Sugar prices fall globally; Pakistan sugar industry seeks export subsidy again.
The Sindh government has fixed sugarcane price at Rs180 per 40 kilogram for crushing session 2017-18. The sugar factories in the province are directed to pay quality premium to the cane growers at the end of the crushing season 2017-18 at the rate of fifty paisa per 40 kilogram, cane for each 0.1 percent (including fraction thereof to be calculated prorate) of excess sucrose recovery above 8.7 percent determined on over all sucrose recovery basis of each mill.
The sugar industry urged the government to reinstate export subsidies after a steep fall in global sugar prices. Without revenues from exports, local mills will struggle to pay farmers for new supplies. Pakistan last had an export subsidy in 2015-16, set at Rs13, 000 ($124) per ton for exports of 650,000 tons of the sweetener. A similar subsidy level is needed again.
Global prices have fallen over a quarter so far in 2017 to around $378 a ton. The output is expected to climb in key producers like India, China and Thailand. In the world market, prices need to rise by $60 per ton to make exports viable.
Pakistan produced seven million tons of sugar in the 2016-17 marketing year ending September 30, exceeding local demand of around 5 million tons. The sugarcane farmers across Punjab have criticized at the government and the institutions concerned for their failure to save growers from exploitation by the sugar mills owners.
The sugar mills are not paying the price of the sugarcane as per government's announced rate for 2017-18. The sugar mills are buying sugarcane at the rate of Rs110 per mound whereas the official rate is Rs180 per mound.
The mills have appointed middlemen who are buying sugarcane at very low rates and they also do not pay cash and farmers are forced to make repeated visits to get their money. Sugarcane is major cash crop of the country. The sugarcane production was around 81.4 million tons from an area of 1.312 million hectares, in 2016. Farmers have alleged that sugar mills mafia is behind the move.
As per procedure, sugar mills issue buying permits to farmers as per their cultivated land. In Punjab, sugar mills have not issued permits to small farmers and farmers have no option but to sell their crop to a middleman or mill representative at a throwaway price of Rs100-105 per mound.
According to farmers, Punjab government has directed the local Deputy Commissioners and Assistant Commissioners to ensure the provision of permits to small farmers but the local government is helpless in front of powerful sugar mills mafia.
As per latest estimates of United States Department of Agriculture (USDA), Pakistan sugar production for MY 2017/18 is forecast at a record 6.0 MMT, marginally up from the revised 2016/17 estimate, reflecting a forecast increase in sugarcane production.
The estimate of MY 2016/17 sugar production is up 250,000 MT from the previous assessment, and now reflects official data from Pakistan Sugar Mills Association (PSMA). The estimate is based on an 82 percent crushing and 10.16 percent sugar recovery rate. The MY 2015/16 estimate also reflects official data.
Sugar in Pakistan's domestic market continues to be priced well above the international market. Current Lahore wholesale prices are $550 per metric, an estimated 15 percent higher than the international market. Production continues to expand as mills offer predictable prices for cane and, at least in recent years, export subsidies have facilitated exports.
Consumption continues to grow modestly, largely as a result of growing population and a slowly developing domestic food processing sector. MY 2017/18 sugar consumption is projected at 5.0 MMT. Bulk sugar consumers such as bakeries, candy, ice cream, and soft drink manufacturers account for about 60 percent of total sugar demand. With the added protection of 40 percent tariff on imports, high market prices likely discourage a larger increase in consumption.
Increased sugar production in MY 2016/17 is expected to push stocks to 2.7 MMT, resulting in an estimated surplus of 1.7 MMT above a seemingly adequate ending stock level of 1.0 MMT based on recent history.
Stocks during 2017/18 are projected to rise significantly unless higher world prices attract export demand. Pakistan's sugar industry urged the government to reinstate export subsidies after a steep fall in global sugar prices has slowed shipments, adding to a domestic surplus just as the country prepares to harvest a record crop.Without revenues from exports, local mills will struggle to pay farmers for new supplies, while large stockpiles will stop domestic prices from rallying in the world's eighth-largest sugar producer, industry officials said.
Pakistan had an export subsidy in 2015/16, set at 13,000 rupees ($124) per ton for exports of 650,000 tons of the sweetener, and a similar subsidy level is needed again, the industry said. Mills are not able to export sugar at the current international prices. Global prices have fallen over a quarter so far in 2017 to around $378 a tonne as output is expected to climb in key producers like India, China and Thailand. "In the world market, prices need to rise by $60 per ton to make exports viable," a Mumbai-based dealer with a global trading firm quoted as saying.
Sugar cane is a popular crop in Pakistan as the government sets procurement prices, while the industry is protected by a 40 percent import tariff which has led to high domestic prices. The association says the area given over to sugar cane has risen about 30 percent over the past seven years, while output has more than doubled with the help of government subsidies for fertilizers and other aids.
Pakistan produced 7 million tons of sugar in the 2016/17 marketing year ending September 30, exceeding local demand of around 5 million tons. Pakistan controls sugar exports via quotas in an effort to ensure sufficient local supplies. So far this year it has authorized 725,000 tons of shipments, which would make it the world's ninth largest exporter, according to the United States Department of Agriculture.
However, the country has actually exported only about 350,000 tons, traders' estimate, with current stockpiles sitting at about 1 million tons. Mills in Pakistan usually start crushing in October, but this year plan to delay crushing by a few months as they lack the funds to settle bills for cane purchases before the new season.
"Pakistan has no choice but to export surplus sugar," said the Mumbai-based dealer. Sugar Advisory Board (SAB), an inter-provincial body, has recommended export of 1.5 millions of sugar in 2017-18.
The Sindh government stated that 1.8 million tons of sugar be allowed for exports with rebate of Rs18 per kg on 50: 50 per cent sharing ratios by the federal and provincial governments. The representative of the Khyber Pakhtunkhwa government neither supported export of sugar being sugar deficit province nor grant of subsidy on export.
|Printer friendly Cite/link Email Feedback|
|Publication:||Pakistan & Gulf Economist|
|Date:||Jan 14, 2018|
|Previous Article:||The benefits of solar energy and net metering.|
|Next Article:||Palm olein and olive oil spoilt for choice.|