Wrong steps ruin Bangladesh sugar industry

Emran Hossain | Updated at 06:14pm on January 24, 2021

The liberalisation of sugar import has subjected the ailing state-owned sugar mills to an uneven competition, bringing them to the brink of collapse with the operation in six of the 15 public mills already suspended.

According to economists, Bangladesh’s sugar mills are uncompetitive mostly for their high production cost while the withdrawal of restrictions on the import of cheap sugar has turned their condition from bad to worse, making their fall inevitable.

While half a dozen private companies have benefited from the liberalisation, thousands of sugar cane farmers, sugar mill workers and thousands others who have built their lives around sugar mills have lost or are about to lose their livelihoods, they said.

The liberalisation has brought with it some obvious privileges for importers, such as import-tax relaxation, gradually pushing the local sugar industry to the edge while successive governments have never acted to protect or revitalise the local industry.

Nor has the government taken action against importers as they did not export half of the output they processed, a condition imposed during the liberalisation on importers.

The importers were also required to help the government keep the market stable, but instead they have held the local mills under stress by selling sugar at a low price.

‘Making the highly inefficient, corruption-ridden local sugar industry to compete with the highly efficient and skilled international sugar industries is like making a kid battle a monster,’ MM Akash, who teaches economics at Dhaka University, told New Age recently.  

‘The kid is sure to lose the battle unless protected and trained up to face the monster,’ he observed.

Since the sugar import was liberalised in 2002, the country’s sugar cane cultivation acreage fell by 45 per cent to slightly over 48,000 hectares in 2019 from more than 88,000 hectares in 2002, leading to over 66 per cent fall in the production, shows the Bangladesh Sugar and Food Industries Corporation’s data.

In 2019, until when comprehensive yearly government data was available, about 69,000 tonnes of sugar was produced compared with 2,04,000 tonnes produced in 2002.

Only once in the 47 years since the country’s independence did sugar cane acreage dip so low in 1973 with sugar cane cultivated on close to 48,000 hectares in the war-ravaged Bangladesh.

In the 18 years since the sugar import was liberalised, the BSFIC saw profit only once in 2005–06, the year sugar mills had a good output plus a considerable import.

State-owned sugar mills made profit in 10 of the first 12 years after Bangladesh’s independence. On the other hand, in the 17 years after 1984–85, the BSFIC saw profit only twice. 

The share of the local sugar industry in meeting the country’s demand fell to less than 4 per cent in 2019 from about 20 per cent in 2002, the year the import liberalisation was allowed in Bangladesh. 

The gap between the production cost and the market price of sugar also saw an abnormal increase after the liberalisation.

In 2002, the production cost of each kilogram of sugar was Tk 34 while the market price was Tk 27. But in 2019, the production cost skyrocketed to Tk 219 a kilogram, nearly four times the market price of Tk 55.

While mismanagement and corruption was partially responsible for the decline in production and the spike in production cost, economists said, the import glut of cheap sugar also played a significant role in putting the local sugar industry in distress.

‘After the import of cheap sugar began the local sugar industry lost their market all of a sudden finding it hard to get buyers for their costly product,’ said MM Akash.

In 2002, according to BSFIC data, each kilogram of refined sugar sold for about Tk 13 on the international market against the then local market price of Tk 27.

In 2019, the international market price of a kilogram of sugar was about Tk 28 against the local market price between Tk 44 and Tk 55.

While importers profited greatly from low international market prices, state-owned sugar companies experienced a steady rise in their losses, struggling to bear the constant high fixed costs such as salaries and huge property maintenance spending as they were forced to sell their sugar at prices far less than their production cost.

Dhaka University’s accounting and information systems associate professor Moshahida Sultana studied the effects of the liberalisation of sugar import on state-owned sugar mills in 2016.

‘A deep sense of uncertainty set in across the local sugar industry after the import of cheap sugar began and their market share rapidly increased,’ said Moshahida.

Sugar corporation officials recalled the days immediately after the liberalisation of sugar import as a nightmare with huge quantities of sugar remaining unsold at their storages across Bangladesh.

For the first six years after 2002 the state-owned sugar mills could not find a way to sell their product.

The healthier brown sugar began disappearing fast from market shelves with imported cheap white sugar taking its place, they said.

But the worst was yet to come.

In 2004, the government allowed the import of raw sugar, which was cheaper than refined sugar, saving minimum $100 per tonne for the importers.

The government also allowed sugar refineries to operate in the country on the condition that they would export half of their output and help the country keep the sugar price stable.

