People say,Y is the sugar industry run by mafias and politicians ?
Y ?
1st people have to understand that the sugar industry is based on the thesis,that cane is the easiest and highest risk adjusted return,for the farners – and to keep farners from starting a Tahrir or joining ISIS. Hence,over supply of cane and over-production of sugar,is an accepted reality of cane farming,in Pakistan
This ensures perpetual raw material supply for the mill,and a PASS THROUGH of all costs to the state – on a defacto basis.Defacto basis,is key,as there is no contractual arrangement for the pass through – which is a threat to the economic security of the state,as the mill owner can create shortages,spikes and supply and payments crisis and easily manufacture repetitive, but ingenious reasons for debt waivers,tax reliefs,export subsidies and drawbacks.
Excess cane production and sugar,is the disaster scenario for the Pakistani state.If there is a bad crop,international sugar prices would not rise,to an extent,to make imports on a duty free basis, costlier than the NSR to the sugar mill.
In fact,the inported sugar could be sold at a profit to dealers,to more than offset the indirect tax revenue earned, by the state,on cane purchases by mills (mandi/purchase tax) and sale of sugar by mill (excise and sales and VAT tax)
Y is the mafia required in sugar ? dindooohindoo
Phase 1
To start strikes in mills of competitors
To divert raw material supplies of competitors
To set fire to bagasse stock of competitors
To monopolise truckers for mill logistics
To choke off the logistics for the mill competitors
To break unions in workers and truckers
For the above,a mill owner needs the support of the police,mafia and the neta
Phase 2
To manipulate raw material supplies,as under:
To downgrade and reject materials purchases
To delay purchase payments w/o delayed interest
To pick and choose cane suppliers
To tamper quality,moisture and weighnent tests
Using dummy names to route purchases from captive plantations
To organise dharnas/riots/logistics blockades, with the aid of farners
To charge financial conversion charges for payments to farners in cash
For the above,a mill owner needs the support of the police,mafia and the neta
Phase 3
To recover the costs of fire insurance and LOP insurance, there are accidental fires in bagasse stocks – once in 5 years, to recover,in bogus claims – the aggregate premiums paid over 5 years
Phase 4
To con the state in export subsidies and drawbacks
To con the state w.r.t CDR/OTS with banks
To con the state w.r.t capital and interest subsidies
To tamper the power consumption meters of CPP and power from grid – which is the only forensic proof of production
Phase 5
Bogus exports to eat up the subsidy and drawbacks – from land dry ports and sea ports
Routing exports proceeds on actual and bogus exports,via hawala and other modes
Manipulating cost,production and stock records to inflate costs,make off the books sales and purchases and hide stocks of finished goods
Selling bagasse in cash,instead of selling power to the grid
Creating shortages and spikes in prices of raw and processed/refined sugar Make fake cash purchase bills to generate cash for the sugar mill
For all the above,you need the mafia and the neta, AND also, since the farnmers are voters for the netas.Since the netas cannot outsource the political risk of the cane souring and payments,to a private party – and that,it is a no-loss, monopoly business,the netas are in the sugar mills,and will stay so,forever.
Y is “Sugar Daddy Jehangir Tareen (SDJT)”, in the Sugar business ?
The misconception.
It is no risk business.The CEO of the mill can see his raw material in the fields,from his glass windows.The owner of the raw material is waiting to sell ,he has to sell – as there is no storage and storage is not possible, and he has to sell to the nearest mill (to save on freight and moisture)- at the quality and other specs of the mills,and then awsit payments for months. Can there be a better business ? dindooohindoo
The users of the end product are in the billions.The user in Pakistan WILL NOT PAY beyond a certain price – and they voted in the govtt.If some sugar mills close down – by strategy – the govtt will fall and there will be a Tahrir,as sugar stock draw down from Govtt warehouses takes time – and in riots – no logistics is possible. Even imports will take months,and then it has to be evacuated from the ports.
Tbe user price can’t fall below a certain floor,as then the mills will close down,and there will no cane purchases,and also no cane payments for old bills.This also ensures no large scale imports.The cane growers,are also in the millions,and are another vote bank.So there is a cap-collar option on sugarr prices – for the mill owner.If prices fall,the state has to offset the losses for the mill,and also waive interest and warehouse charges and offer compensation equal to the opportunity cost of capital employed in the operations.Hence,the cost of the cap-collar options is borne by the state.There is no other business like this in the world.
