ISLAMABAD: The price of sugar should be determined by market forces instead of being fixed by the government.
This was the consensus of the experts gathered at the consultative roundtable on draft report, “Government Regulations and Trade Potential: The Case of Sugar Market in Pakistan” held by the PRIME Institute, here on Thursday.
According to the presentation of Tuaha Adil - research economist at PRIME, the licence regime for the establishment/expansion of mills should be reconsidered.
The Competition Commission of Pakistan (CCP) should be strengthened to promote competition and fair practices in the sector.
He suggested that the efficacy of Minimum Support Price (MSP) needed re-evaluation. The determination of the MSP needs to take into account the cost to farmers.
The export of sugar should be open throughout the year without approval from the government. The import of raw sugar could be allowed without tariffs to provide necessary raw materials to mills to operate at maximum capacity.
The criteria for the pricing of sugarcane should be linked to sucrose recovery to prompt farmers to cultivate better crops by using higher-quality seeds. Administrative controls should not be used to enforce prices rather market forces should be allowed to stabilise prices.
Shaista Gillani, a former member of the CCP said that presently, there was no independent mechanism to fix the support price. From a policy angle, the cost and benefit analysis of the sugar industry is necessary covering areas of administrative and enforcement cost.
During the last few years, the profits of the sugar sector are going down and this needs to be analysed.
The CCP always advocated for a free market mechanism for the sugar sector, she added.
Asim Ghani Usman - chairman Pakistan Sugar Mills Association stated that many factors had impacted the price of sugar including an increase in sales tax from 10 to 17 percent during the last few years. “If the government allows the export of sugar, the industry would ensure to maintain domestic reserves and the farmers can timely get their price. The Sugar Advisory Board is also not timely providing data and information to the industry. The sugar mills were not working as charity, but they were doing business to earn profits, Usman added.
Sharing report, experts from the PRIME said the unique feature of the sugar industry was that every aspect of the operation: licensing, capacity expansion, trade decisions, price of sugarcane, the beginning of crushing season, fixing of ex-factory and retail price- all require some form of government intervention or approval. The sugar market in the country is overregulated on the back of numerous laws and government controls, thereby, making the operation of the market complex and regulation cumbersome.
Resultantly, successive governments dealt with the issue by relying on temporary fixes like increasing administrative controls and interventions to regulate the market and protect consumer welfare. The interventions have been increased to such an extent where every decision in the entire supply-chain is controlled by the government.
The interventionist policies have proved to be futile, and prices continue to be unstable. The existential inefficiencies have contributed to modest growth in the production of sugarcane, low returns for farmers, an insignificant increase in yield per hectare, inefficiency of sugar mills, and most importantly, the prevalence of occasional market failures like hoarding and shortages.
The powerful sugar mill owners with strong political backgrounds have influenced the governments and prevented them from bringing reforms. The trade restrictions, though intended to protect the domestic industry, have actually deprived the entire sector of efficiency and improvement.
Therefore, it is the need of the hour to carry out reforms by opening up the sector and removing excessive government footprint. Globally, price is a decisive factor in market operations and countries have gradually reduced regulations in their markets for sustainability.
The policymakers in the country need to realise the gravity of the issue and devise a comprehensive sugar market policy keeping in view reforms carried out by the developed world, by removing excessive regulations and opening trade to promote efficiency and public welfare.
Copyright Business Recorder, 2022