The committee formed by Prime Minister Imran Khan to probe the recent sugar crisis, may co-opt the Competition Commission of Pakistan (CCP) as a member, to use its expertise in finding out whether or not there was 'cartelization' behind the crisis. The prime minister on Friday (February 21) constituted a committee headed by the Federal Investigation Agency (FIA) to probe the recent increase in sugar prices.
According to details, the director general FIA is convener of the committee and members of the committee include representative of the Intelligence Bureau (IB) not below 20/21 grade, director general Anti-Corruption Punjab, and the convener may co-opt any other member. One of the key mandates of the committee is to check market manipulation/ cartelization by sugar mills, if any. The CCP, which is the relevant organisation having the expertise to check cartelization, deceptive marketing practices, and abusive practices by the undertakings, was not in the list.
However, sources informed the Business Recorder that the Committee might use the CCP expertise to fulfill its task. The committee has the mandate to co-opt any other member and the CCP has the relevant experience of detecting cartels in the past. Presently, the CCP is also keeping a close watch on the activities of the sugar sector and if any anti-competitive activity is observed, the commission is empowered to take action under its mandate.
The CCP is searching for hardcore proof of cartelization within the sugar sector. The CCP's earlier action in the sector includes imposition of penalty on the sugar association for cartelization, and solid recommendations to the government through an opinion and policy note to reform the sugar sector. The PM's committee to probe the recent increase in sugar prices would also investigate whether the production, this year, was low compared to the previous year. The committee would also investigate market manipulation/cartelization by sugar mills, if any, impact of forward contracts on tile prices of sugar, whether any mala fide is involved and whether margins between ex-mill and retail prices increased, compared to previous years, or otherwise.
In October 2009, the CCP conducted an enquiry and also raided the offices of the Pakistan Sugar Mills Association (PSMA), where it impounded the proofs of cartelization.
After the enquiry, the CCP bench concluded that the PSMA was involved in collusive practices, and the bench suggested maximum penalty on the association for violating the competition law. However, the operation of the order was restrained by the Sindh High Court (SHC) where PSMA had challenged the CCP enquiry. In 2012, the CCP moved again, when it issued a "policy note" on a notification issued by the Punjab government imposing a complete ban on the establishment and enhancement/expansion of existing sugar mills in the province of Punjab. In January 2018, the CCP held an open hearing to discuss competition issues in the sugar industry.
All stakeholders were present in the open hearing who expressed their points of view on pertinent issues. After the open hearing, the CCP issued its recommendations. One of the recommendations included that the federal government should abolish the price floor/support price of sugarcane and let the market determine the price based on supply and demand. However, if sugarcane price needs to be set, it should be based on independent and reliable data, taking stock of divergent conditions and factors prevalent in various areas, and consider any applicable support price of other crops such as cotton. More importantly, where support prices are set, the government must act as an underwriter and ensure complete and timely payments to the farmers.
The CCP recommended that quality considerations should determine any support price, rather than weight.
Farmers who produce higher quality sugarcane should be paid a premium compared to those farmers whose cane is of lower quality. The government should also encourage and take research and development (R&D) initiatives to reduce the cost of producing sugarcane and increase its quality. Millers should make their processes more efficient with incentives that encourage the optimal use of their by-products and reduce the overall cost of sugar production.
This will help make them internationally competitive and enable them to make timely payments to the farmers. The provincial governments should review the legislative framework, and encourage open competition in the sugar sector, the CCP recommended.
The relevant government departments should be cognizant of the sugar supply situation at all times. This will help Pakistan take advantage of any export opportunities, when they arise, and the necessary measures for this purpose are done on time.
Lastly, the commission recommended that a committee comprising representatives of all stakeholders, including government departments dealing with the sugar sector at the federal/provincial levels, be constituted to discuss ways and means of implementing the recommendations.
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