Any business which relies on the state,for policies – dooms the industry.As a result, the Pakistani state has no clue of the actual operations of the sugar and cane supply chain and value chain – from costing to manufacturing to stock.That is also to the advantage of the businessmen – as the perception of unviable sugar units,ensures that the sugar units can inflate costs and hide stocks.This ensures that they keep getting subsidies.drawbacks,capital subsidies,soft loans,trade swaps, power export and wheeling incentives etc., and also,they can create shortages and price spikes, at will, in any part of Pakistan.
A doomed sugar industry,also,is in the interest of the sugar tycoon – as they can close down the operations of any marginally viable or loss making or vulnerable unit,at will, by choking off working capital,or a truckers strike or diverting the raw material supplies of the unit.This is enough to cause panic and doom,in the sugar wholesale market.
Holding stocks of cane,bagasse and sugar for 8-9 months and delays in payment of power exports – has a number to it – in terms of working capital cost.It is not a risk,and is part of the Business Model of a sugar unit,and the cost of working capital,can also be waived off – as interest subsidy or CDR/OTS,as the State has an interest in keeping the polity in power.The fact that,at the time of making the procurement of material,the price of the end product 9 months ahead,is nor known – is also,not a risk,and is,instead an opportunity,as all costs are a pass-through to the state.
Since cane is no brain business,there will always be excess cane production and excess sugar stocks,and since the state has to fix the purchase prices of cane and sale prices,in the open market – and also, the terms of loans and incentives to units – the state will always goof it up.
When they goof – prices will spike – and that is when the mill owners sell the unaccounted sugar stocks.When there is a reverse goof,id.est,large stocks and working capital shortage – the mill owners push the state to export.At that time,the inflated cost sheets and perceptions of poor manufacturing operations and yields and storage losses,ensures the highest inflated cost.Highest inflated cost ensures maximum subsidy and also maximum ad valorem drawback.
Drawback is refund of non vatable taxes acros the supply and value chain,and subsidy is the export price differential (on landed cost basis in a target market).
Hence,the state is a PE co-investor in the sugar mill,with a sweat equity stake,and no voting rights and no dividend.What is better than that ? The cane growers are bankers to the mill who give clean credit for 8-9 months and accept all the deductions made by the mill.The Politicians are the “reverse fee clients”to the Consultants (mill owners), WHO PAU THE MILL (IN TERMS OF SOPS AND SUBSIDIES),FOR THE CONSULTING advice, given by the mill owners.
In essence,the sugar mill is used by the polity,to make transfer payments to voters in agri areas – as an NGO – except that the NGO makes a CERTAIN INFINTE PROFIT % ON CAPITAL EMPLOUED
Sugar mills get project loans at a 4:1 Debt.Equity Ratio,with capital and interest subsidies.If the project cost is inflated by 30% by using a mix of news and used machines, and 5% is paid to bankers and netas – then the equity is nil or negative.
The mill owner has 2 income streams – Profit and Bonus.Bonus is selling unaccounted stocks,in price spikes,and earnings on export subsidies and drawbacks (on inflated costs and hawala exports and bogus exports).Profit is the cash profit earned,as the book profit is all bogus,as costs are inflated.A Sugar mill profit has not to be assessed quarterly or yearly,but when the entire supply and value chain of a crushing season,is conclusively liquidated and realised – net of all working capital costs.
This makes the ROE,financially incalculable.
WW3 or N-War or Covid – U need sugar.A human cannot eat palm oil or wheat or rice – as such – but can live on just sugar for some time.There is no business like sugar..Which is Y “Sugar Daddy Jehangir Tareen (SDJT)”,is in the Sugar business. He has found buyers in the Taliban ? Sugar and Nuts = Ideal food for the mujahid.
