Articles Of Syed Shahid Husain: SUGAR INDUSTRY IN DEATH THROES

One recently read two separate and apparently unconnected stories concerning sugar crisis, one more depressing than the other. In one it was stated that Advisor to Prime Minister on Finance left the Pakistan Sugar Mills Association (PSMA) in limbo by hurrying out of the meeting convened to solve the industry's 'problems' saying that he was in a hurry to leave for Washington to attend an IMF meeting and any decision on sugar import would be taken after his return. The Association had hoped that some concrete measures, a euphemism for larger profits, would be taken to protect (read cuddle) the industry. Because the industry was in trouble "due to bad policy" of the government, the sugar industry was forced to pay heavy cost having to carry huge unsold stocks of 2.1 million tons likely to increase to 2.75 million tons counting government stocks as well.

The Industry is indeed in a crisis but not because of bad policies of the government, (which they certainly are being anti consumer), as it cannot sell sugar, not at the price it wants. Adding to the worries of the PSMA is the prospect of surplus sugar production in neighbouring India. It wants a totally sheltered market sans imports which should be at prohibitive import duty if allowed at all. PSMA is an industry cartel and would like the grower, the consumer and the government and all to be at its service.

The other unrelated story concerning sugar is Sugar Mill in Dadu, which has been closed since 1998 and the livelihood of 1250 employees has been adversely affected. This report from Dadu says that parts of the machinery have since been stolen in connivance with the police.

This is one of the two mills that Sindh Government had established during Mr. Bhutto's Government. As is typical of public holdings, this mill suffers from the ills of mismanagement right from the word go. Cronies who are usually corrupt were appointed as chairmen and directors at abnormally high salaries and whose full time pre-occupation was to make money and help rulers make money. The composition of the Sindh government has usually tilted in favour of landlords. There has always been an unholy alliance between the sugar cane growers and mill management.

It was typical of the mill to buy hugely substandard sugar cane from influential growers at a price, which at times was twice as high as the so-called support price routinely announced by the Government at the start of each season. A decision was taken to privatize the two heavily indebted sugar mills but no progress appears to have been made. Generally incompetent and unqualified people were employed far in excess of requirement thereby imposing unnecessary financial cost. Big loans were extended to farmers, which they never returned. At every step of the way corruption was the order of the day. As for privatization, its track record in this country is dubious at best both in intent and perception.

Industry is in its death throes. These two different stories concerning sugar only represent the deep crisis that afflicts the industry. Any effort to provide sops at the expense of the consumer is doomed. Sugar industry was never viable because of congenital disadvantages. Among other things we have twice as much capacity as the sugar cane can sustain it. Secondly the quality of sugar cane by international standards is very poor. This adds to the cost of production. And yet the industry makes huge profits, obviously by forming a cartel with full support of the government. A sugar mill is an ultimate prize for a politician who wishes to be in the camp of the rulers. Profits were made overnight even before a mill was established because public owned banks granted loans as large as not only to cover the cost of establishing a mill but also to yield hefty profits for next few years.

The government heavily pampers both the growers and the mills. Growers are given a support price, which the market cannot bear. Government has no business to fix a minimum price for sugar cane, particularly when it does not buy any of it. So the minimum price sets a political benchmark below which the grower will not accept. Ultimately it is the market forces that determine the price that a grower gets. Default in payment to the growers is the excuse for fixing a 'high' support price. Mills are routinely shut down deliberately or started few months later only to hurt the grower and to browbeat him into accepting the mill's terms. Brazen facedly the cartel demands acceptance of all its wishes. If the mill is forced to buy at a higher price it usually withholds payment and as a result a large number of growers are owed money to the mills. Because the government includes both the lobbies with conflicting interests, growers as well as mill owners, each tries to influence policy to suit their special interests.

But more than the growers it is the mills that are rapacious in their greed. They want the government to provide them a completely sheltered market where no imports are allowed so that they can create artificial scarcity to jack up prices and make a windfall. This is what the meeting was all about that the Advisor on Finance reportedly left in a huff. They want higher tariffs to discourage imports. As a matter of fact mills do not accept imports even with higher duty. They want imports completely banned. But in this area of free global market, WTO and all, the concept of protection of domestic industry is outdated. When the prices rise beyond a certain level the urban consumers get worried and the government in its pretence to show concern for the common man either belatedly imports some limited quantity of sugar or buys up in the domestic market through Trading Corporation of Pakistan (TCP) when there are unsold stocks with the cartel. But it is the mills that dictate to the government when will the TCP buy or sell. The industry dictates to the Government how much quantity, usually very little, should be brought by TCP into the market? TCP instead of safeguarding the interest of the common man has become a handmaiden of the cartel, for the cartel and by the cartel.

Lest it be forgotten that sugar cane is very heavy on water. Per unit of water yields the lowest return in sugar as compared to other crops. Faced with water scarcity at present and in the coming years it would be in the best interests of the country to phase out sugar cane production and allow the sugar industry to die down its natural death. Die down it will but after imposing extra cost to the taxpayer. The sugar needs of the population could be taken care of through liberal imports at half the price. Consumers need a break too. To quote Martin Luther King: Nothing in all the world is more dangerous than
sincere ignorance and conscientious stupidity." sshusain@hotmail.com

Syed Shahid Husain