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PSMA refutes allegations




  • The Pakistan Sugar Mills Association (PSMA) refutes the allegations made in the article entitled “Government acting as sugar industry’s marketing board”, published in EBR, Dawn, dated August 17-22, 2004.

    PSMA refutes allegationsThe writer of that article seems to have been drawn by revenge approach due to his inability to contradict the facts presented by the industry. The entire write-up reflects jumbled thoughts.

    The problem of surplus sugar stocks has been there for last four years in succession, which is known to almost all having some information on trends in sugar segment.

    What happens in the event of over-supply of a product as compared to the domestic demand and its absorption capacity is a phenomenon which can be understood only by an individual having the basic knowledge of economics.

    After three years of numerous presentations to the three provincial governments and four federal ministries, the GoP prudently decided procurement of 500,000 tons of sugar.

    It was done in trenches of 100,000 tons each in November and January last, and 300,000 tons during June and July. This step was taken due to two reasons. One, to keep strategic stocks as recommended by the Food and Agriculture Organization (FAO) in the recent past, at a seminar in Pakistan on “food security”.

    PSMA refutes allegationsThe writer of the article under response seems to be unaware of it. For the developing countries it is deemed imperative, to adopt food security system by holding strategic stocks.

    The government of India holds three million tons of sugar as strategic stocks. Secondly, it was aimed at ensuring payments to farmers of their supplies of sugar cane, which were tied with the sugar stocks lying with the mills, due to extremely high inventories.

    The PSMA accordingly proposed in its communication to the GoP not to release sugar from the strategic stocks, as the situation to unload has not yet arrived. Sugar is presently available in surplus, as evidenced by stocks with the industry at 1.443 million tons as on July 31, last. Had the writer known the meaning and significance of the ‘strategic stocks’, he would have restrained from projecting his views and insisting to be right.

    Out of the sugar availability of 4.779 million tons, the TCP’s procurement of 500,000 tons is by no means significant. The main objective of the procurement was aimed at building strategic stocks, so as to have sugar security and simultaneously prevent market sentiments from disruption.

    The PSMA brought this fact in its suggestions to the GoP. The industry has to organize on its own to dispose off the balance 4.279 million tons from the aggregate available volume of sugar.

    No one with an enlightened approach can term, in the light of these facts, ‘the government acting as sugar industry’s marketing board’. Such an attribution can be considered, writing for the sake of self-projection without meaning and substance.

    The sugar industry has agreed to commence next sugar cane crushing campaign from November 2004, as desired by the government. The sugar industry would thus prefer to have its stocks cleared by that time. This preference shall make no surprise to those who understand and are aware of business norms.

    Our write-up in Dawn appeared in EBR dated 19-25 July, 2004 should have brought up the issue, for sensible contributors to media, to a logical end. But, contrary to such ethics and norms, the writer rushed by switch-over to another English newspaper to reiterate his venom against the sugar industry and repeat the same in Dawn EBR now under reference.

    PSMA refutes allegationsNo industry at any place is pampered by any government but, of course, promotes and supports it in the vital national economic interest. Without this, the industrialization can never take place.

    The writer is unaware about how the industrialization process takes place, its socio-economic benefits of the industrial process and as such he has failed to differentiate between pamper and promotion.

    Similarly, he blatantly accused me of playing the role of mercenary, a ghost writer. He does not even cared to know that I am the Chairman of the PSMA, perhaps owing to the frustration caused by our earlier fact-filled response.

    One must understand facts are powerful than figments! The sugar industry holds an impressive record of crushing the entire crop being supplied to it by farmers.

    By the very nature of the crop, a supply to the industry tends to be on average @ 75 per cent of the total crop size. Balance is retained for seed, ratoon, uses in juices, animal fodder, etc.

    Not knowing the nature of the crop and its utilization characteristics, the writer has been adamant on his flimsy stand on the industry, not processing the entire crop.

