; (iv) exports will be completed within 60 days of quota allocation by the SBP. In case of non-shipment within the period, a non-performance penalty of 15% will be imposed on the respective miller; and (v) once the first tranche of 0.5 MMT is exported Ministry of Commerce may allow the second tranche of 0.5MMT after reviewing the availability and domestic price of sugar. Similar authorization may be made by the Ministry of Commerce for the third tranche of 0.5MMT on export of the second tranche.
The committee further stated that as recommended by SAB, a cash subsidy of Rs 10.70/kg may be given to the sugar millers on export of sugar subject to the condition that the said amount of subsidy will be given on a sliding scale between the international price of US$376/MT (as on September 08, 2017) and $499/MT (the international sugar price which equals with the cost of production as calculated by MoIP), ie, once the price reaches the level of $499/MT in international market State Bank of Pakistan would stop the subsidy. On issuance of any export quota, State Bank of Pakistan shall record the prevalent international price on the date or issuance of quota and calculate the amount of subsidy that the exporter would become eligible to on utilization of export quota.
The committee also recommended that the provision of subsidy will not be available for already utilized sugar export quota from SBP allowed vide ECC''s decision of July 18, 2017. The rest of the unutilized quantity (including quota issued but not executed) out of 300,000 MT shall be considered withdrawn.
It was observed that in previous decisions on subsidy, the burden of subsidy had been shared by the federal and the provincial governments on 50:50 basis. However, the committee observed that during the meeting of the SAB, the representative of the Government of Khyber Pakhtunkhwa was neither in favour of sugar export nor of giving any subsidy on sugar exports.
During ensuing discussion in the ECC Minister for Finance, Ishaq Dar stated that ECC earlier decided that in case of abnormal increase in domestic sugar prices due to export of sugar, Ministry of Commerce will submit a report to the ECC for further order/guidance. However, it was not done despite some increase in domestic sugar price by Rs 5 to Rs 6 kilogram and other measures had to be taken to keep the price stable. He further stated that Ministry of Commerce did not mention in the summary about the financial impact of proposed subsidy for export of 1.5 MMT of sugar.
It was stated that financial impact of proposed subsidy would be around Rs 15 billion which will have to be shared by the federal and provincial governments on 50:50 basis. Minister of Industries and Production was of the view that Sugar Advisory Board (SAB) has no authority to make recommendation for payment of subsidy to the exporters of sugar [as mentioned in the summary], rather it was the domain of Ministry of Commerce to make recommendations for any subsidy.
Secretary, Ministry of National Food Security & Research stated that export quota should be given to those exporters who have cleared outstanding dues of sugarcane growers. Prime Minister endorsed the views of Secretary, Ministry of National Food Security & Research and observed that recommendation for the proposed subsidy to the exporters of sugar is to be recommended by Ministry of Commerce. He argued that export of sugar might increase domestic sugar price, therefore, Ministry of Commerce should keep a close watch on price.
Secretary, Planning, Development & Reform Division opined that since considerable quantity of surplus sugar was available in the country, therefore its benefits should be passed on to the people in terms of reduction in price.
The Prime Minister observed that total sugar stocks available in the country were of 2.788 MMT as of 1st September 2017 and after keeping buffer stock of 1.275 MMT for September 2017, a stock of 1.513 MMT would be available as surplus. He emphasized that domestic sugar price should not be increased at the cost of proposed exports as it will affect ordinary people. He also directed that only those mills may be allowed to export which have cleared outstanding dues of growers.
Minister of Finance, Revenue and Economic Affairs emphasized the fact that the wording used in earlier permissions was developed after a thorough effort by the ECC, therefore, to avoid any misunderstandings the same template may be used by only changing the permitted amount and adding the subsidy clause.
After a detailed discussion, the ECC approved the export of 0.5 million tons sugar( crop year 2016 ) against recommended quantity of 1.5 million tons with the following conditions: (i) a committee already constituted by the Prime Minister will meet during the first week or every month to review sugar stock export and price situation; (ii) in case of any abnormal increase in the domestic price of sugar from the level or 7th September, 2017, the Committee would recommend to the ECC, the stoppage of further exports; (iii) export quota will be approved and monitored by the State Bank or Pakistan (SBP) on first come first serve basis; (iv) only those mills would be allowed to export who have cleared the outstanding dues of farmers relating to last season and have started crushing at full capacity; and (v) exports will be completed within 60 days of quota allocation by the SBP. In case of non-shipment within the period, a non-performance penalty of 15% will be imposed on the respective miller.
The ECC further decided that the provision of subsidy will not be available for already utilized sugar export quota from the SBP that was allowed vide ECC''s decision July 18, 2017. The rest of the unutilized quantity (including quota issued but not executed) out of 300.000MT shall be considered withdrawn and the subsidy will be shared by the federal and the provincial governments on 50:50 basis. The sources said KPK has refused to give its share in subsidy which implies that four KPK-based sugar mills will not be given subsidy for exports.