Sugar Price Increase: Market Forces or Unlawful Profits?

Web DeskJuly 14, 2023
Sugar Price Increase: Market Forces or Unlawful Profits?

Sugar prices have risen by Rs. 42 per kg in three months, and mills have been accused of profiteering, but mill owners have their own reasons.

The Sugar Advisory Board suggested an increase in per kg sugar price of Rs. 7.82 around April 26, 2023, which was later notified. SAB proposed these pricing after consultation with the Ministry of Food Security and Research and the Pakistan Sugar Mills Association (PSMA), according to sources.

While some claim PSMA requested additional time, sugar mills claim they were not contacted nor heard. Later, PSMA petitioned the Lahore High Court (LHC) on the grounds that it is a provincial concern following the 18th amendment, and that these prices cannot be determined without consulting PSMA. The LHC issued a stay of enforcement of the sugar price announcement, thus prices are not rising.

In three months, retail sugar prices have risen to Rs. 140 per kg, while wholesale prices have soared by up to Rs. 2,000 per 50 kg bag. Critics accuse sugar mills of stuffing their pockets with Rs. 15 billion in three months while hiding behind the court order, a figure that might rise to Rs. 35 billion if the injunction is extended till September.

Surprisingly, sugar has been a surplus commodity almost every year, and sugar mills have been advocating for exporting 1 million tonnes of surplus sugar since March 2022, but the government did not make a decision until November, when international prices had also fallen.

Read more : Finance Minister Hails Committees’ Role in Finance Bill 2023-24, Promises Business Community Support in Budget

“Because of high international prices, this export permission was granted late, and much of it had already been smuggled by that time.” As a result, the government must make these judgments quickly,” said Dr. Uzma Zia, Senior Research Economist at Pakistan Institute of Development Economics, in an interview with ProPakistani.

She stated that because the government and everyone knows when the crop will be harvested and sugar will be ready for export, timely decision-making is not difficult to achieve, especially with the Federal Board of Revenue’s (FBR) Track and Trace system adopted in practically all sugar mills.

At least 400,000 tonnes of sugar have been smuggled into Afghanistan, according to media sources, till April 2023.  Using the same average price of exported sugar, $484 per tonne, the smuggled sugar cost the economy nearly $200 million in losses during a deepening balance of payment problem

“You won’t find sugar for even Rs. 200 per kg in the border cities, and customs will stop anyone taking even a few kgs of sugar, but smuggling continues,” a market consultant told ProPakistani.

He also stated that, while traders and hoarders exist in this market, as they do in other agri commodities, nothing happens unless traders and mills are on the same page.

Increase in Production Costs

Sugar mills, on the other hand, claim that the cost of production has risen to Rs. 130 per kg as a result of the sugarcane support price rising from Rs. 225 to Rs. 300 per 40kg, a 1% increase in sales tax, and a doubling of the markup rate over the year, as well as a 70-80% increase in the cost of imported chemicals and spare parts. PSMA also claimed to save Rs. 100 billion in taxes and $5-6 billion in import substitution, which is partially understandable, but the manner in which these things happen every time raises doubts. Second, smuggling in such quantity is impossible without the participation of sugar mills, and it’s difficult to assume PSMA is uninformed of those participating.

However, the PSMA chairman last week claimed, among other things, that sugarcane crop area had decreased by 10%.  First and foremost, the Economic Survey of Pakistan revealed a 4.7 percent increase in cultivated area and a 2.8 percent increase in production to 1.31 million hectares and 91 million tonnes, respectively.

Farmers have a high self-esteem bar, and last year, numerous mills ceased crushing with a lot of sugarcane remaining in the field, which happens every other year when production is expected to be high. Farmers will not have mill gates locked on them, payments delayed, and yet have to go back to work.

Sugarcane boomed in Southern Punjab because farmers were tired of taking care of delicate cotton crops and still losing to illnesses, climate, and pests because the faults were with the seed, not their practices. According to our talks with the agricultural community, if the sugarcane experience remains the same, those who can afford it will search for other possibilities.

It’s business as usual.

Returning to the sugar prices, one would expect a committee to consult all stakeholders and notify the prices, but that already exists in the form of the Sugar Advisory Board since 2001 because we are good at establishing committees, but the ghost of the sugar crisis returns every other year regardless of whether production remains high or low or whether the government imports or exports.

After the massive price increase and subsequent investigation led by the Federal Investigation Agency (FIA), the previous government formed the Sugar Sector Reform Committee (SSRC), which proposed significant reforms in a detailed report in December 2021 on three primary verticals of ‘deregulation, documentation, and enhancing competition between sugar mills.’

Sugarcane pricing based on sucrose content for better resource allocation, keeping import open at all times and exporting only if production exceeds consumption by 1.5 million tonnes, quarterly inspections by FBR and cane commissioners, and a massive Rs. 75 million in penalties for violations were all included.  It also advocated for volumetric water rates, owing to the fact that sugarcane consumes 3.5 times more water for 4 times less export value.

It also campaigned for water testing laboratories in the private sector and opposed export subsidies and support pricing. As one might imagine, none of these improvements have been enacted, and we are back in the same game of blaming everyone so that no one is guilty. Furthermore, traders expect current ex-mill sugar prices to remain stable at their peak because the International Monetary Fund (IMF) has expressly warned the government against additional subsidies.

 

 

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