“If you can’t beat them, join them”

It would be comical if it weren’t so tragic. Yesterday’s front news page carried three news stories placed adjacent to each other. First, CCP’s ground-breaking hearings concerning cartelization in the sugar industry. Two, FBR (LTU Karachi)’s detection of Rs 200 billion revenue leakage during the audit of the sugar sector. Third was the following headline under which the first two news stories were placed: “ECC allows tariff relief to sugar mills on commercial import of sugar up to 800 thousand tons”. Innocuous coincidence?

It has been less than a year since members of federal cabinet – instigated by the PM himself – began their crusade against those who were once ‘branded sugar barons’. If optics is what matters most to the PTI government, today it appears to be bending backwards to facilitate the industry in a desperate attempt that key players might lower the ex-factory price of sugar. Ten months ago, this space had cautioned against what then appeared to be a prejudiced inquiry, as it now cautions against surrendering under pressure from vested interests.

(For a backgrounder on comments by BR Research on the sugar inquiry report, read: “Sugar inquiry: initial thoughts”; “What is unjustified about sugar exports?”; “Why is sugar industry politically influential?” and, “How price & trade control broke the camel’s back”, published between April and June, 2020).

After building a media narrative against the industry for 10 months, it now appears that the MoIP has succumbed to the age-old maxim of “if you cannot beat them, join them”. Instead of holding fort against the industry association’s campaign blaming forecast of poor sucrose recovery and lower output on government’s decision to start crushing season early in November, sugar mills have now been allowed quota to import white refined and raw sugar on lower tariff (reduced custom duty of 0.5 percent and waiver of VAT) to build buffer stocks for domestic consumption.

What’s wrong in lowering tariffs and facilitating free trade, one might wonder? Short answer: quotas. Offering relief on tariff by assigning import volume quotas is no different than export volume quotas assigned by past governments, as it raises barriers to entry for other willing participants (traders and merchants) who may otherwise be able to supply the commodity at more competitive prices.

Those in the echelons of power who sincerely believe this to be a clever ploy aimed at reducing price of retail sugar must take a pause. With non-milling players unable to participate or competitively bid for supply of sugar, rest assured that the landed cost/import parity price in the coming months will conveniently find itself settling at the same level as ex-factory price offered by the industry domestically. After all, sugar mills have only been assigned a volume for imports, not directed to import at pre-determined price levels. Also recall that the import quotas have been conveniently announced at a time when sugar prices are on an upsurge globally, marching ahead by 30 percent in just last six months.

Many readers may only find validation to discover that the idea of accountability for industry barons was only thrown around as a buzzword to accrue political mileage. What has also been reconfirmed, however, is that you cannot outfox the seths in this country. Not even in Naya Pakistan.