High production cost pushes up state sugar mills' losses - Share market analysis of dhaka stock exchange, Bangladesh

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12 March, 2015 09:58 AM Source: The Financial Express Bangladesh

Farmers' preference for short-duration crops has created shortage of sugarcane, thus pushing up production costs of state-owned sugar mills, whose accumulated losses hit a new high of Tk 35 billion.

"Shortage of raw materials has become a major problem for us. This has increased our production costs," SM Abdul Aziz, managing director of Thakurgaon Sugar Mills Limited told the FE Wednesday over phone.

"Farmers are now diversifying their crops from sugar cane to ones that can be harvested in shorter period. For this, we do not get sufficient raw materials," he said.

He added that short supply of raw materials has reduced the mill's utilisation rate, now running on less than 15 per cent capacity.

"Higher salary and wages and outdated machinery are also responsible for the situation. We can get supplies of raw materials for at best two months."

"But we're paying our officers and staffs for the rest 10 months, although they sit idle," he added.

Besides insufficient supply of raw materials, officials attributed such losses to its managerial failure, outdated machinery, and uneven competition from the importers, especially local refiners.

Around 30 per cent of the corporation's yearly expenditure go to salary purposes for more than 16,000 officers and staffs of the corporation and nearly 20 per cent go as bank interest, according to data available with the Bangladesh Food and Sugar Mills Corporation (BFSMC).

The rest of the amount is spent on the procurement of raw materials, administrative costs, maintenance of machinery and fuel and energy.

According to official data of the BFSMC, aggregated losses of the corporation were Tk13.48 billion in 2009-10 financial year. And its losses stood at around Tk 35.68 billion alone in the last fiscal.

Md Sahidullah, managing director of Setabgonj Sugar Mills Ltd, said maintenance cost of sugar mills surged significantly as almost all the machinery are outdated.

"If the machinery were replaced or rehabilitated, expenditure and efficiency of sugar mills will increase remarkably. Almost, all the machineries were set-up in Pakistan period, which needs to be changed, otherwise production cost will increase day by day," he added.

ABM Delwar Hossain, chairman of BFSMC, said higher production cost and competition from the importers mainly the local refiners is the main obstacle to their business.

"Our production cost is around Tk 80 per KG, but we are compelled to sell sugar at Tk 37 per KG due to the uneven competition. The Indian government is giving huge amount of subsidies in sugar production, for which they can export at lower prices," he added.

Mr Hossain, however also said if the government agencies would purchase sugar from the state-owned entity, then losses would have come down.

He noted that the corporation was compelled to reduce prices of sugar from Tk 60 to Tk 37 in the last four years to clear the stock.

The BFSMC chairman, however, expressed his hope that the corporation has taken steps to produce sugar from bit which is highly productive and sweeter than sugarcane.

"We have initiated a contract farming of bit, a kind of raw-material of sugar mills which gives several times higher production than sugar cane. If the initiative is successful, we are hopeful of being competitive in the market," Hossain told the FE.

Meanwhile, BFSMC chairman urged the government to make mandatory to buy locally produced sugar to all the government agencies including BDR, Bangladesh Police, TCB and other agencies those sell or distribute sugar among their officers and staffs for the sake of livelihood of over 16,000 officers and staffs of the corporation and thousands of sugar cane cultivators and their dependants.

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