Industry producing half to one million tons of unreported sugar

LAHORE: The sugar milling industry is producing around half to one million tons of sugar which is not reported in the accounts and the under-reported sugar sold to local as well as Afghanistan markets.An inquiry committee raised the point of misreporting of sugar production on two counts. One, sugar mills purchased out-of-book sugarcane and, second, misreporting of sugar recovery from sugarcane which could not be challenged at any forum due to nonexistence of technical mechanism to verify the claimed sugar recovery from sugarcane.

Serial No 2 of the inquiry committee stated that according to various sources, sugarcane is purchased off-the-book and resultantly off-the-books sugar is produced and sold in the market. This alleged practice causes not only a loss to the government exchequer in terms of GST but is also not accounted towards GDP. It is a responsibility of the cane commissioner to ensure that all sugarcane purchased is documented.

Talking to The News, Chairman Pakistan Sugar Mills Association Aslam Farooq said they listened to the blame on the industry of out-of-book sugarcane purchase and sugar produced and sold, so the industry itself approached the government and the Federal Board of Revenue to depute its staff at mills. Further, the industry in order to maintain transparency asked the FBR to appoint the independent auditors from the top auditor firms like E&Y, Ferguson and others to keep check on FBR officials too. The practice was adopted this season and the industry paid the cost of it, he said.

However, on grounds, during the crushing seasons, the small farm holdings (up to 10 acre) sugarcane growers could not reach sugar mills directly or avoid it due to hiccups created by the middlemen who were purchasing sugarcane on behalf of mills. These farmers sold their crops to these middlemen on cash payment even below than the minimum purchase price fixed by the government. The quantity of sugarcane purchased by the middlemen never came in reporting and the sugar production from it was sold out-of-book.

Serial 27 of the report mentioned the importance of the sugar recovery ratio from the sugarcane and stated as recovery ratio is a vital factor in calculating the amount of sugar produced and the cost at which the sugar is produced. The recovery ratio is determined through laboratory testing and reported by sugar mills and there is no independent way of ascertaining whether the report is correct or not. There is difference in recovery ratio of sugar of the same region where similar variety of sugarcane is cultivated.

The inquiry report stated that during the discussion with different sources, it has come to notice that the sugar mills allegedly manipulate the recovery ratio and sugar production by showing the reduction recovery ratio, and the entire sugar so produced is sold off the books. This is a major tax evasion but cannot be verified without independent testing by the authorities concerned.

The inquiry report surprised the provincial government working by stating that it is surprising that the government department takes the sugar recovery ratio data from the sugar mills and accepts it without any verification or check. The cane commissioner Punjab does have a mobile lab but that provides result for sugarcane only and cannot be compared with the mills lab results due to technical differences in testing methods and processes.

The inquiry report suggested that there is a need for independent verification and authentication of lab results to ensure that the sugar recovery ratio is properly determined and the actual production is calculated. The Punjab established a sugarcane recovery testing mobile lab in 2010, but the lab failed to deliver. An official in the Punjab Food Department disclosed that the lab worked well in the first two years. After that it was ‘managed’ by the sugar millers. The official said that the record of the test conducted by the sugar testing lab and forensic audit of the record could clear every aspect.

Cane Commissioner Punjab Nadeem Abbas Bhangoo admitted the issue of mobile lab. He said the establishment of mobile lab was challenged by the mills and the high court stayed the working of it. He said the department will take up the issue after resumption of proper working due to coronavirus lockdown. “We will look into the matter how this mobile lab could be established,” he said.

On the other hand, Chairman PSMA Aslam Farooq said the sugar recovery is not challengeable. If any authority is challenging the sugar recovery, it should present the proof, while the rest is nothing more than hearsay,” he said, adding that multiple factors affect the sugar recovery from sugarcane. He said if a mill gets sugarcane within 24 hours after harvest, the recovery is the highest, while in 36 to 48 hours, it declines which further erodes with delay in crushing. So the inquiry committee argument of different recovery of sugar in the same areas by different mills is not workable. The mills getting lower recovery are getting sugarcane in the radius of 70-80 kilometre while the mills getting the highest recovery in the same districts are getting sugarcane in 20 kilometre radius.

On the question of out-of-book sugar production and sales, the chairman PSMA said he could not comment on it. He said for instance if it is true that sugar is being produced out-of-book, the quantification of this production could not be possible since no mechanism exists to prove out-of-book sugarcane production, and misreporting of sugar recovery. So everyone has its own guess.

Mian Qadeer of the Kisan Ittehad talking to The News said the practice of out-of-the book sugarcane purchase was common during the last three to four years. “The mills issue every third Cane Purchase Receipt (CPR) with zero amount and presents cash payment to the growers,” he said, adding that the ratio reduce this year. He said since the farmers get cash payment, so they do not bother about where this production is reported. The farmers have concern with their payments only, he added.

Former cane commissioners also confirmed the practice of out-of-book sugarcane purchase. However, they said that estimates of production could not be made due to non-existence of any record of such production. Only estimates could be made on account of domestic per capita sugar consumption, besides the sugar sent to Afghanistan. Pakistan always estimates Afghanistan food items consumption in its production. The Afghan sugar consumption could be estimated around half million metric tons.