Sugarcane May See a Small Bump, but Big Hurdles Loom
Failure to align sugar prices with the cost of sugarcane could lead to substantial losses for the sugar industry, posing a potential threat to its sustainability.
Karobar
Projections indicate a modest increase in sugarcane production to approximately 83.5 million metric tons for the upcoming 2023-24 season, a slight uptick from the 82.40 million metric tons achieved in 2022-23. This growth is attributed to a gradual recovery in plant areas affected by the previous season's floods in Sindh.
Sindh Abadgars Sugar Mills Limited (PSX: SASML), in its transmission report, has highlighted potential challenges awaiting the sugar industry in the upcoming season.
The Sindh government has established a minimum support price of Rs425 per 40 kgs, a substantial 41% increase from the previous crushing season's Rs3021 per 40 kgs. This decision, based on a cost/volume analysis, is expected to significantly impact the cash flow of the sugar industry.
The heightened sugarcane prices necessitate increased bank borrowing for payments to growers during the ongoing crushing season, consequently impacting the financial cost and profitability of the sugar industry.
The upcoming financial year presents additional challenges due to the notably low and discounted selling price of sugar in the local market, currently at Rs130 per kg – the lowest globally when compared to international sugar prices.
Speculation suggests reduced sugar production, potentially prompting the government to consider importing sugar at a higher cost, around Rs250 per kg. SASML urges the government to allow market forces to regulate sugar prices, curbing smuggling and potentially saving foreign exchange for a self-sufficient nation.
Further complicating matters, the consistent rise in the six-month Kibor to 22.57% poses a persistent challenge for the industry amidst inflation and the depreciation of the Pakistani Rupee (PKR) against the dollar. This trend is expected to persist in the near term, resulting in significantly higher markup on short-term borrowing during the ongoing crushing season.
In response, SASML emphasizes the need for swift government intervention to address industry issues, especially the commercial regulation of sugar prices. A fair and transparent policy is crucial to supporting the industry amidst rising inflation and markup costs.
Amid unprecedented inflation and markup expenses, there is an urgent call to permit an increase in sugar prices to meet the industry's pressing needs.
