Moaaz Manzoor

Escrow-backed payment mechanisms have been proposed to address persistent delays in payments to sugarcane growers and strengthen enforcement of payment obligations in Pakistan’s sugar sector, according to a policy document issued by the Institute of Cost and Management Accountants of Pakistan (ICMA).

The document notes that delayed payments to farmers have been a recurring issue in the sugar industry, despite existing legal provisions that require mills to clear sugarcane dues within a specified timeframe. According to ICMA, weak enforcement of these requirements has contributed to repeated disputes between growers and sugar mills.

To address this issue, ICMA proposes securing sugarcane payments through escrow accounts or similar financial safeguards. Under the proposed system, mills would be required to ensure that funds for sugarcane purchases are secured in advance, with payments to growers released within the legally mandated period.

The document explains that escrow-based arrangements are intended to reduce the risk of payment defaults by ensuring that funds earmarked for farmers are protected and cannot be diverted for other purposes. According to ICMA, this would strengthen compliance with payment rules and improve protection for sugarcane growers.

The study further notes that escrow-backed payment systems would enhance accountability by creating a transparent and verifiable record of transactions between mills and farmers. This, the document states, would enable authorities to more effectively monitor compliance with payment timelines and apply penalties in cases of default.

ICMA emphasises that securing farmers’ payments is a key component of maintaining discipline in the sugar sector as broader reforms are implemented. According to the report, ensuring timely payments would help address the longstanding grievances of growers and support a more orderly functioning of the supply chain.

The document highlights that escrow arrangements have been used internationally to safeguard payments to primary producers and can be adapted to Pakistan’s sugar sector through clearly defined rules and enforcement mechanisms. According to ICMA, stronger enforcement mechanisms would further support adherence to these payment requirements.

The document concludes that securing sugarcane payments through escrow-backed mechanisms is presented as an essential element of the proposed restructuring of the sugar sector. According to ICMA, such measures would help protect growers, strengthen payment discipline among mills, and support the broader reform framework under consideration.

Credit: INP-WealthPk