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Paradoxes
Sugar processing is an industrial activity. Its source of raw material i.e. sugarcane
supply is from agricultural sector. In the event of either shortage or surplus production
in the country sugar becomes a product of foreign trade. No decision has been taken by the
federal government to which ministry sugar industry belongs. Which ministry should look
after functioning of the sugar industry. As a result, sugar industry remains in lurch. It
has to run to relevant domain of each ministry to which its different nature of problems
would fall. This stresses energies, time and resources. This is a distinct dilemma of the
sugar industry which deserves immediate solution.
Likewise, certain policy framework for the sugar industry is designed at the federal level
and the balance at the provincial stage. Sugar is processed in three provinces, viz Sindh,
the Punjab and NWFP. As a result, integrated policy structure is missing or bears loose
ends. This tendency cannot deliver wholesome results. Without removing the imbalances
emerging from such an odd situation, sugar industry will remain as forlorn and be in
jeopardy.
A couple of imbalances of colossal nature tend to be the exceptionally regulated
operational structure governing the sugar industry. Contrary to this fact the industry is
being billed as fully deregulated. Persisting regime of sugarcane support price, tied with
specified sucrose benchmark, without system to ensure such working for sugar has been a
drag placed on the sugar industry. Cost factors to be variable by economic/ accounting
terminology, such as of sugarcane, wages, utilities, transport, taxes and levies, mark-up
are, by and large, effectively fixed and determined by the government. These add up in the
range of 80 - 90 percent of the cost of sugar production. Fixed cost component in real
measure tends to be insignificant in the range of 10-20 percent. An industry placed in
such a tight jacket with end output price checks must have, by rule of thumb, an operating
efficiency exceeding 80/90% of its capacity so as to have benefit of cost economies.
The sugar industry's raw material supplies, rigidly dependent upon the domestic sources,
have held the industry absolutely captive. Achieving economies by efficient capacity
utilization has remained a distant dream, if not at all attainable. At best the capacity
level reached had been 65 percent in the past six years. This has eclipsed the economic
upturn of the sugar industry.
In brief, input costs are designed by rigid regime of ascending scale. Conversely, its
output sugar is subject to inelastic demand within the "free market
environment". Sugarcane is protected by minimum price which always is at cost plus
for the growers. Other costs are almost treated similarly, set to upswing. No such
protection is offered for sugar sales to be at cost plus. As a result, sugar industry gets
crushed by crude mechanism of cost push and price pull.
Cost push arises by minimum price for sugarcane and administrative tariff push for other
components. Sugar price pull emanates from absence of support price protection. Sugar has
a seasonal production of four months, governed by statutory requirement to pay for
sugarcane within a fortnight and for other inputs and services by a month. Conversely to
it, sugar sales remain stretched for a year and more in case of surplus production.
Sugar production on average per month rolls out @ 20/25%, against sales being eight
percent. Each month on average 13/17% of production turns out into inventory. At the end
of four month operational spell, 65/68% of the total sugar output becomes a high tide
inventory, with all of its costs to be paid up by end of the fifth month. Financing of
1.70/2.00 million tons in the event of 25/30 million tons of seasonal sugar production
will need Rs. 34/40 billion. Pulling up such a big fund is well-nigh impossible.
Consequently, the sugar industry is traditionally engaged in desperate sales during the
operating period and drain of which is not feasible to be recouped in the later period.
Sugar production, sales and inventory scene
Month |
Production |
Sales |
Inventory |
Cumulative |
% |
% |
% |
inventory % |
|
| November | 20 |
8.33 |
11.67 |
11.67 |
| December | 20 |
8.33 |
11.67 |
23.34 |
| January | 20 |
8.33 |
11.67 |
35.01 |
| February | 20 |
8.33 |
11.67 |
46.68 |
| March | 20 |
8.33 |
11.67 |
58.35 |
100 |
41.65 |
58.35 |
The sugar industry's paradoxes are, to recall, designed three dimensional. These are: (i) billing sugar industry as deregulated while in reality it is rigidly regulated; (ii) 80/90 percent of sugar production costs are predetermined and are must to be paid within a month while no such predetermined price at cost plus is arranged for sugar by any period specific regulated supplies and (iii) no finances lined up to facilitate holding of piling up sugar stocks during crushing spell. These features grind the sugar industry, by and large, into loss sustaining pursuit. High costs and low revenues characterise the sugar industry's operational spell, perils of which get stretched over its non-operational period of seven/eight months.
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