LAHORE, Feb 20: As sugar prices continue to soar in the international market to above $490 per ton, most Indian suppliers are reported to have revoked contracts booked by Pakistani importers in the past few weeks at $440-460 per ton.
“Indian exporters are backing out on their commitments because they fear to lose money by selling the sweetener to Pakistan on lower rate than international price,” an importer told Dawn on Monday.
He said only 1,500 tons of Indian sugar, allegedly of inferior quality, had arrived so far. “There’s no chance of more sugar coming from India in the near future,” he said.
When asked if the Trading Corporation of Pakistan, which had invited bids for the import of 50,000 tons of sugar, would be able to get offers from Indian suppliers of rates lower than that in international market, he said: “In the existing circumstances, it appears impossible.”
“India does not have enough surplus to export,” he claimed.
Some recent reports quoting the TCP chairman said Indian exporters had offered a rate of $420 per ton compared with $465 per ton offered by other nations.
The small quantities of sugar that arrived here from India a few days ago had cost the importer $440 per ton and it was expected to be sold Rs35 per kilogram.
“The quality of the sweetener is very poor and the importer is facing a difficulty in disposing it of,” sources claimed.
“Now the Indian suppliers are demanding international rate for quality sugar. They do not want to lose $30-50 per ton by selling it at a discounted price,” the importer said.
Importers are reportedly turning to the European Union and Brazil.
Imports from the EU are expected to reach Pakistan by the end of this month or early next month and those from Brazil will begin in May-June.
Analysts say import from the EU or Brazil will largely depend upon its domestic price. “Sugar from the EU and Brazil will cost around Rs38-39 per kg. But if the local prices decline, its import will not make a business sense. The private sector will watch the market closely before placing orders,” they say.
Sugar importers and millers insist that the current crisis will persist at least for a few months because of a gap of about 800,000 tons in demand and supply owing to a big fall in local production.
The local production is estimated to remain at 2.5 million tons against approximate annual consumption of around 3.8 million tons. Soaring international prices as well as decline in domestic output pushed retail price to a record Rs42 per kg earlier this month.
Although retail price has declined to Rs40 in the past few days, it is feared that it might surge again if the government does not succeed in ending or narrowing the gap between demand and supply in the local market.
Some millers had warned of the looming sugar crisis as early as June last year, advising the government to import one million tons of raw sugar. “The government must make it mandatory for sugar mills to process imported raw sugar according to their capacity to cover the production shortfall if it wants the consumers to get the commodity at affordable rates,” a former chairman of the Pakistan Sugar Mills Association, Punjab, Javed Kayani, had said in July.
He had warned that the country’s sugar output would not exceed three million tons in view of the smaller crop size. This meant a gap of around 840,000 tons in demand and supply. He had warned that the prices would shoot as a result of short production if a timely decision to import raw sugar was not taken.
The international sugar prices stood at $290 per ton at that time and the step would have averted hoarding.
Increase in retail sugar rate had forced the government to allow duty-free import of the product in February 2005.
The government also ordered the TCP to offload its stock in the market.
When contacted, Mr Kayani said the crisis might continue even through the next crushing season “if the government did not announce its sugar policy”. He insisted that the growers, who had sold their sugarcane for Rs90 per 40kg and more against a support rate of Rs45, were not certain about the policy. “The government should give its sugar policy, fix sugarcane support price for the next year, as well as set retail price of sugar. All these steps are needed to give confidence to the stakeholders — growers and millers. If these measures are not taken, we may see further drop in production of sugarcane and consequently of sugar. Such a situation would not help anyone — government, consumers, mills or growers,” he said.
He said the policy needed to be announced immediately because “it was peak time for first sugarcane crop cultivation in the country and growers were unsure as to whether go for the crop.
“It is also advisable for the government to ensure that in case sugar prices in the international market fall sharply, the local prices remain stable. We’ve paid the growers double the support price or even more for their sugarcane, which form 80 per cent of our cost of production. If international rates come down and we’re forced to reduce prices beyond a reasonable level, it will result in losses to us.”