Bumper cane crop = good news for neta,as farmers happy and cane rates not hiked much for mill owner,and the netas are sure that retail rates are low.Disaster is for the state treasury,as large stock pile will be eaten by rats,or dumped in Kabul,with huge subsidy payments.Neta is happiest
Bad Cane Crop = doom for neta and retail and economy.Imports will take time and the state will goof up,and retail will price in hike,3-4 months before import orders are placed.Marginal cane mills are also doomed – farners will just die.But mill owners who have plantations (as all karge units have – on principles of Strategic sourcing and backward integration into plantations) will thrive,as they will have captive supply,and will engineer farm riots and suicides,to rig up cane prices – which is a pass-through to the state – on marginal and imputed costs.Then SDJT will tell media – “How do I gain by increased sugar prices” with a non=plussed expression – only for the cameras.
A sugar mill is a power plant,which also,incidentally makes sugar,and the price of the raw material,is a pass-through (to the state – on a loaded marginal and opportunity cost) and the by-product (sugar) supply chain,can be choked at any time,by the mill owners.
What is the solution to the Pakistani Sugar Crisis ?
Some Basic Facts
The Sugar Mills make money at the highest capacity,and the lowest material cost.For that,there haas to be overproduction of cane – and farmers have to be pampered and brainwashed,to get the “best” cane prices.High cane prices,are of no impact for the mill,as the cabe price,is a defacto pass through,to the state. dindooohindoo
In other words,the excess sugar produced,from the excess cane produced – will HAVE TO BE exported – with the subsidy and the drawback,at the cost of the state.In addition,the cane payments are made from working capital loans from banks – and the loans would be liquidated from the export and domestic sale proceeds – and so, the NSR from exports and domestic sales has to be profitable.Otherwise,the mill is bust and the bank loan,is an NPA,and millions of cane growers have no buyer.
Solution 1
The state has to rework the subsidy.The mills have availed of the advantage of the maximum capacity utilisation, arising out of a bumper cane crop.Hence,the cost of the export stock,should be computed based on the “Marginal cost of Production and
Direct costs”, upto sale.The difference of this,w.r.t. the FOB Export rates – should be the subsidy.
whether the mills should get a Profit on the Marginal Cost – is a separate issue – as the economies of scale have already accrued to the mill owner,for the domestic sugar sold.In the alternative,the mills can be paid a service charge,per ton,as they have acted as an NGO – to service the farmers and use their cane,and have in effect transmitted the subsidy,defacto to the farmers.
Solution 2
In the current scenario,there is a time limit for exports – as the working capital bank loans,have to be liquidated – for payments for fresh stock purchases.The precise dates are known to traders and punters,all over the world – as the patterns of behavior of a baboo,in the state – as to,steps to liquidate the stocks – are predictable.
Hence,the mills have to be provided additional unsecured credit,for fresh cane purchases – and a central state agency should sell sugar futures,every quarter,with or without selling options, and give delivery where the futures and the options are out of the money,or where the contango on futures and option premiums,added to the futures price,is closest to the Price to be paid,to the mills
The nation will,at least, get the maximum NSR on Sugar exports – and the subsidy loss,will be minimised.
If the 12 month futures contango or option premium, is in excess of the working capital cost of the stock,the state can hold some of the sugar stock,as the net working capital cost is nil or negative.If the futures and options turn a loss,the state can provide stock delivery.There would be several such combinations.
Solution 3
The farners have to be shifted from cane farming.Instead of giving subsidies to mills,for export stocks – which represent,excess cane production – the subsidies can be given to farmers directly,to shift to other crops.The subsidies can be in the form of free power,seeds,fertilsiers,pesticides,crop insurance, supplements and implements.In addition,value added factories for the new crops,can be set up near the crops – with subsidies.As time passes,the viability of the crops will increase,and the subsidies will be nil
It is possible that the NSR on exports + export subsidy – Marginal cost of Production and sale of export sugar, is more than the financial profit,earned by the cane grower.
In such a case, a subsidy equal to the financial profit,which COULD be earned from the cane sales – can be paid,as a subsidy,to the cane farmer – NOT TO GROW THE CANE.
Solution 4
Each crushing season,the state should calculate the excess stocks expected over 1 year based on demand and current stocks.The current production which will be in excess of the safety and base and emergency stocks – is the likely surplus stock to be exported.
