ISLAMABAD, March 12: The government has agreed to purchase about 500,000 tons of surplus sugar from the mills to replenish its buffer stock and ensure that sugar prices do not fall below Rs18 per kg in the local market.

Informed sources told Dawn that an understanding to this effect was reached between Finance Minister Shaukat Aziz and Pakistan Sugar Mills Association (PSMA) Chairman Sikandar M. Khan recently.

The PSMA sources said the industry had told the finance minister that it was on the verge of collapse because the government had refused to facilitate export of surplus sugar.

The industry told the finance minister in very clear terms that in case the surplus was not lifted, the mills would not start next crushing season before January 2005.

These sources said the decision to purchase the whole of surplus sugar would be announced after seeking a formal approval from Prime Minister Zafarullah Khan Jamali. A summary in this regard is being sent to the prime minister for approval.

The sources said the finance minister was not ready to provide subsidy to the sugar industry for exporting the surplus commodity because the government had already incurred a loss of Rs700 million at the start of the season when it exported about 100,000 tons.

A further export would not only cause an additional loss to the national kitty, but local prices would also go up. The minister, therefore, offered to the PSMA to sell the whole surplus to the government for buffer stock.

The PSMA had concerns that local prices would crash in case the government had such a large stock at its disposal, which would plunge the industry into crisis. On that, the industry was assured that the prices would not fall below Rs18 per kg.

Meanwhile, a meeting of the newly-constituted 12-member sugar committee led by the secretary industries and production decided to recommend to the government to purchase substantial quantity of surplus sugar either for export or for keeping it as buffer stock to cater to the future domestic requirements.

The meeting also decided that sugar would be purchased by the Trading Corporation of Pakistan through open tender within a specified time period. It was also decided that the dues of sugarcane growers would be cleared by the sugar mills simultaneously with the proposed purchase of sugar by the government.

The committee comprising representatives of ministries of finance, commerce, agriculture and industries, sugarcane commissioners and the PSMA was constituted by the industries minister early this week to suggest policy measures for resolving problems of the growers and the millers on a long-term basis.

The meeting considered various problems of the growers and sugar industry and noted that due to the bumper production of sugarcane there would be a record production of sugar.

The meeting was informed that sugar production was estimated to be 3.8 million tons as against 3.67 million tons during 2002-03.

It was estimated that at the beginning of the next crushing season, the carryover stock of sugar would be about 500,000 tons. As a result there will be a large quantity of surplus sugar available with the mills.