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Mismanagement, corruption raise Bangladesh sugar production cost

Emran Hossain | Published: 23:06, Jan 23,2021 | Updated: 23:46, Jan 23,2021

 
 

High production cost has long been a thorn in the side of state-owned sugar mills due to, as experts observed, rampant mismanagement and corruption.

The Bangladesh Sugar and Food Industries Corporation in 2020 spent five times India did and three times Pakistan on producing a kilogram of sugar at Tk 183, treble the local market price of Tk 58.

The latest production cost, however, was the lowest compared to the previous four years as the BSFIC’s annual loss reached about Tk 1,000 crore with about Tk 450 crore owed to cane growers and mill workers in outstanding prices, salaries and other bills.

 

The production cost has increased more than six times since sugar import was liberalised in 2002 with an aggressive private  marketing campaign rapidly pushing the local sugar off market shelves.

Only in nine of the 47 years since 1972 did Bangladesh produce sugar below the market price, representing eight of the 13 years when the corporation saw profit in almost five decades.

‘The key reasons sugar mills have long been suffering continuous losses are mill workers’ low productivity and corruption in running the mills,’ said economist MM Akash.

The production cost was below the market price in eight of the 12 years after the independence. In the 36 years since 1984–85, the production cost was less than the market price only once, in 1994–95.

Authorities remained indifferent as the production cost and the overall annual loss rose by leaps and bounds over the years though there were ways of minimising the loss, with the sugar mills sitting on land properties roughly worth Tk 30,000 crore.

Besides producing sugar, economists said, authorities could have produced alcohol, sanitisers or organic fertilisers or cogenerated power or established refineries or financed other crops to keep its workforce and huge property productive.

But no such move was taken by the mills, except for the Darsana sugar mill, the only profitable sugar mill in Bangladesh, which produces alcohol.

As BSFIC officials confirmed, for long only three of the corporation’s 15 sugar mills have been able to operate four months a year while the rest 12 not even a full month because of low sugar cane supply.

Many of the 13,000 regular workers at the sugar mills thus sit idle almost the entire year causing steep rises in the cost of production, though the BSFIC claims that they maintain the mills and their property during the rest of the time.

A 2016 research published in Sarbojonkotha, edited by economist Anu Muhammad, showed that Rangpur Sugar Mill spent over Tk 279 and Joypurhat Sugar Mill more than Tk 250 on maintenance for crushing each tonne of sugar against the average Indian cost of only 30 rupees. 

The overall maintenance cost of 15 sugar mills in the country is unavailable but according to the research the maintenance and other costs in the two sugar mills have always been very high.

In 2011–12, the Rangpur mill spent nearly Tk 473 on maintenance for crushing a tonne of sugar cane while the Joypurhat plant about Tk 274, according to the research.

For crushing a tonne of sugar cane the Rangpur mill used almost 24 kWh of electricity whereas India uses 21 kWh, the research showed.

Bangladesh Sugar Cane Research Institute data showed that for the production of a tonne of sugar every day Bangladesh uses 1.34 persons, three to four times higher than the global average.

Bangladesh also suffers one of the highest processing losses in the world with 2.5 per cent of the sugar output lost while being processed.

In other countries the processing loss is between 1.5 and 2 per cent, according to the institute.

Bangladesh Sugar and Food Industries Corporation officials said that they needed more resources to improve the poor capacities of most of the sugar mills established before 1960s.

Economists, however, said that the problem could have been addressed long ago through the Balancing, Modernisation, Rehabilitation and Expansion long before the mills were buried under mountains of losses.

‘It was never the intent of the government to make sugar mills work,’ said Bangladesh Sugar Mill Sugar Cane Growers Federation general secretary Shahjahan Ali Badshah.

‘A very powerful syndicate has long been active to prove that the state-owned sugar mills are non-profitable only to get hold of the huge land property of the mills,’ said Badshah.

Some historical facts following the closure of state-owned mills and factories substantiate Badshah’s apprehension.

After six of the 15 state-owned sugar mills suspended their operations, academics and rights activists convened a press conference in late December of 2020 to remind that 31 of the 75 state-owned industries handed over to the private sector between 1993 and 2010 were closed down.

Some private owners, they mentioned, sold out land and machineries of the former public-sector industries at cheap rates while others obtained huge bank loans against their properties.