70% of the expected surplus stock – should be transported to state godowns,on a quarterly basis – by the cheapest mode – which is rakes.The state godowns can be near or inside the ports (warehouses),or near or inside the dry ports.
All exports should be made from STATE GODOWNS only. This will make sure that there are no bogus exports,and also,there can be no money laundering.
Solution 5
A locust,is a drone with AI,and a perpetual battery of a few years,and the drone can clone itself.The cane production has to be reduced.The state can use Bio war tools to destroy crops in certain regions and certain strains – and this is surely being done,in many parts of the world.The loss to the farner,is the financial opportunity to the farmer foregone – which has to be compensated by the state.Loss to the sugar mills need not be compensated – but the interest on loans,can be waived – and banks,can be compensated,for the interest loss.
The aggregate compensation to the farmers and mills, will be less than the subsidy and drawbacks on exports,interest and storage cost on export stock,and storage losses of export stock.dindooohindoo
Excellent write up. Thanks for highlighting the agricultural issues of Pakistan. May I suggest that while making comparisons of yields of different crops, one should always compare apples with apples and oranges with oranges. For example, one cannot compare short-term duration (7- month) red hard winter wheat grown in Pakistan with long duration (11-month) European or 12- month duration Canadian wheat.
Although Pakistan's agriculture is the least subsidized sector as compared to India, forget Europe, yet we compete for the neck to neck with India producing around 2750-2800 kg per hectare(around 28 maunds per acre). Its global average, for comparison, is 3250 kg per hectare, almost equal to our Sindh yield. Our national yield goes down when we take an average of yields in different regions, particularly those of Potohar and KP.
Low crop yields cannot be attributed to not only the non-availability of improved technologies but several factors including short growing season, varied agro-climatic conditions, and weather extremities.
Similarly, one cannot compare the yield of elite rice crop like Basmati with that of IRRI-9. No way. Just like comparing the performance of BMW with Suzuki.
Is it possible for you to write about Karachi BRT project. What are the road blocks. How Federal and provincial government relationship is affecting the project
Agree with the software thesis. Moreover, the analysis seems outstanding. I would like to know how the inflation is measured? Thanks
People say,Y is the sugar industry run by mafias and politicians ?
Y ?
1st people have to understand that the sugar industry is based on the thesis,that cane is the easiest and highest risk adjusted return,for the farners – and to keep farners from starting a Tahrir or joining ISIS. Hence,over supply of cane and over-production of sugar,is an accepted reality of cane farming,in Pakistan
This ensures perpetual raw material supply for the mill,and a PASS THROUGH of all costs to the state – on a defacto basis.Defacto basis,is key,as there is no contractual arrangement for the pass through – which is a threat to the economic security of the state,as the mill owner can create shortages,spikes and supply and payments crisis and easily manufacture repetitive, but ingenious reasons for debt waivers,tax reliefs,export subsidies and drawbacks.
Excess cane production and sugar,is the disaster scenario for the Pakistani state.If there is a bad crop,international sugar prices would not rise,to an extent,to make imports on a duty free basis, costlier than the NSR to the sugar mill.
In fact,the inported sugar could be sold at a profit to dealers,to more than offset the indirect tax revenue earned, by the state,on cane purchases by mills (mandi/purchase tax) and sale of sugar by mill (excise and sales and VAT tax)
Y is the mafia required in sugar ? dindooohindoo
Phase 1
To start strikes in mills of competitors
To divert raw material supplies of competitors
To set fire to bagasse stock of competitors
To monopolise truckers for mill logistics
To choke off the logistics for the mill competitors
To break unions in workers and truckers
For the above,a mill owner needs the support of the police,mafia and the neta
Phase 2
To manipulate raw material supplies,as under:
To downgrade and reject materials purchases
To delay purchase payments w/o delayed interest
To pick and choose cane suppliers
To tamper quality,moisture and weighnent tests
Using dummy names to route purchases from captive plantations
Route farmer purchases,as captive plantation purchases
To run a racket of farmers cane bills discounting
To organise dharnas/riots/logistics blockades, with the aid of farners
To charge financial conversion charges for payments to farners in cash
For the above,a mill owner needs the support of the police,mafia and the neta
Phase 3
To recover the costs of fire insurance and LOP insurance, there are accidental fires in bagasse stocks – once in 5 years, to recover,in bogus claims – the aggregate premiums paid over 5 years
Phase 4
To con the state in export subsidies and drawbacks
To con the state w.r.t CDR/OTS with banks
To con the state w.r.t capital and interest subsidies
To tamper the power consumption meters of CPP and power from grid – which is the only forensic proof of production
Phase 5
Bogus exports to eat up the subsidy and drawbacks – from land dry ports and sea ports
Routing exports proceeds on actual and bogus exports,via hawala and other modes
Manipulating cost,production and stock records to inflate costs,make off the books sales and purchases and hide stocks of finished goods
Selling bagasse in cash,instead of selling power to the grid
Creating shortages and spikes in prices of raw and processed/refined sugar Make fake cash purchase bills to generate cash for the sugar mill
For all the above,you need the mafia and the neta, AND also, since the farnmers are voters for the netas.Since the netas cannot outsource the political risk of the cane souring and payments,to a private party – and that,it is a no-loss, monopoly business,the netas are in the sugar mills,and will stay so,forever.
