EDITORIAL: Domestic sugar price continues to defy attempts by the Khan administration to bring it down through subsidies, imports and/or export rebate - measures that have come at a great cost to the national exchequer; and what is particularly puzzling is that this situation prevails in spite of the Prime Minister and his cabinet members making public the worst kept secret with respect to prevailing imperfect market conditions in the sugar inquiry report a year ago.
So what are these market imperfections? There is cartelization amongst the 80-odd sugar mills in the country which is exercised in defiance of the country's competition laws at both ends of the mills engagement: against the farmers by not paying them at the time of delivery of sugarcane, with delivery delayed to manipulate the sucrose content to reduce the price; and curtailing supply in the market to raise price and rake in windfall profits.
Measures to check prices which have benefited the mill owners include: (i) release of billions of the taxpayers' rupees as export subsidy by the mills arguing that the international prices of sugar are lower than domestic prices and hence to export surplus sugar, to enable the mill owners to purchase the new sugarcane crop from the farmers would necessitate export subsidy; no doubt the considerable political influence enjoyed by many of the mill owners facilitated the approval of this subsidy by the federal and the provincial governments and in this context, it is relevant to note that during the past three years the federal and Punjab governments released export subsidy; (ii) creating an artificial shortage in the domestic market (as per the sugar inquiry report even after receiving an export subsidy), thereby raising domestic prices. What is baffling today is that in spite of surplus output, surplus to domestic demand, the price of sugar remains high in the market; (iii) importing sugar not to meet any domestic shortage but to contain the price. In this context, it is relevant to note that end of June this year the Finance Minister allowed the import of 100,000 tons of sugar due to concerns over the possibility of speculative pressure destabilising the market before arrival of new sugar in the market; and (iv) providing a subsidy from the taxpayers' rupees to keep the sugar price down and disturbingly only a very limited amount is available to each buyer after spending a lot of time standing in long queues.
So what is the solution? Publicly threatening mill owners with dire action (around 13 sugar mills are presently on the radar of the Federal Investigation Agency) has proved counterproductive in two respects. First, the mill owners appear to have decided to take on the government rather than sit on the table to reach a reasonable agreement. And second, the largest recipient of export subsidy, Jehangir Tareen, showed his strength in parliament compelling the government to back off from taking legal action that in any case was not merited; and another large export subsidy beneficiary family occupies cabinet slots in the federal and Punjab governments.
The Punjab government's decision to fix the price of sugar at 85 rupees per kg after the federal government calculated ex-mill price of sugar at 80 rupees per kg was opposed by the Competition Commission of Pakistan (CCP) a couple of months ago which noted "the short-term benefit of fixing prices (if any) does not justify the long-term loss caused by such policies...when regulations consistently fail to achieve their desired objectives of fair prices and competition, it is perhaps prudent to reconsider them - even scrap them." It is important to note that the Khan administration's threats to political opponents as well as against the elite capture of lucrative sectors/subsectors have yet to pay any dividends. Perhaps part of the problem lies in opening too many fronts at one go, which has derailed its own capacity to effectively deal with the use of illegal force by a host of protesters - religious parties/lawyers/traders, etc. There is, therefore, a need for the government to prioritize the sub-sector it must deal with first and instead of making public threats quietly work behind the scenes to hold those operating against the country's laws to task.
Copyright Business Recorder, 2021