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Govt gives sugar industry Rs7bn export subsidy instead of benefiting consumers

Govt gives sugar industry Rs7bn export subsidy instead of benefiting consumers

ISLAMABAD: Despite pleadings from within the government for diversion of surplus sugar to poor population through utility stores, Finance Minister Ishaq Dar-led Economic Coordination Committee (ECC) of the Cabinet on Monday allowed 500,000 tonnes of sugar export with Rs13 per kg subsidy out of public purse.

This was considered important to support wealthy sugar industry which has seen falling prices because of cheaper rates on the international commodities market and expected surplus production at home following a bumper sugarcane crop.

Not only this, the ECC also decided in principle to deregulate the sugarcane pricing from next year so that “government involvement and provision of subsidy is eliminated as the whole issue arises due to fixing of sugarcane price and difference in prices of sugar by the provincial governments”. The final decision would, however, be taken by the federal cabinet after inviting input from the provincial governments, informed sources said.

Interestingly, the Ministry of Industries and Production, as is its nomenclature generally supports domestic industrial sector, opposed export of such a huge quantity that it believed would go against domestic sugar consumers. It pleaded that the industry should not be allowed to export more than 120,000 tonnes this season that it had not been able to offload last year in the export market.

“Further exports may not be allowed or these may be kept limited to the balance of remaining from 0.65 million tonnes allowed in December 2014,” the ministry of industries pleaded.

In fact, the industries ministry complained that “despite multiple tenders issued by the Utility Stores Corportion (USC), no sugar mill was willing to supply sugar to the USC depriving it of its role as price stabilising agent for the domestic consumers”. It argued that “the exportable surplus be provided to the USC at the international market price and the price differential may be taken up by the federal government,” official record seen by Dawn reveals.

But this was not acceptable to the ECC because this was not to lift the domestic sugar prices currently at around Rs58 per kg in the retail market. Interestingly, the sugar price at USC outlets at present was around Rs64 per kg.

Instead, government accepted the demand of the Pakistan Sugar Mills Association (PSMA) and “the ECC of the Cabinet in its meeting chaired by Finance Minister, Ishaq Dar on Monday accorded approval for export of 500,000 tonnes of sugar in a phased manner till March 31, 2016,” an official announcement said.

In the first phase, 200,000 tonnes will be allowed to be exported up to Dec 31, 2015. By the end of January an accumulative 350,000 tonnes export will be allowed, while the cut of date for the total accumulative volume of 500,000 tonnes will be March 31, 2016. The unutilised quotas for sugar export allowed previously will stand cancelled, the ECC said.

This is expected to immediately boost the sugar price in the domestic market. The ECC also decided that “Rs13 per kg will be allowed as partial support for incidentals and freight for the export of this quantity and only those mills will be allowed to export which have cleared the outstanding dues of the farmers up to last season and have started crushing on full scale”.

Giving a new name to the subsidy, the ECC said the cash support and the inland transportation support will be shared equally by the federal government and the respective provincial governments and disbursed through the State Bank of Pakistan. The export of 500,000 tonnes of sugar export is estimated to involve around Rs7bn at the rate of Rs13 per kg, an official said.

The ECC also decided that the minimum price for the export of sugar to Afghanistan and the central Asian states may be fixed at $450 per tonne. This was done to ensure that export to these countries may not come back home to dent domestic prices, that too, after availing price subsidy.

The meeting ordered continuation of special committee constituted by the prime minister led by Minister for Commerce and comprising Secretaries of Commerce, National Food Security and Industries and Production and Additional Secretary Finance to meet in the first week of every month to review the sugar stock and export situation.

The meeting was informed that the government had allowed 650,000 tonnes of sugar export with Rs10 per kg subsidy but only 542,000 tonnes could be exported despite two month extension in deadline and 40pc regulatory duty on import of raw and beet sugar to support domestic mills.

It was reported that sugar production was expected to be 5.13 million tonnes in 2016 season against estimated annual consumption of 4.8 million tonnes. The industries ministry put the total surplus sugar available for export at 670,000 tonnes against PSMA’s estimates of 1.445 million tonnes.

The PSMA told the government that Punjab and KP had set Rs180 per 40 kg purchase price for sugar and Sindh’s Rs172 per 40 kg was higher than prices worked out by Agriculture Policy Institute of the federal government.

Published in Dawn, December 8th, 2015

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