Also, the country’s sugar mills have a very low rate of sugar recovery, which is the amount of sugar obtained in relation to the crushed cane weight.

Bangladesh in 2020 recovered only 5.8 per cent sugar, the second lowest sugar recovery rate since 1972.

Brazil, the largest sugar producer in the world, recovers 14 per cent sugar from its cane while the rate is about 12 per cent in some Indian states.

In Australia and Mexico the recovery rate is above 12 per cent while Thailand gets 10 per cent sugar from its cane.

‘The abnormally low sugar recovery rate in Bangladesh eludes reason,’ said BSRI director general Amzad Hossain, adding that it is possible to extract 8 per cent sugar even from Kans grass, also known as ‘Kash’.

According to BSRI officials, sugar cane varieties released by them through rigorous evaluation contain from 12 to 15 per cent sugar.

BSRI’s historical data about sugar production shows that the sugar recovery rate was not always so low.

In 22 of the 47 years after 1972 the sugar recovery rate was about 8 per cent with the highest recovery rate of 8.77 per cent achieved in 1989–90.

Timely harvesting and crushing is crucial to get the best out of sugar cane but the state-owned sugar mills often fail to harvest in time and crush sugarcane in 24 hours after cane is harvested.

‘The reasons pushing the sugar production cost through the roof could have been checked easily, at least to some extent,’ said Anu Muhammad, who teaches economics at Jahangirnagar University.

‘It is clear that the government has let mismanagement and corruption reign in sugar mills to bring them to their end,’ he said.

The 2016 research published in the Sarbojonkotha showed that a 10.85 per cent sugar recovery could cut the production cost of a kilogram of sugar in 2011–12 from Tk 105.40 to Tk 43.96 given that 23.35 lakh tonnes of cane was crushed.

In that year, the state-owned sugar mills crushed 15.63 lakh tonnes of cane with 6.85 per cent recovery, said the research.

Despite access to better cane varieties and other facilities, BSRI data showed, the per hectare cane production in mill zones was less than in non-mill zones.

The average per hectare cane production in mill zones after 1972 was 42 tonnes while non-mill zones produced 46 tonnes, showed BSRI data.

India produced 78 tonnes sugar cane on each hectare in 2019 while the world average of per hectare cane production was 60 tonnes.

Bangladesh succeeded in producing the highest 50.79 tonnes on a hectare in 1994–95, the year the country had its highest productivity in history.

Researchers said that delayed payment by sugar mills and fall in market prices prompted farmers to keep aside their best land for growing other crops, causing a decline in both quantity and quality of the output.

According to BSRI data, farmers in 2018–19 received 4.44 per cent less from selling a kilogram of sugar compared to 1999–2000.

The price for each kilogram of locally-produced sugar had also fallen by more than 44.44 per cent over the period, BSRI data showed.

Piling up bank loans have also pushed up the production cost greatly.

In 2020, the money paid in bank loan interest by the sugar mills accounted for 34 per cent of the production cost of each kilogram of sugar, up from 13.14 per cent in 2009–10 and 5.79 per cent in 1985–86.

Arifur Rahman Apu, the newly-appointed chairman of the Bangladesh Sugar and Food Industries Corporation, said that there was no way of denying that inefficiency, mismanagement and corruption were behind the sugar industry’s fall.

‘The government is trying to revitalise the industry,’ he said.

Successive governments never wanted to find out what was behind the persistent loss in the sugar industry though anecdotal evidence of corruption and irregularities came out.

On occasions isolated irregularities were discussed by the parliamentary standing committee on the industries ministry or were investigated by the Anti-Corruption Commission.

On August 25, 2019, the parliamentary standing committee called for the removal of the BSFIC officials and employees involved in corruption and irregularities.

Despite a high demand among consumers for the local sugar, at least 38,000 tonnes of the product has remained unsold till now.

‘I just don’t understand. How they [BSFIC], with such vast assets and high demand for their product, can become a losing concern!’ wondered Akteruzzaman, a grocer at Mugda in the capital, after finding that the daily supply of BSFIC sugar for wholesalers and retailers was sold out at 12:30 pm on January 3.

In front of the desk retailing sugar at the BSFIC headquarters there also was a long queue of customers who believe local sugar is healthier than imported sugar.

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