Sucrose recovery from the sugar cane crop of the 2017-18 season exceeded the benchmark of 8.7 per cent. Exceeding the recovery benchmark entitles sugar cane producers to claim the quality premium that is over and above the notified sugar cane price.

However, farmers are not getting this premium, although the apex court turned down the appeal of sugar mills on this issue in January.

Farmers’ receivables from Sindh-based sugar mills under the head of quality premium amounted to Rs34 billion until the 2016-17 season. The Supreme Court has ordered that a notification for the payment of the premium and the sugar cane price should be issued and the same paid within two months of the end of the crushing season.

Sucrose recovery dropped to 9.85pc in 2016-17 from 10.52pc in 2015-16. It improved to 10.46pc in 2017-18.

The owners of sugar factories fought a legal battle for two decades against the judgement of the Sindh High Court (SHC) in favour of farmers over the issue of quality premium in 1998. Sugar mills are now supposed to pay the premium at the close of every season.

“We need to talk to the stakeholders to figure out how to start the payment of the premium as the apex court has finally adjudicated on the matter. We may seek guidance from the advocate general of Sindh to define the mechanism for the payment of such a huge amount,” says Sindh Agriculture Secretary Agha Zaheer, who served as cane commissioner until the 2017-18 season.

Sugar mills owe farmers around Rs39bn as the apex court has turned down their appeal against the high court’s order to pay ‘quality premium’

When sugar recovery crosses the benchmark of 8.7pc, the grower gets entitled to the premium of 50 paisa per 40kg against each point of sucrose recovery over and above the crop’s actual rate to be paid by the sugar mill. Punjab has recently revised the recovery benchmark to 9.4pc from 8.9pc, sources said.

Sindh crushed 21.62 million tonnes of sugar cane to produce 2.28m tonnes of sugar in 2017-18. In 2016-17, 21.9m tonnes of sugar cane were crushed against 17.82m tonnes a year ago. Sindh produced 2.23m tonnes of sugar in 2016-17 compared to 1.89m tonnes in the preceding year.

The office of the Sindh cane commissioner calculates the overall average recovery of sugar in a season. It can be as high as 12pc in some sugar factories. Sugar mills resort to the practice of disputing the sugar cane price every year. They have now started underreporting sucrose recovery as a high rate makes them liable for the payment of the quality premium.

Farmers oppose the demand by sugar mills for the payment of rebates and subsidies on sugar exports. According to Sindh Chamber of Agriculture (SCA) Vice President Nabi Bux, mills are least bothered about paying the quality premium or the notified sugar cane price even though they lobby the federal government for rebates and subsidies on exports.

Accumulated receivables from sugar mills since 1998 are around Rs39bn. Now farmers eagerly wait for the disbursement of this amount.

There is no independent mechanism or third-party assessment to determine or verify sucrose recovery in each sugar mill during the crushing season. One has to rely on figures provided by the factory management. There are 38 sugar mills in Sindh, but not all of them crush sugar cane every year for one reason or another.

“Every mill provides the cane commissioner’s office with statistics about both sucrose recovery and sugar cane crushing,” says a senior officer of the agriculture department. But factory owners deny fudging figures as, they say, other departments also receive the same data,” he adds.

Sugar cane producers don’t object to figures that a sugar mill shares with authorities: all that growers are concerned about is the timely payment of the quality premium and the official sugar cane price. But sugar mills not only pay growers less than the notified rate, they also make further deductions on different grounds. A typical example of this practice would be the buyer claiming that the grower cultivated an unapproved variety of sugar cane that gave smaller sugar recovery.

Sugar mills didn’t deposit the annual quality premium in court during the pendency of their appeal, although such an arrangement would have benefitted both parties.

The Sindh Abadgar Board (SAB) was a party to that case. SAB Vice President Mahmood Nawaz Shah argues that sugar mills should have set aside the disputed amount while the matter was sub judice. “We will ask the government to get the dues cleared. We will also be filing an application for the implementation of the court verdict regarding the payment of the accumulated premium,” he says.

The Sindh cane commissioner has written a letter to the Pakistan Sugar Mills Association (PSMA) to draw its attention to the non-payment of the quality premium. According to the provincial agriculture secretary, another reminder will soon be issued to the PSMA.

Apart from the quality premium, some sugar mills have not yet cleared other liabilities from 2017-18. Around 1,300 complaints involving Rs1bn are registered with the cane commissioner’s office, which should be decided in 45 days as per the SHC order. The court has formed a committee that is led by the cane commissioner and has equal representation from sugar mills and growers to review the complaints.

The Sindh government had fixed the official sugar cane rate at Rs182 per 40kg in 2017-18. But sugar mills challenged the rate in the SHC. Later, the two parties mutually decided that sugar mills would pay growers Rs160 per 40kg while the differential of Rs22 per 40kg would be subject to the decision by the apex court in identical petitions from previous years.

Sugar mills received a subsidy of around Rs4bn — which was at the rate of Rs9.30 per kg on 20,000 tonnes of the stock held by each factory that exported sugar — from the Sindh government in 2017-18 in a phased manner.

Sugar mills were also supposed to get a federal subsidy of Rs10.70 per kg. But the federal government has withheld it, saying sugar mills didn’t commence crushing on time last year. The Sindh government will also share this federal subsidy on a fifty-fifty basis.

Published in Dawn, The Business and Finance Weekly, December 3rd, 2018