In a recent fortnightly statement, the Pakistan Sugar Mills Association (PSMA), according to newspaper reports, has announced that production of sugar has risen by 8.6 per cent this year, giving a total yield of 4m tonnes.

Only 1.8 million tonnes have been sold leaving an unsold balance of 2.2 million tonnes. They have been having a difficult time selling their sugar here or abroad. The powerful PSMA controls media and elements within government bureaucracy and politicians to be able to coerce it into buying its unsold stocks.

They have been outsourcing their surplus to the government with additional costs imposed on the latter. Government is their last marketing outlet when they cannot sell sugar at the wishful price.

In 2004, the government was forced to buy 500,000 tonnes of sugar for about Rs10 billion. When this liberal enlightened government replaced 'sham' democracy in 1999, it blamed its predecessor for having swindled the exchequer of Rs6 billion of taxpayers' money on export subsidies given to favoured sugar mills.

The government has directed the Trading Corporation of Pakistan (TCP) to buy their stocks with borrowed money obviously at huge financial cost, then store it, suffer in wastage and finally sell it here or abroad at lower than the purchase price.

Some of it may not be sold. After all the TCP will not let the information breach the walls of its secrecy. As figures are not available, it can be said without fear of contradiction that each time the TCP indulges in this sugary activity it incurs huge losses.

The mills base their claim for subsidy on the misguided government policy of fixing a very high sugar cane support price. When "we are neither allowed to control our production (of sugar) nor the prices of inputs (sugar cane), we are justified in seeking government's help in time of crisis.

We are not asking for a subsidy. We are just saying that the government collects money from us or on our behalf and export our surplus". There never was a more blatant twisting of truth.

The mills never pay the support price fixed by the government. The support price is a joke and at best is notional figure meant to give the strong landlord a handle to use his political influence to get that price.

But by and large the mills pay what the market can support, and no more. And the government is left with egg on its face. If the government stopped fixing the meaningless support price, the mills will have no excuse to blackmail it with.

The question is why should the government buy sugar at higher than international prices and not import instead? Only the convoluted minds of honeycombed policy makers could perhaps explain.

Closest one gets to understanding the rationale for the policy was an explanation proffered by a well respected serving civil servant when he said that the policy helps the mills overcome their liquidity crunch to be able to pay to the growers.

As if it is the public duty of the government to provide liquidity for hard up inefficient businesses? The other reason he offered was the ability to off-load sugar onto the market when the prices rose to an alarming level, and therefore the government stocks were meant to overcome market gyrations.

Why should the government serve as a marketing company for the private sugar mills? There are too many of them in the first place. They were established during Zia ul Haq's longest rule of 11 1/2 years with loans given by nationalized banks on orders of the government to reward opportunists and corrupt elements amongst favourite politicians and businessmen.

Even otherwise the mills are too inefficient to crush the entire cane production. Pakistan does not produce enough sugar cane to be able to sustain the existing milling capacity.

Sugar cane is grown over a million hectares of the most fertile land and its annual production averages 50 to 55 million tonnes. Sugar cane production in any particular year has not exceeded 55 million tonnes.

There are 70 sugar mills in Pakistan, 38 in Punjab and 32 in Sindh, with 9.39 per cent average recovery rate for Punjab and 9.2 per cent for Sindh-lower than 10 per cent the world over.

All of them operate below capacity. Excess capacity is estimated at about 50 per cent. Mills have an excess crushing capacity. At no point did the mills crush the entire crop.

In 1980-81 they crushed 8.33 million tonnes and in 1998-99, the amount had increased to 27.7 million tonnes. The percentage of cane crushed has been much less as the following table would show:

In this age of globalization and free market, the mills should sell their products in the market at competitive prices or simply fade out. Keeping them alive at huge cost to the taxpayer is justified neither on moral nor on legal grounds.

The taxpayer paid a heavy price when the mills were established to begin with. They rip off the taxpayer twice by selling sugar at a higher than market price and by robbing the consumer when he is forced to pay higher than the market price.

Not only that, the mills withhold payment to the cane growers, but it is also with great difficulty that they pay the farmer. Even now they owed more than Rs.4 billion in outstanding payments to the growers.

Their cost of production being too high for exports and, their avarice stands in their way of reducing prices for the domestic market. They want the taxpayer to bail them out.

The reason of high cost of production is not only congenital to the establishment of mills at locations, which at places don't provide for adequate sugar cane production, but also intrinsic to the woefully inadequate management capabilities.

Dadu and Larkana sugar mills were established in areas, which did not grow cane, and as a result they continued to face problems right form the start. It will make eminent sense if the government stopped announcing the support price and denied the mills an excuse for blackmailing the government into buying their unsold stocks.

Market mechanism will bring about the much-needed balance between the growers and the mills to allow inefficient mills to die away thereby eliminating excess milling capacity out of the system.

It will also provide the much-needed relief to the consumer who will pay much lower price than at present. The grower will have a better bargaining position with the efficient mills left in the fray.

Comparative economics of sugar cane and the competing crops at prices realized by the growers do not favour sugar cane production at all. For each rupee of inputs, cotton plus sunflower yields Rs3.04 as against Rs2.97 for sugar cane.

For each day of crop duration the comparative figures for the two crops are Rs63.23 against Rs43.03. For each acre - inch of irrigation water cotton plus wheat yields an income of Rs596.36 against Rs353.23 for sugar cane.

These are the figures for Punjab. The Sindh figures are just about the same. Why then do the growers not shift? One reason is almost free water for which they do not pay an economic cost.