    The PSMA’s annual reports, fortnightly statements, articles in print media, none has ever reported that the industry was processing 50 per cent of the sugarcane crop. Had it been so it would have made unparallel uproars? How one writing articles can afford to be unaware of this simple information.

    His accusation that the sugar industry’s effective capacity is not being utilized. It is due to the crop size trailing behind and behind all normal estimates. His advocacy for full capacity utilization refers to import of sugar cane to do so! Can anyone reconcile with such an idea.

    PSMA refutes allegationsSimilarly, out of place are his views on expansion of capacity. It was meant to achieve economic run of sugar industry to 150 days defined standard period, instead of stretch over to 200 days plus, as seen in the 11 years from 1986 to 1997, which was a period of capacity extension on vertical growth.

    Then the crop size exceeded normal functioning and statutory requirement to crush the entire sugarcane volume offered to the industry was a driving force for expansion.

    The writer in his fallacy has taken the liberty to object the tender system of procurement of food items and raises the question of opium or heroin purchases by tender system to be legitimate.

    There is no parallel between sugar, a food item, and a legitimate and thoroughly legal trade. It cannot be compared with opium. Illustration opted is not comparable and as such, unacceptable.

    ‘Inelastic’ feature governing sugar demand has been beyond his ability to comprehend. Inelasticity in fact refers to no increase in purchase volume and consumption of a product on fall of its price and vice-versa.

    Sugar is a product with an inelastic demand characteristic,, as experience of every individual tells by the purchases in small lots and not more than the normal requirement irrespective of price. In case of falling prices no one purchases and consumes more sugar.

    The sugar wholesale prices have been in the band of Rs15.89 to Rs17.92 per kg from January to July 2004, inclusive of an effective sales tax @ 18 per cent up to June 12, 2004, and reduced to 15 per cent in the current financial year.

    Sugar is a sole exception to have its price fall among all the food items and even other goods and services. At the same time, stocks with the industry have surged. What better evidence one would want to acknowledge about inelasticity of demand.

    The writer has termed the forex reserves at $12 billion as huge and accused the authorities of having no ‘clue as to its use’ and remarks it as lacking skills in managing foreign exchange.

    It reflects nothing in substance tangible but a hollow approach in accusation. The reserves available are not enough to meet single year’s import bill. Need to hold forex reserves for economic security, striking better equation in external trade, protecting value of national currency to have favourable credit rating, etc., are major factors among many others.

    It is strange to note that the writer keeps support price mechanism in Pakistan confined to wheat. He is oblivious of the support mechanism extending to cotton lint, seed cotton, rice, paddy, besides sugar cane.

    A glance at the Economic Survey would give information on it. Likewise, his observation that there are substitutes to sugar without mention of even one is nothing but a fallacy.

    Substitutes of sugar are yet to be evolved. Had there been substitutes, sugar would have not been a major food item, produced by more than a dozen nations and widely traded globally.

    Seeking shelter from some experts, it is claimed that the industry of Pakistan sells sugar at twice the international price. Nothing can be big a lie than such a piece of disinformation.

    It is a manifestation of no care to compare price trend in national and international markets and exportability of its leading producers. This subject has been explained often at length and all are well aware of this.

    Sugar cane support price and other costs fixed in one form or other can be much helpful to assess the cost of production. Besides, published accounts of a number of sugar companies quoted on the stock market are accessible to study, provided one has patience and acumen to study and understand.

    Likewise, his assertion that sugar is a by-product while molasses is the mainstay is a whim, having no material support to it. Sugar has always been a main product and, therefore, the industry processing it everywhere is identified as sugar industry. Had molasses been the main product, as asserted, the industry would have been branded and known as ‘molasses industry’. This is a simple norm.

    It is easy to accuse others and more so in an irresponsible manner as evident from the article by the writer. He is out of context as is evident from turning guns against the sugar cane farmers, the government functionaries, besides the industry. He perhaps feels each stakeholder in sugar sector as his enemy.

    Courtesy: The DAWN

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