Roots of the sugar crisis

Post Source: Economic & Business Review August 24 – 30, 2009

By Ahmad Fraz Khan

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THE sugar crisis is not simply a trade issue created by millers and hoarders as portrayed by many including the federal and provincial governments. Scratch the surface and the issue becomes largely agricultural, which is now being thrown at the door of millers and stockists by the government to hide its own failure to take holistic view of the crop and mishandling of import process.

It is not to suggest that the millers, who have turned out to be hoarders as well, and dealers are not benefiting from the current crisis, making money at the cost of the consumer. But only to emphasise that sugar availability, and the price crisis has its origin in sugarcane farming – drop in acreage and production, payment issue, farmers replacing sugarcane with high-priced crops like rice and ever-increasing sugar demand due to rising population.

The federal and provincial governments seem to be treating it as more of a trade management problem – needing administrative solutions. This way, it would temporarily treat symptoms of problem but leave the disease festering underneath.

The government’s logic is simple; de tach the issue from its origin, take some quick fix administrative measures – raid stocks, seize them, throw them in the market – project it being in total control, declare victory and claim consequent political mileage.

Th administrative crackdown, however, seems to have backfired even in short-term if the declared aim – smoothening of supply and controlling prices – is something to by. The price, which was under Rs45 per kilogramme, went up to Rs54 per kg during the five-day crackdown.

After five days, the federal government not only ended the crackdown, asking the provinces to follow the suite, but included the hike in new sugar price.

The federal government lost on the table in subsequent dialogue with the millers. It conceded Rs48 and Rs49.50 per kg ex-mill price.

The cost of government’s caving in is staggering for common man. He would continue paying exorbitant prices for next four months, if the millers do not find new excuses to continue raising the price, and government falls flat as it did this time. According to some calculations, people may end up paying additional Rs21 billion, as compared to last month’s price.

The government is guilty of failing to take holistic view of the cane crop and value addition. The payment problem to farmers by the same millers is a perennial and well-documented prob lem. All the successive governments have failed to take note of it, and the current government is no exception.

Due to these policies, the cane crop is declining, both in acreage and production. In 2008-09 alone, there was 1.13 million acre drop and 11.4 per cent slide in production as compared to last year. This is the point where the problem originates from and then snowballs into national crisis. Until and unless, the government comes to grip with this issue, the situation would remain precarious.

The situation only worsened by the lack of any valuable cane variety. For years, the farmers and the government agencies have been importing differ ent varieties of cane from world over and multiplying them locally. The multiplication is a decades-long process, given the quantum seed needed for crop – some 100 maunds per acre. Due to the old varieties, non-millable cane is on the rise and millable production on the decline.

Both these issue needs to be solved before the government starts claiming to care for common man and keep sugar part of his daily diet. It is a bit longer route, but only way to solve crisis on permanent basis.

Only after solving the sugarcane supply chain problem, the government would be able to fine tune value-addition line. It also refused to act when the area and production went down substantially, leaving a gap of one million tons in demand and supply.

This gap had to be met through timely import, which did not take place despite the Economic Coordination Committee (ECC) ordering it twice – in March and April. This failure of the government institutions to follow official order is the biggest question mark on the writ of the government.

The millers played both ways; one section of millers writing to government about shortfall and need for import. The other kept telling the government that there was no need for import. The official functionaries failed to order import. This is what has come to haunt everyone now.

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