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If the retail price of sugar in the country has nearly doubled over the past three years, it is not just the sugar millers and traders who have enjoyed the bonhomie. Unsurprisingly, the price of gur (jaggery) has also increased in tandem, rising by as much as two-third during the same period. But not everyone is equally richer, it seems!

In an interview with BR Research, chairman Pakistan Sugar Mills Association (PSMA) Iskander M Khan noted that the gur makers have been building their fortunes on the ashes of sugar mills of the Peshawar valley! While it sounds dramatic, the story Iskandar describes bears both emphasis and investigation.

According to the PSMA chairman – who is also the sponsor director in four out of eight sugar milling units in Khyber Pakhtunkhwa – the gur making industry in Peshawar valley (consisting of Peshawar, Charsadda, and Mardan districts of the province) has run four valley mills into the ground.

Why? The undocumented nature of the gur making enterprise – incorrectly referred as cottage industry, insists Iskander – smuggles most of its output to Afghanistan yet does not pay its due share of taxes. Because of the tax distortion (refined sugar sale faces regular GST slabs and prohibitions on export), the milling units located in the region are unable to compete successfully in the race for cane procurement.

Facts concede Iskander’s argument, but only to some extent. Consider that based on officially reported data, two out of four milling units (Charsadda and Frontier) in the region have been out of operation for most of last decade. For the two still operational units – namely, Khazana and Premier, total sugar produced has been reduced to a trickle – from over 60 thousand tons of sugar produced ten years ago to just seven thousand tons in the last season.

Meanwhile, according to statistics provided by KP’s Provincial Crop Survey department, crop produced in the region has remained stable at 3.5 million tons over past several years, inching forward slowly on an upward trajectory. Consider also that the three Peshawar valley districts produce almost 60 percent of crop grown in the province, yet less than 5 percent of it is being sold to the mills located in the region.

If provincial government’s, and PSMA’s figures are to be believed, the plight of Peshawar valley mills becomes glaringly obvious. The purported tax anomaly and profits from smuggling enjoyed by gur makers – if true – also demand redressal. But can the blame be squarely laid at the altar of gur makers?

Consider that based on PSMA figures, the remainder four plants in the province – located in south (outside of the valley) - have been consistently crushing more sugarcane than is produced in rest of the province. If gur makers were absorbing all of the cane grown in Peshawar valley, where are the remainder milling units procuring the excess cane from?

Official sources claim that a significant percentage of cane from Peshawar valley is transported to southern districts of the province – mostly Dera Ismail Khan - where larger units such as Chashma, Al-Moiz, and Tandlianwala are located. Since indigenous crop from D. I. Khan is insufficient to cater to installed capacity of the three units, that claim makes intuitive sense. However, PSMA maintains that D. I. Khan units in fact procure cane supply from neighbouring districts in Punjab and Sindh, instead of Peshawar valley.

The facts of KP’s cane production are clearly muddied in a lot of mystery and demand explanation. Why has Afghanistan’s gur demand increased overnight? The PSMA chairman attributes it to the end of Taliban insurgency, and demand for gur from liquor producers over there, surely an interesting claim!

However, even if most of gur produced in Peshawar valley is being smuggled to Afghanistan, neither the price of sugar nor gur in the city (as per monthly CPI) have deviated much from national averages or historic trend. Iskander explains that away by claiming that impure gur is now being produced in Punjab to cater to KP’s local demand, leading to lower cane availability in Punjab, adding further complexity to an industry already mired in controversy.

KP’s gur making controversy presents an interesting challenge to the incumbents, as PSMA chairman claims involvement of influential local politicians in the purported smuggling racket. Is the provincial government up to the task?