July 2009, Nos. 52&53

Economy

Sugar Production Crisis in 2009-10

We must admit that the government has caused many problems for the sugar industry in the past four year which proves that correct industrial thinking is requisite to achieve optimal production.

It is undeniable that industrialization, more than anything else, hinges on industrial way of thinking. Undoubtedly, that way of thinking is the first condition to achieve peak production and its absence may bring industries to their knees. Industrial analysts maintain that having a productive thought will both increase industrial added value, and protect existing industries. However, distancing from logical requisites of industrialization will bring about a situation which is being currently experienced by many industries in Iran. Take sugar cane industry as an example.

Some economic analysts maintain that launching that industry a few years ago, has cost the country about 15 billion dollars. However, excessive sugar imports by the ninth government since 2005 has brought the industry to standstill. Of course that had already happened to several other industries, but the case of sugar cane industry and joblessness of more than 3,000 workers of Haft Tappeh plants is the best example to show that lack of coherent industrial thinking will even halt a well-established industry.

Now the Iranian economy has reached a point that if the plant could produce 500,000 tons of sugar, it would be a feast for industry analysts. Based on available information, 1.101 million tons of sugar was imported last year while total domestic production in 2008 stood at about 500,000 tons. Meanwhile, domestic sugar output stood at 1.05 million tons in 2007 and imports amounted to 1.17 million tons. Sugar imports reached a record in 2006 at 2.481 million tons and Iran is now one of the world’s biggest sugar importers along Russia, Indonesia, the United States, the United Arab Emirates, Ukraine, South Korea, China, Japan and Nigeria.

Perhaps a reason for relative reduction in imports last year was higher import tariffs which were finalized by Article One Commission late last year. On the other hand, domestic sugar output has been consistently above one million tons between 2003 and 2007. Due to a variety of reasons, including reduction of import tariffs, drought and lack of correct planning, domestic sugar output fell by over 50 percent compared to 2007 and the fall is expected to continue into the current year.

Member of directorate of the Iranian Sugar Plants Guild Association has noted that the new Iranian year will be a much more difficult year for sugar industry. Bahman Danaei has noted that a decision made by the cabinet last year to buy 200,000 tons sugar from beetroot plants has not been put into force by now.

Secretary of the Iranian Sugar Plants Guild Association also stated that the cabinet decided last December that the government should purchase 200,000 tons of sugar from beetroot plants in order to help them pay their debts, but that has not happened yet. He continued by saying, “This has increased those plants’ debts to beetroot farmers and beetroot output is expected to fall from last year’s 1.7 million tons to 1.2 million tons this year… Also, in his provincial visit to Khuzestan last December, President Ahmadinejad ordered minister of commerce to purchase 130,000 tons of stocks of beetroot plants, but his order has not been carried out yet… According to previous plans, domestic sugar production should have reached about 1.8 million tons this year to make us self-sufficient, but in view of the existing conditions, it is not expected to go beyond 500,000 tons.”

Danaei also noted that the preceding Iranian year was the worst year for the industry which was unprecedented in the past 40 years. “About 500,000 tons of sugar has been produced and the situation is expected to further deteriorate during the current year. It is not clear why the cabinet decision and the presidential order have not been carried out yet and which institution is responsible for non-implementation of those decisions.”

Secretary of the Iranian Sugar Plants Guild Association further stated that recent increases in import tariffs of raw and white sugar by 20 percent and 35 percent, respectively, will do no good and will only increase price of the imported sugar by about 400-500 rials per kilogram, which is unnoticeable.

“Under these conditions, instead of raising tariffs, the government should implement Paragraph 40 of the current year’s Budget Act which has obliged the government to consider an average effective rate of 13 percent for tariff of imported goods in order to support domestic production and extend the same support to agricultural end products which is considered for automakers.”

He stated that according to the above paragraph of the Budget Act, the government should increase import tariffs for sugar from the current figure of 35 percent to that of foreign cars; that is, 90 percent, which is hoped to take sugar plants to their normal state.

Danaei added that beetroot has been priced at 620 rials per kilogram by the government during the current Iranian calendar year (started March 21, 2009), which is up 24 percent compared to last year’s figure of 500 rials per kg.

“Since beetroot accounts for 65 percent of the cost price of sugar, this will increase overall production costs,” he said.

The official noted that when the price of raw material is increased by 24 percent and salaries rise by 35 percent, a 35-percent tariff for white sugar will not be useful and the government should immediately implement the Budget Act and raise the tariff to 90 percent.

“We must admit that the government has caused many problems for the sugar industry in the past four year which proves that correct industrial thinking is requisite to achieve optimal production. Wasn’t collapse of sugar cane industry a hefty cost to gain this experience?” he asked.