Finance Minister Shaukat Tarins statement on making strategic reserves rather than raiding hoarders as a solution to control the sugar hoarding dilemma may be good in intentions but is not the right answer to the problem.
The creation and filling of strategic reserves is an unnecessary cost that need not be undertaken as it will require building of stores and purchase of sugar, which would only be a duplication of effort.
Sugar hoarding is, in fact, an agency problem and a conflict of interest. Our regulators, who should safeguard the interests of consumers and producers alike, are not able to carry out their responsibilities objectively because they are under so much pressure from the lobbyists, which skews their decisions to the benefit of producers.
The lobbyists provide funding and influence and their word cannot be ignored easily. The long-term solution to this recurring problem would be to align the interests of the regulators with the interests of the public. How, exactly will this be done, however, is as yet, an unsolved conundrum.
A possible solution would be direct intervention by the government as it happened a few years back with the cement sector. The government held talks with All Pakistan Cement Manufacturers Association (APCMA), Association of Builders and Developers and All Pakistan Contractors Association to develop a long-term pricing solution. The government made it absolutely clear that cartelization would not be tolerated at all and that unjustifiable excuses for price hikes would not be accepted. The governments stern stance was successful and there was a gradual reduction in prices to more reasonable levels.
Such a solution would require that regulators take on more quantitative measures for cost justification. Although a few sugar mills are listed, the audit quality is quite low and the statements are rarely made public. Millers should be asked to provide audited cost and financial statements so that a cost audit may be carried out to set prices. As in the case of cement makers who were clearly warned of the consequences in case they do not cooperate, strict punitive action should be taken against millers, if need be.
Documentation is a positive step not only for the sugar sector but for the entire commodity market. For example, documenting the wheat sector has been particularly troublesome and has resulted in the mismanagement of wheat supply, even during bumper crop years. Recorded and tracked costs and expenses would not only help in pricing solutions, but would also be helpful in subsidy allocation and tax collection making Pakistans management of its commodities all the more efficient.
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