ISLAMABAD: The Competition Commission of Pakistan (CCP) has strongly apprehended that the sugar mills may temporarily shut down their operations, in case, cost of production of sugar is more than the fixed retail price of Punjab government.
According to the recently issued letter to the Punjab government, the CCP stated that the price of sugarcane is the major cost factor in sugar production.
Mills may be hesitant to buy sugarcane at the government’s minimum support price. Support prices have a tendency to raise domestic cost of production when compared to international prices.
If cost of production is more than the fixed retail price, this could lead to a temporary shutdown of operations on their part or, in the worst case scenario, their closure; if such price fixing measures are allowed to continue for a long period.
The CCP stated that the mills could put pressure on farmers to sell sugarcane below the minimum support price (MSP) or they may reduce the quantity they purchase.
If farmers continue to face such a situation in medium to long-term, they may shift cultivation from sugarcane to other crops, which would set the stage for reduced domestic production and undesirable shortages in the market in future.
In this case, the government may have to import sugar subject to the vagaries of international market prices.
The immediate implication of this would be a rising import bill for a commodity for which there is sufficient land and infrastructure available in the country.
In doing so, the Punjab government may remain mindful of the fact that the benefit of price fixing, particularly at the time of Ramazan, is also likely to go to the industrial consumers and perhaps, not to the target poor population because the industrial consumers make up for about 70 percent consumption.
And that it is such consumers who have the ways and means as well as the wherewithal to capture such benefit.
That they pass on the benefit to the ultimate individual consumer is also a concern that calls for attention.
In addition to the economic costs of price controls, there is also an administrative cost of a price fixing decision.
The monitoring of such a decision to ensure that only those who are truly affected by rising prices might well require involvement of the entire bureaucracy with no guarantee of the proposed outcome.
In the past, Punjab government’s scheme of cheap wheat flour resulted in long queues of consumers wanting to purchase an extra bag of cheap atta. Shortages, albeit temporary, emerged in the normal supply chain and people who did not want to purchase subsidised flour were forced to pay extra amount to get it or go unnecessarily without it for days, the CCP added.
Copyright Business Recorder, 2021