Risk in the sugar business ?
Y is “Sugar Daddy Jehangir Tareen (SDJT)”, in the Sugar business ?
The misconception.
It is no risk business.The CEO of the mill can see his raw material in the fields,from his glass windows.The owner of the raw material is waiting to sell ,he has to sell – as there is no storage and storage is not possible, and he has to sell to the nearest mill (to save on freight and moisture)- at the quality and other specs of the mills,and then awsit payments for months. Can there be a better business ? dindooohindoo
The users of the end product are in the billions.The user in Pakistan WILL NOT PAY beyond a certain price – and they voted in the govtt.If some sugar mills close down – by strategy – the govtt will fall and there will be a Tahrir,as sugar stock draw down from Govtt warehouses takes time – and in riots – no logistics is possible. Even imports will take months,and then it has to be evacuated from the ports.
Tbe user price can’t fall below a certain floor,as then the mills will close down,and there will no cane purchases,and also no cane payments for old bills.This also ensures no large scale imports.The cane growers,are also in the millions,and are another vote bank.So there is a cap-collar option on sugarr prices – for the mill owner.If prices fall,the state has to offset the losses for the mill,and also waive interest and warehouse charges and offer compensation equal to the opportunity cost of capital employed in the operations.Hence,the cost of the cap-collar options is borne by the state.There is no other business like this in the world.
Any business which relies on the state,for policies – dooms the industry.As a result, the Pakistani state has no clue of the actual operations of the sugar and cane supply chain and value chain – from costing to manufacturing to stock.That is also to the advantage of the businessmen – as the perception of unviable sugar units,ensures that the sugar units can inflate costs and hide stocks.This ensures that they keep getting subsidies.drawbacks,capital subsidies,soft loans,trade swaps, power export and wheeling incentives etc., and also,they can create shortages and price spikes, at will, in any part of Pakistan.
A doomed sugar industry,also,is in the interest of the sugar tycoon – as they can close down the operations of any marginally viable or loss making or vulnerable unit,at will, by choking off working capital,or a truckers strike or diverting the raw material supplies of the unit.This is enough to cause panic and doom,in the sugar wholesale market.
Holding stocks of cane,bagasse and sugar for 8-9 months and delays in payment of power exports – has a number to it – in terms of working capital cost.It is not a risk,and is part of the Business Model of a sugar unit,and the cost of working capital,can also be waived off – as interest subsidy or CDR/OTS,as the State has an interest in keeping the polity in power.The fact that,at the time of making the procurement of material,the price of the end product 9 months ahead,is nor known – is also,not a risk,and is,instead an opportunity,as all costs are a pass-through to the state.
Since cane is no brain business,there will always be excess cane production and excess sugar stocks,and since the state has to fix the purchase prices of cane and sale prices,in the open market – and also, the terms of loans and incentives to units – the state will always goof it up.
When they goof – prices will spike – and that is when the mill owners sell the unaccounted sugar stocks.When there is a reverse goof,id.est,large stocks and working capital shortage – the mill owners push the state to export.At that time,the inflated cost sheets and perceptions of poor manufacturing operations and yields and storage losses,ensures the highest inflated cost.Highest inflated cost ensures maximum subsidy and also maximum ad valorem drawback.
