Sugar millers ask for reversal of molasses duty decision

LAHORE: Sugar millers regret the government decision of imposing duty on the export of molasses saying it will substantially erode their earnings and jeopardise payments to sugarcane growers. The government imposed 15 per cent duty on the export of molasses more than a couple of weeks ago in spite of the fact that the Economic Coordination Committee (ECC) of the Cabinet had twice rejected the proposal in the last few months.

The decision is alleged to be made under the political influence of some individuals who are in the business of ethanol manufacturing rather than on the basis of economic considerations.

The cabinet, a source in the federal industries ministry told Dawn on the condition of anonymity, was misled into believing that the imposition of the duty on molasses export would encourage value added (molasses are used to manufacture ethanol, a bio-fuel) ethanol exports.

But the millers don’t consider it a well-considered decision in view of the falling global crude prices, which is being traded at around $50 a barrel, down from its peak of over $147 a few months ago.

‘The international price of ethanol is closely linked to the global crude market. With the slumping crude prices, ethanol is also cheaply available on the world markets at around $550 a ton (f.o.b.),’ a miller, who asked not to be named, said.

One ton of ethanol is manufactured from 5.25 tons of molasses. ‘The export of one ton of ethanol will fetch far less price than the export of molasses, which is currently priced at $110 per ton (f.o.b.). This is a case of negative value addition,’ the miller argued.

‘The government must review its decision in the larger interest of the industry, growers and exports,’ he said.

Pakistan exported a record 1.077 million tons of molasses last year. This year the millers have been able to export only 387,506 tons of molasses so far. ‘The molasses’ exports are slowing since the imposition of the duty,’ the miller said. ‘The imposition of duty has increased our sale price and our buyers in the European Union have started looking for alternate sources to procure the commodity.’

The government says the export of molasses was also being discouraged in view of its ‘shortage’ this year. The sugar mills are estimated to produce around 1.6 million tons of molasses this year compared to 2.26 million tons last year.

The ethanol producers had misled the cabinet into imposing the duty on export of molasses just to cartelise the market and depress the local prices of their raw material although they enjoyed an advantage of $32 per ton in freight charges over the international price, the miller alleged.

‘That would hurt our earnings as an average sugar mill produces 40,000 to 50,000 tons of molasses and earns Rs300 to Rs350 million. Also, it purchases cane worth Rs1-1.5 billion each year. Any depression in our prices would mean erosion in our earnings, which will reduce our ability to make timely payments to the cane growers,’ he said.

He claimed that the local ethanol manufacturers were also ‘financially weak’ and did not possess the ability to purchase the entire domestic molasses production and lacked the capacity to store the commodity.

The millers also view the imposition of duty on their molasses exports as violation of the principles of free market economy. ‘If the government has imposed duty on export of our product, it should also tax export of cotton. But it wouldn’t because of the political influence of cotton growers,’ the miller said.

Pakistan Sugar Mills Association Punjab Zone Chairman Javed Kayani criticised the decision of imposing duty on molasses export.

‘It seems as if the prime minister and his cabinet have been misled on this issue. It amounts to helping one industry at the expense of another. I call upon the prime minister to rescind the decision in the best interest of the sugar industry and farmers, whose payments could be delayed as result of it,’ he said.

source: dawn