Despite the fact that 263,908 metric tonnes (MT) of sugar has been imported so far, the prices of the commodity in the local market have not decreased.
A tender for importing 200,000MT of sugar was awarded to a Dubai-based company in May this year out of which a ship carrying 21,000MT of sugar arrived at the Port Qasim, Karachi and 47,700MT is expected to arrive in two ships next week.
Sugar is one of the most important ‘daily use’ items. Pakistan is the fifth largest sugarcane producer of the world, ranks 15th among the refined sugar producers and the third largest user of sugar in Asia. The sugar industry is the second largest agro-based industry, after textiles. There are 84 sugar mills spread in different parts of the country. It is worth mentioning that out of the total, at least 26 mills are owned by politicians, including members of National Assembly, members of parliament and influential feudal lords.
Therefore, federal and provincial governments are unable to take any action against them, whether they produce substandard sugar or increase prices according to their will. Total average sugar consumption is 4.2 million tonnes per annum whereas total production was 3.1 million tonnes.
In the crushing season 2009-10, total sugar production was 3,124,070 tonnes, besides, old stocks of 72,119 tonnes, which cumulatively makes total availability at 3,196,189 tonnes, showing a deficit of 1 to 1.2 million tonnes. To tackle the shortage, the government decided to import 1.2 million tonnes of sugar out of which 0.4 million tonnes has landed in Karachi against the tendered quantity of 725,000 tonnes. About 50,000 tonnes had already been provided to the Utility Stores Corporation (USC), and 50,000 tonnes would be released to USC as Ramzan package.
The market price of sugar has soared to Rs 70 per kilogramme (kg). The price is determined by the traders, commercial importers and especially mill owners who hoard the commodity when it is cheap in the market and create artificial shortage and later sell it at higher prices. They have made cartel like situation and have taken prices as high as Rs 70 per kg. In spite of having 1.8 million tonnes of sugar stocks with the mill owners, the pre-budget price of the commodity was Rs 62 per kg that has increased to Rs 68 to 70 per kg after the budget. During the same period last year, sugar price was raised from Rs 30 to Rs 70 per kg by the millers and hoarders, which were Rs 19 per kg three years ago. The Supreme Court of Pakistan took notice of this situation but its directives were not implemented. The mill owners reap windfall profits of billions of rupees in the form of black money.
Pakistan bought 100,000 tonnes white sugar at $558 a tonne and freight (C&F) in a tender for 200,000 tonnes. The contract has been awarded to a Chinese firm, which offered the lowest bid.
International sugar prices have been sharply down, after the news of better-than-expected production in Brazil and India. As a result, the world sugar production was 156.3 million tonnes in 2009-10 from 151.1 million tonnes last year.
Sugar prices reached at 30-year high, averaged 26.46 cents per pound ($583 per tonne) in January 2010. However, prices started decreasing from February.
At the end of March they went further down and remained about the same till June 15. But the Trading Corporation of Pakistan failed to import sugar in time and as a result Pakistan has to pay extra Rs 15 billion to Rs 20 billion because sugar prices in the international markets rose from $480 to $680. Most of the contracts were awarded to the favourites or on political basis.
The sugar price last month touched as low as $437 per tonne (excluding premium of $80 which is paid on its import) and then again price rose to $503 a tonne with $140 as premium. Justifying the high prices of sugar, manufacturers said the average domestic cost of sugar production, this year, has been around Rs 58 per kg, up from Rs 31 per kg last year, owing to higher sugarcane prices, that averaged around Rs 230 per 40 kg.
Officials estimate that the cost of sugar production is about Rs 48 per kg. They said that cane was sold at an average Rs 190 to 195 per 40 kg, as against the mill owners’ claim of Rs 230 per 40 kg.
However, the difference in the cost of production and selling price comes to Rs 12 per kg. The weighted average landed price of imported sugar comes to about Rs 54 per kg, which is, Rs 4 per kg less than the domestic cost.
When the price of sugar is low in the international market, the sugar mafia demanded the government to impose duties on sugar to discourage its import; but when the price is high, they immediately raise domestic prices saying that prices in international market are high while locally produced sugar has nothing to do with international price of sugar.
It is to be noted that when sugar price in international market was about $800 per ton, sugar was being sold at Rs 60 in the local market and now when it has come down to $500 per ton its local price has gone up to Rs70. The imported refined sugar costs about 40 percent lower price as compared to the local price.
A study of the Competition Commission of Pakistan (CCP) on sugar sector noted that anti-competitive conduct is evident in this sector and the sector is being highly politicised, which has conflicting interest among stakeholders, mill owners, sugarcane growers and the general public.
The CCP study said that the sugar mills have failed to enhance their earnings through production and sale of by-products, as being done globally. The sugar mills are at the mercy of the sugarcane prices, which constitutes to around 80 percent of the price of refined sugar.
However, it seems that the government has lost control over the mill owners and commercial traders. It was the duty of the government to adopt a strategy before hand to overcome the looming sugar crisis.
For delay in import of sugar Minister for Industries and Production Mir Hazaar Khan Bijarani called for an explanation from the TCP Chairman Anjum Bashir. The chairman explained that defective bidding, lower sugar offer against the tenders and financing were the main reasons for delay in import of contracted sugar. It was also observed that TCP had scrapped a number of tenders for procurement of sugar without giving valid reasons; therefore, documents recommended a probe should be initiated in this regard.
Unofficial reports indicate that the TCP chairman made considerable efforts to maintain transparency in the tendering process and resisted against corrupt officials. He is being criticised by the high-powered Economic Coordination Committee members, who are not considering the procedural hurdles responsible for the delay in sugar import.
The TCP chairman is being pressurised by top officials to allow import of white sugar without inviting the bids first. Prime Minister Yousaf Raza Gilani transferred Bashir from the Prime Minister’s Secretariat, where he was working as additional secretary to the TCP chairman. Former TCP chairman Saeed Khan was transferred as additional secretary in charge Statistics Division. Pakistan Sugar Mills Association (PSMA) alleged that the officials of Ministry of Food and Agriculture (MINFA) misled federal minister for food and agriculture, which might result in fresh sugar crisis in the country.
The PM directed MINFA to stop illegal export of raw sugar as per the Supreme Court’s (SC) orders but they failed to implement the order. It is estimated that about 100,000 tonnes of raw sugar is being smuggled to Afghanistan via Peshawar and other parts of the country.
The government has announced a subsidy of Rs 4 billion on the import of sugar and an additional subsidy of Rs 3.5 billion to provide cheap sugar through USC, indicated in budget 2010-11.
PSQCA issues warning letters to sugar mills: High prices are not the only problem and not producing sugar at the prescribed standard is another problem. Recently, Pakistan Standard and Quality Control Authority (PSQCA) issued warnings to all the 84 sugar mills including 46 sugar mills of Punjab and 34 of Sindh, for producing substandard sugar. During the process, it was found that none of them met the formalities for grant of manufacturing. At least 20 sugar mills have filed a petition in Lahore High Court (LHC) with a prayer to suspend the effect and operation of the issued SRO. Now the sugar mafia is making a plan to create an artificial shortage of sugar and raise its price in the month of Ramzan.
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