Drawback is refund of non vatable taxes acros the supply and value chain,and subsidy is the export price differential (on landed cost basis in a target market).
Hence,the state is a PE co-investor in the sugar mill,with a sweat equity stake,and no voting rights and no dividend.What is better than that ? The cane growers are bankers to the mill who give clean credit for 8-9 months and accept all the deductions made by the mill.The Politicians are the “reverse fee clients”to the Consultants (mill owners), WHO PAU THE MILL (IN TERMS OF SOPS AND SUBSIDIES),FOR THE CONSULTING advice, given by the mill owners.
In essence,the sugar mill is used by the polity,to make transfer payments to voters in agri areas – as an NGO – except that the NGO makes a CERTAIN INFINTE PROFIT % ON CAPITAL EMPLOUED
Sugar mills get project loans at a 4:1 Debt.Equity Ratio,with capital and interest subsidies.If the project cost is inflated by 30% by using a mix of news and used machines, and 5% is paid to bankers and netas – then the equity is nil or negative.
The mill owner has 2 income streams – Profit and Bonus.Bonus is selling unaccounted stocks,in price spikes,and earnings on export subsidies and drawbacks (on inflated costs and hawala exports and bogus exports).Profit is the cash profit earned,as the book profit is all bogus,as costs are inflated.A Sugar mill profit has not to be assessed quarterly or yearly,but when the entire supply and value chain of a crushing season,is conclusively liquidated and realised – net of all working capital costs.
This makes the ROE,financially incalculable.
WW3 or N-War or Covid – U need sugar.A human cannot eat palm oil or wheat or rice – as such – but can live on just sugar for some time.There is no business like sugar..Which is Y “Sugar Daddy Jehangir Tareen (SDJT)”,is in the Sugar business. He has found buyers in the Taliban ? Sugar and Nuts = Ideal food for the mujahid.
Bumper cane crop = good news for neta,as farmers happy and cane rates not hiked much for mill owner,and the netas are sure that retail rates are low.Disaster is for the state treasury,as large stock pile will be eaten by rats,or dumped in Kabul,with huge subsidy payments.Neta is happiest
Bad Cane Crop = doom for neta and retail and economy.Imports will take time and the state will goof up,and retail will price in hike,3-4 months before import orders are placed.Marginal cane mills are also doomed – farners will just die.But mill owners who have plantations (as all karge units have – on principles of Strategic sourcing and backward integration into plantations) will thrive,as they will have captive supply,and will engineer farm riots and suicides,to rig up cane prices – which is a pass-through to the state – on marginal and imputed costs.Then SDJT will tell media – “How do I gain by increased sugar prices” with a non=plussed expression – only for the cameras.
A sugar mill is a power plant,which also,incidentally makes sugar,and the price of the raw material,is a pass-through (to the state – on a loaded marginal and opportunity cost) and the by-product (sugar) supply chain,can be choked at any time,by the mill owners.
The Solution to the Sugar Corrupti-demic !
What is the solution to the Pakistani Sugar Crisis ?
Some Basic Facts
The Sugar Mills make money at the highest capacity,and the lowest material cost.For that,there haas to be overproduction of cane – and farmers have to be pampered and brainwashed,to get the “best” cane prices.High cane prices,are of no impact for the mill,as the cabe price,is a defacto pass through,to the state. dindooohindoo
In other words,the excess sugar produced,from the excess cane produced – will HAVE TO BE exported – with the subsidy and the drawback,at the cost of the state.In addition,the cane payments are made from working capital loans from banks – and the loans would be liquidated from the export and domestic sale proceeds – and so, the NSR from exports and domestic sales has to be profitable.Otherwise,the mill is bust and the bank loan,is an NPA,and millions of cane growers have no buyer.
Solution 1
The state has to rework the subsidy.The mills have availed of the advantage of the maximum capacity utilisation, arising out of a bumper cane crop.Hence,the cost of the export stock,should be computed based on the “Marginal cost of Production and
Direct costs”, upto sale.The difference of this,w.r.t. the FOB Export rates – should be the subsidy.
whether the mills should get a Profit on the Marginal Cost – is a separate issue – as the economies of scale have already accrued to the mill owner,for the domestic sugar sold.In the alternative,the mills can be paid a service charge,per ton,as they have acted as an NGO – to service the farmers and use their cane,and have in effect transmitted the subsidy,defacto to the farmers.
