Debate: Growers vs. millers: Can sugar production be increased?
[25th September 2004, Daily Times]

KARACHI: Sugarcane growers and sugar mill owners have long been at loggerheads. Growers complain their payments remain pending and they do not receive premiums for quality. And mill owners complain that crushing needs to be delayed to ensure higher production from the crop. Daily Times’ Arshad Hussain digs into the debate.

Iskender Khan, Chairman, Pakistan Sugarmills Manufacturers Association (PSMA)

Daily Times: Why do sugar mill owners avoid to pay a quality premium and the real cost of sugarcane to grower?

Iskender Khan: There are 78 sugarmills in Pakistan. Out of them 71 are operating, and four are not members of our association. Only five to six members are not paying dues to the farmers on time because of their financial problems. Around 90 percent sugar millers pay dues on time, while only 10 percent are not paying. The cost of sugarcane, which is not being paid on time, crosses billions of rupee and gives the general impression that the entire industry is involved in non-payment.

DT: Why do the sugar mill owners demand of the government to purchase sugar or give rebates? Isn’t this protectionism?

IK: In 2000-01, sugar production was low and traders misguided the government to import sugar from India. There was shortage of 200,000 to 300,000 tons, but the government imported around 800,000 tons. This was low quality sugar, which the Indian government exported to Pakistan by giving rebate to their millers.

After this, there was a bumper crop of sugarcane in 2002-03, which created around 600,000 tons of surplus sugar in the country. The millers cannot afford the surplus sugar because of their stuck-up funds. Therefore, the PSMA demanded a rebate from the government on sugar export or purchase of the surplus sugar, which the government has done this year. Now we will have no demand for rebate this year or in the coming year.

DT: How much production of sugar is expected this year?

IK: As far the federal ministry of food agriculture and livestock is concerned, the production will be around 3.1 million tons in the forthcoming crushing season, however if the government is delays the crushing by 15 days till November 15, production will be increased by 200,000 tons and may touch 3.3 million tons. However, there is nothing to fear since the government’s policy to create a buffer stock will take care of total consumption, which would be 3.7 million tons in 2005 and prices will remain stable.

DT: Why have sugar millers not started crushing on time?

IK: Traditionally, the sugar mills start crushing during October in Sindh, and November in Frontier and Punjab. However, due to the low monsoon rain, especially in Sindh, the sugarcane has not matured yet. If the government forces the start of the crushing in October, then the total production will fall by 300,000 tons to 2.8 million tons.

DT: What strategies you have taken to meet the demand for sugar in 2005?

IK: The government has to import raw sugar next year, which would be converted into refined sugar to meet the demand, if the country faces a shortage of sugar. This would also save domestic consumers from higher prices. The international prices of sugar would be $300 to $400 per ton. The imported cost of sugar would be Rs 30 per kg excluding sales tax.

DT: Will the government set the price of sugarcane this season or will there be a free market mechanism?

IK: We have requested the government to let the market set the price of sugarcane. In case the government fixes sugarcane prices, then the price of sugar should be also fixed as sugarcane comprises 90 percent of the input cost.

Qamaruzzaman Shah, President, Sindh Chamber of Agriculture

Daily Times: Why do growers complain that sugar mill owners do not pay on time?

Qamaruzzaman Shah: There is a total amount of Rs 11 billion owed by the sugar millers in Sindh alone. We do not know the exact figure of the other provinces. There is a quality premium of three years pending of approximately Rs 10 billion, which the sugar millers have not paid. These people hold our money and are earning mark-up on it. Secondly, they hold sugar in the market to increase the retail price and get more profits. But they are not ready to pay growers a premium. The sugar millers had filed a case against the government of Sindh and the growers, but the Sindh High Court had decided the matter in our favour. They have gone to the Appellate Bench of the Supreme Court and are deliberately taking adjournment to prolong the matter. Now the date is fixed for October 10 for the next hearing.

DT: Do you think the government should set the price for sugarcane?

QS: Sugarcane prices should be free in the market this year. The growers may get a better price than last year when the government had fixed Rs 42 per 40 kg. This year, the sugarcane is short in the market only because the growers are sick of sugarmillers. Therefore, they have reduced the cultivation of sugarcane in Sindh and other provinces of the country. The growers are now shifting to sunflower from the sugarcane, as it needs low water.

DT: Why do the sugar mill owners demand of the government to purchase sugar or give rebates? Isn’t this protectionism?

QS: I do not know the exact position of their financial accounts, but they were telling the growers that the surplus sugar was blocking their money. In the last crushing season, they made payments of sugarcane, when the Trading Corporation of Pakistan procured sugar from the millers in August 2003. The millers have not paid Rs 1 billion of the growers.

DT: But what has been done for research and improvement of the quality of cane and beet?

QS: There is no research in the agriculture sector in Pakistan. The sugar industrialists are also working on the same formula, which we are doing for last 25 years. They are not doing any research and are not bringing new varieties. The government of Sindh is not providing any funds for research to the farmers. And then the shortage of water in the province is the main factor responsible for the low yield of sugar. But the owners of the sugar industries have dealt a major dent to the growers by not paying premium for last three years.

DT: Sugarcane production is declining. What needs to be done?

QS: The sugar industry should have more sugar beet cutters. Sugar beet is a four-month crop and it has a better sucrose content. This crop needs low water. In contrast, sugarcane is an 18-month crop and needs a lot of water, which the growers cannot afford. Last year, growers could not sow wheat in Sindh province only because of the late crushing of sugarcane by the sugarmillers. Therefore, we have to import wheat this year.

DT: The sugar mill owners say if crushing is delayed the quality of the cane will improve. Do you agree?

QS: Why should the growers care about the quality when we are not getting the premium for it? We are shareholders with the millers and if they get more sugar, under the law they are supposed to pay a quality premium to the growers. When they start paying the quality premium to them, the growers will start to care about quality.