1kg sugar costs Tk300 at govt mills. Privatisation now the future?
The government shut down 25 state-owned jute mills in 2022 due to losses, of which 16 were so far leased to the private sector
The state-owned sugar mills appear to be following in the footsteps of the jute mills – being given to the private sector after decades of losses. A recent directive from the prime minister certainly points in that direction.
After numerous costly endeavours spanning decades failed to revive these mills, the government is now seriously contemplating divesting itself from the sugar business, which private importers and refiners effectively dominate.
In a meeting of the Bangladesh Planning Commission on 24 January, Prime Minister Sheikh Hasina directed authorities concerned to adopt a similar strategy for sugar mills as applied to state-owned jute mills.
She highlighted the successful management of loss-making jute mills in the private sector after around 26,000 jute mill workers were sent into retirement through a golden handshake approach (a payment given to an employee who is made redundant or retires), according to the meeting's minutes, which bear the prime minister's signature.
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Bangladesh produces perhaps the world's most expensive sugar – Tk300 a kg, with the cost of production in its state-owned mills going eight times higher than that in Brazil and India — the world's two largest sugar producers.
The state-owned sugar mills, while fulfilling merely 1% of the country's annual sugar requirements of roughly 20 lakh tonnes, are saddled with around Tk9,291 crore in bank loans and Tk5,300 crore in accumulated losses. They rely on government handouts to cover workers' wages and settle farmers' bills for sugarcane annually.
Carew & Co stands as the sole exception, generating profits not from sugar but from its distillery plant, which produces liquor. This revenue surge is attributed to the high duty imposed on foreign liquor, leading to increased sales.
The government shut down 25 state-owned jute mills in 2022 due to losses, of which 16 were so far leased to the private sector. Five of these leased mills started production under private management while others are currently gearing up for production.
Of the 15 sugar and allied mills under the Ministry of Industries' Bangladesh Sugar and Food Industries Corporation (BSFIC), six were shut down in 2020 as they were facing heavy losses. Two sugar mills — Shyampur and Zeal Bangla — are listed on the stock exchange. Another firm Renwick Jajneswar & Co, which manufactures spare parts for the sugar mills under BSFIC, is also listed on the stock market.
If the premier's latest directive is implemented, the BSFIC mills with 8,681 workers and employees will have to face a similar future as in state-owned jute mills.
With the six mills remaining shuttered, the financial records of the remaining nine mills — except Carew & Co. making Tk193.5 crore in accumulated profits as per the audit report of FY23 — indicate significant losses amounting to crores of taka.
The industries ministry has requested the finance ministry to waive interest, which grew two times the amount the mills borrowed from banks.
Economist Ahsan H Mansur, executive director of the Policy Research Institute, told TBS that the government should disengage from attempting to manage such struggling institutions.
He said privatising these institutions could be a viable solution, offering benefits to both banks and the state.
Can the sugar mills be revived, still?
However, the Ministry of Industries and its BSFIC are hopeful of reviving the ailing mills and enhancing their output.
When asked about the future of sugar mills, Zakia Sultana, the senior secretary of the Ministry of Industries, told TBS that she was not present in the planning commission's meeting where the prime minister's instruction came.
"We anticipate a turnaround for the sugar mills starting from next year. This is why we are implementing various plans. This year, we have seen an increase of 10,000 tonnes in sugarcane production compared to last year. We are encouraging farmers to boost production further next year. There is no need to resort to offering voluntary retirement schemes to financially struggling sugar mill workers," the secretary said.
BSFIC Chairman Sheikh Shoebul Alam also told TBS that he is unaware of any instruction the prime minister gave in the planning commission meeting.
He, however, mentioned that under the direction of the industries secretary, initiatives are being taken to keep the sugar mills running which can be made sustainable.
Industries ministry tried several attempts to energize worn-out mills through modernization of machines and other initiatives. Last year, a consortium of three companies from Japan, Thailand and the United Arab Emirates (UAE) – came up with Tk5,000 crore investment proposal for three state-owned sugar mills. None of those initiatives progressed much.
Why the mills are at a loss
According to BSFIC reports, state-owned sugar mills in FY23 produced 21,313 tonnes of sugar, nearly a fourth of the amount produced three years ago.
Due to a substantial loan burden and the mills operating for only three or four months during the sugar cane crushing monsoon season, while still maintaining permanent employees throughout the year, significant losses are incurred annually.
Top officials of the state-owned sugar mills told TBS that the cost of producing per kilogram of sugar amounts to approximately Tk300, factoring in operating and financial expenses.
In contrast, the production cost of raw sugar in India is $407 per tonne, which is $351 in Brazil, less than Tk45 and Tk40 per kg respectively. The two countries account for 40% of global sugar output, according to Czapp, a Brazilian sugar market research site.
The high production cost makes sugar produced in state-owned mill uncompetitive with sugar from private refineries, who import raw sugar.
According to market data, the retail price of sugar manufactured by public mills is at least Tk165 per kilogram—much lower than its production cost, but higher than the market price of sugar from private millers.
Six private sector companies have made substantial investments in importing raw sugar and refining it for local consumption. With the increasing demand, these companies are expanding their investments, resulting in each company making profits annually.
Sugar turned volatile last year in the local market and price soared, still remaining high at Tk145 per kg. The government recently slashed duty to prevent its price from soaring further in Ramadan, which starts in the second week of March.