Solution 2
In the current scenario,there is a time limit for exports – as the working capital bank loans,have to be liquidated – for payments for fresh stock purchases.The precise dates are known to traders and punters,all over the world – as the patterns of behavior of a baboo,in the state – as to,steps to liquidate the stocks – are predictable.
Hence,the mills have to be provided additional unsecured credit,for fresh cane purchases – and a central state agency should sell sugar futures,every quarter,with or without selling options, and give delivery where the futures and the options are out of the money,or where the contango on futures and option premiums,added to the futures price,is closest to the Price to be paid,to the mills
The nation will,at least, get the maximum NSR on Sugar exports – and the subsidy loss,will be minimised.
If the 12 month futures contango or option premium, is in excess of the working capital cost of the stock,the state can hold some of the sugar stock,as the net working capital cost is nil or negative.If the futures and options turn a loss,the state can provide stock delivery.There would be several such combinations.
Solution 3
The farners have to be shifted from cane farming.Instead of giving subsidies to mills,for export stocks – which represent,excess cane production – the subsidies can be given to farmers directly,to shift to other crops.The subsidies can be in the form of free power,seeds,fertilsiers,pesticides,crop insurance, supplements and implements.In addition,value added factories for the new crops,can be set up near the crops – with subsidies.As time passes,the viability of the crops will increase,and the subsidies will be nil
It is possible that the NSR on exports + export subsidy – Marginal cost of Production and sale of export sugar, is more than the financial profit,earned by the cane grower.
In such a case, a subsidy equal to the financial profit,which COULD be earned from the cane sales – can be paid,as a subsidy,to the cane farmer – NOT TO GROW THE CANE.
Solution 4
Each crushing season,the state should calculate the excess stocks expected over 1 year based on demand and current stocks.The current production which will be in excess of the safety and base and emergency stocks – is the likely surplus stock to be exported.
70% of the expected surplus stock – should be transported to state godowns,on a quarterly basis – by the cheapest mode – which is rakes.The state godowns can be near or inside the ports (warehouses),or near or inside the dry ports.
All exports should be made from STATE GODOWNS only. This will make sure that there are no bogus exports,and also,there can be no money laundering.
Solution 5
A locust,is a drone with AI,and a perpetual battery of a few years,and the drone can clone itself.The cane production has to be reduced.The state can use Bio war tools to destroy crops in certain regions and certain strains – and this is surely being done,in many parts of the world.The loss to the farner,is the financial opportunity to the farmer foregone – which has to be compensated by the state.Loss to the sugar mills need not be compensated – but the interest on loans,can be waived – and banks,can be compensated,for the interest loss.
The aggregate compensation to the farmers and mills, will be less than the subsidy and drawbacks on exports,interest and storage cost on export stock,and storage losses of export stock.dindooohindoo
Excellent write up. Thanks for highlighting the agricultural issues of Pakistan. May I suggest that while making comparisons of yields of different crops, one should always compare apples with apples and oranges with oranges. For example, one cannot compare short-term duration (7- month) red hard winter wheat grown in Pakistan with long duration (11-month) European or 12- month duration Canadian wheat.
Although Pakistan's agriculture is the least subsidized sector as compared to India, forget Europe, yet we compete for the neck to neck with India producing around 2750-2800 kg per hectare(around 28 maunds per acre). Its global average, for comparison, is 3250 kg per hectare, almost equal to our Sindh yield. Our national yield goes down when we take an average of yields in different regions, particularly those of Potohar and KP.
Low crop yields cannot be attributed to not only the non-availability of improved technologies but several factors including short growing season, varied agro-climatic conditions, and weather extremities.
Similarly, one cannot compare the yield of elite rice crop like Basmati with that of IRRI-9. No way. Just like comparing the performance of BMW with Suzuki.
Is it possible for you to write about Karachi BRT project. What are the road blocks. How Federal and provincial government relationship is affecting the project