Sugarcane Pricing in Pakistan: Problems and Solutions

Agricultural Prices Commission of Pakistan set up in 1981, was formed to suggest the government on the support price of about half a dozen important crops like wheat, rice, cotton, sugarcane and oilseeds. In this regard the said commission had to focus on about 15 different criteria, including cost of production, export and import parity price, domestic and world demand, supply and stock position at the beginning of crop year, its effect on the raising of other competing crops, especially those which compete for water and land.

Considering the said criteria, working out the cost of production was found to be the most difficult, complicated and controversial, because it differed from province to province, district to district, village to village, farmer to farmer and even field to field of the same farmer.

To discover a scientific and agreeable solution, the commission adopted a random sampling technique followed internationally. The commission, applying this mode, selected about 1,165 farmers from the three cane-growing provinces. After on site visits to these farmers, data on various kinds of expenditures, the farmers incurred in raising the crop was collected. The expenditures included cost of seed, land preparation, fertilizers, irrigation, hoeing, harvesting etc. Then data for each province was compiled and analyzed. Applying this analysis, the cost of production was worked out as it was on farm level, including and excluding land revenue, including and excluding land rent and transport cost from farm to mill gate.

Issues concerning cost of sugar production and others relating to the support price of cane were discussed at the commission’s standing committee on sugarcane. This committee had representation of all stakeholders including growers, mill owners and federal and provincial governments’ representatives. The committee discuss all relevant issues to reach a broad consensus.

Following this exercise, the commission submitted recommendations to the ministry of food and agriculture (MINFAL) which, after obtaining views of other federal and provincial ministries concerned, sent a summary based on technical analysis on the subject to the cabinet

It was assumed that the cabinet would take the recommendations on technical grounds but the cabinet took its decisions, preferring the political considerations which were contrary to the commission’s recommendations. The cabinet fixed the minimum price the farmers of each province should get for their produce containing recovery of 8.5 per cent in the Punjab and the NWFP and 8.7 per cent in Sindh. If recovery at the end of crushing season was found to be higher than these benchmarks by the mills, the farmers would get a ‘quality premium’, the amount of that was announced at the time when minimum support price was declared.

Now the procedure of agri-products pricing has been replaced with a ‘free market system’. The provinces fix the price which sometime creates problems for the federal government, particularly the ministry of food and agriculture to reconcile or solve them. It would be better if instead of taking rather adhoc decisions, the recommendations made by the commission [now named as the Agricultural Policy Institute (API)] are adopted. The government does not seem to be interested in using the API analysis/recommendations. 

It would be better if a detailed report from the API, should form the basis for determining cane prices for the next year. These prices would be on the basis of 8.5 per cent recovery for Punjab and NWFP and 8.7 per cent recovery for the Sindh crop. At the time the “quality premium” should also be announced, but payable by every mill after the crushing season is over and the recovery level is known.  This kind of ‘quality premium’ would be payable after the crushing season at the rate of an increase of 0.1 per cent recovery over the base recovery level. Similarly, there should be discounted “quality premium” if the average recovery of the mill turns out to be less than 8.5 per cent in Punjab and NWFP, and 8.7 per cent in case of Sindh. Such an action would take care of one of the major objections of mills for not starting the crushing season on schedule. The prices should be announced at least 6-8 week prior to the sowing season so that farmers could take decision about their sowing plans in time. 

During 1980s, the ministry of industries used to calculate sugar prices on the basis of cane support price. Dr Mahboob-ul-Haq, the then minister for commerce and industries, passed on this responsibility to the APCom. Until recently, sugar prices are determined by it. 

When sugarcane prices were approved by the cabinet, these were fixed by the ECC presided over by the finance minister. The system was working satisfactorily till such time the so-called ‘free market’ system was adopted under the influence of international financial institutions. This system has created confusion in marketing of sugar/sugarcane, wheat, rice/paddy, cotton, etc. Such decisions should be left to local experts who are equally, if not better, than their foreign counterparts.

Unfortunately, the sugar crisis is continuing. One of the major reported reasons mills take as plea is that they purchased cane at prices ranging from, say Rs60/40 kg to Rs120 or more, and the price of sugar at Rs40 per kg fixed by the court does not cover their cost.

Every mill has a record of cane delivered by every farmer and the price paid to him. At the end of the year, the mill has all the data regarding the cane purchased, and the prices paid to each supplier. It should not be difficult to work out at the end of the year, an average weighted price for the total cane crushed during the entire crushing period of a mill. 
  

All the mills, for example, in Punjab, have a similarly worked out weighted price paid for the purchase of cane (by each of the mill) during the crushing season. This average weighted price of each mill can then be averaged for the whole province. Thus one can have the weighted price of cane for each cane growing province.
This is somewhat a lengthy exercise, but it is the best way to solve this problem facing the courts and the policymakers. On this basis, the production cost of sugar can be determined. However, the differences on factors in working out the cost of sugar can be settled by mutual consultations.

So this exercise would greatly help in reducing intensity of the crisis, if the government can ensure that hoarders deliver sugar to the government, and smuggling is checked.