But raw sugar importers have never complied with the condition, putting the local industry under stress by selling cheap sugar. 

In 2005–06, the government reduced the regulatory duty on sugar import to 46 per cent from 103.38 per cent in 2003–04.

In 2007, the regulatory duty was waived with the fixing of specific duty for each tonne of import — Tk 5,000 for refined sugar and Tk 2,250 for raw sugar.

The import of raw sugar increased astronomically after 2006 when the import was 1.44 lakh tonnes. In 2010, the raw sugar import reached more than 12 lakh tonnes, enough to meet the total national demand with the imported cheap raw sugar alone.

The local sugar output fell to a little over 62,000 tonnes in 2010. The sugar production increased a little over the next four years and reached 1.28 lakh tonnes in 2013–14.

But the output almost halved the next year and kept falling. It is expected to reach a historic low in 2021.  

The government sugar authorities reduced the local sugar price thrice in 2006 as cheap-sugar importers always kept their price just below the government’s.

The next year the authorities had to reduce the local sugar price four times with each kilogramme of the commodity selling at only Tk 25 a kilogram, a 35 per cent fall in the price in a year.

In 2007, the sugar price came down to the level of 1989-90, showed the Bangladesh Sugar and Food Industries Corporation’s data.

Never before the liberalisation the BSFIC faced such a volatile market, when it mostly fixed sugar price once a year.

In 2008, the corporation slightly raised its sugar price but had to change it seven times.

‘Although the sugar price was falling, the production cost was not. The production cost was in fact increasing,’ said MM Akash.

In 2014–15, more than 19 lakh tonnes of raw sugar was imported, which was nearly 36 per cent more than the annual demand for 14 lakh tonnes. The state-owned sugar mills produced 77,000 tonnes in that year.

In 2019, the raw sugar import reached almost 21 lakh tonnes, far above the country’s demand for 18 lakh tonnes.

The uneven competition from the imported cheap sugar forced the BSFIC and its sugar mills to increase borrowing from banks to withstand the increasing losses.

In the process, the annual interest payable to banks rose to over Tk 500 crore in 2019 from Tk 33 crore in 2006 for the BSFIC and its sugar mills.

The burden of bank arrears and debt to sugarcane farmers also increased as the corporation and its mills failed to pay farmers and workers.

The delay in receiving payments forced many sugar cane growers to switch to other crops while those still in the cultivation of the crop began growing it on low and fallow land, which greatly affected the sugar cane quality and made the sugar industry recovery further difficult.

Economists said that there were many ways of recovering losses for the state-owned sugar mills endowed with huge land property.

High import tariffs could have bought local sugar industry some time to stand on its own feet while investment in new technology could have raised the efficiency of old sugar mills and the skills of their workers and farmers, they said.

Diversifying into products such as alcohol and the utilisation of by-products such as molasses could have been two other ways of increasing income for state-owned sugar mills, they said.

‘The government actually does not want the sugar industry to survive,’ said economist Anu Muhammad.

A section of government officers in collusion with importers is destroying the state-owned sugar industry in a planned way, he said.

Import of refined sugar was always an important way for the BSFIC to cope with its losses whenever the production fell before the liberalisation, showed BSFIC data.

But the BSFIC import went on going down after the liberalisation and completely stopped four years ago, data showed.

BSFIC officials noted that on occasions they were forced by successive governments to sell refined sugar at prices far less than their costs of import and production for keeping the market stable.

They were also often prevented from selling sugar during Ramadan, when sugar price reaches its peak, denying them the best opportunity to make profit, they said.    

Arifur Rahman Apu, the newly-appointed BSFIC chairman, agreed that the liberalisation played an important role in pushing the state-owned sugar mills to its present distress but refused to comment further.

In 2002, the year of liberalisation, the overall loss of sugar mills was Tk 118 crore.

In 2019, the loss climbed to over Tk 1,000 crore.

In 2015, the government again imposed regulatory duty on sugar import but at a much lower rate compared to the previous time.

Economists are sceptical about the move yielding any result as the damage had already been done.

On December 2, 2020, the BSFIC suspended the operation in six of its 15 sugar mills citing increasing losses.

Bangladesh Sugar Mill Sugar Cane Growers Federation general secretary Shahjahan Ali Badshah believes that the motivation for conspiring against the state-owned sugar mills lies beyond sugar business.

‘The state-owned mills have 19,000 acres of land worth Tk 30,000 crore,’ said Shahjahan.

‘I believe that the syndicate involved in the conspiracy is after the land,’ he said.