The bitterness of sugar

IT is frightening how domestic sugar policies in countries as far away as Brazil and the US can have serious repercussions in Pakistan in the form of spiralling sugar prices that can become economically, socially and politically destabilizing, particularly when our economic policy managers do not act in time to forestall the consequences.

World sugar cane prices, which have been rising gradually in the past year, spurted to a 25-year high recently when governments in Brazil — the world’s top sugar cane grower — and the US announced that they intended to develop the environmentally friendly renewable bio fuel, ethanol, derived from sugar cane, to reduce dependence on increasingly expensive oil from the volatile regions of the world. Other nations that have simultaneously also indicated their intention to develop bio fuels include the European Commission, Ireland and Lagos in Africa.

When world prices of a locally produced commodity like sugar cane rises, domestic hoarding is encouraged by the lack of a fair, government price support that adequately compensates the local sugar stakeholders (including growers and mill owners) for the difference between the lower domestic price and the higher world market price. Hoarding is aggravated by the existence of an export tax meant to keep the domestic prices of sugar low. The artificial shortage thus created pushes up the local prices.

The recent rising international prices of sugar appear to have prompted local speculators in Pakistan to accumulate stocks in anticipation of making a killing in coming months, thus causing the artificial shortage of sugar and the subsequent spurt in local retail prices of refined sugar which touched an all-time high of Rs42 per kg last week. The retail price of the poor man’s “gur” and “shakar” is even higher, Rs50 per kg.

However, given the fact that the major local sugar mill owners are key members of the federal cabinet and the ruling political party, it was not expected that the sugar situation would deteriorate to the extent it has. Whatever the local reasons for the price spiral in sugar, it is ironic that the government with all its sugar experts could not forestall the crisis and keep the sugar price under control.

In fact, it was only when the crisis peaked and retail prices touched the Rs40 per kg mark that the government decided to undertake two measures: doubling of the monthly sugar stocks released to the Utility Stores from 11,000 to 22,000 tons and giving the green light for the import from India of some 50,000 tons of sugar by land without customs duty.

But the effect of these measures is akin to trying to put out a widespread, raging fire with a few buckets of water. The prices of Indian sugar had also risen by then, nullifying the import measure, and the chain of Utility Stores in the country could only supply a fraction of the public with sugar, which the corporation was offering at Rs27 per kg, higher than its previous price of Rs23 per kg.

It is only natural to wonder why the relevant ministries didn’t size up the sugar situation earlier and took action beforehand, whether it be encouraging the greater growth and production of sugar cane, releasing sugar stocks by the Trading Corporation of Pakistan to the Utility Stores or giving the okay for sugar imports when the prices were lower.

Attributing the price explosion in the country now to the shortage of the sugar cane crop due to a decreased cultivation of the crop or damage by frost is no justification for a crisis which seems to have been foreseeable as well as preventable to a large extent.

The unprecedented rise in recent world sugar prices does not by itself justify the jump in local retail sugar prices, particularly when we are not dependent on sugar imports as such. In any case, rising world prices of a commodity, whether it be oil or sugar, does not justify a similar kind of rise in local prices of that commodity unless local salaries and income are on a par with international levels.

This is where the government is supposed to come in with the necessary subsidies and price support to help keep the commodity affordable for the common man, apart from releasing stocks whenever necessary and ensuring that these ultimately reach the consumers rather than being hoarded up by speculators.

Failing to act promptly to avert the sugar crisis, ministries are now blaming each other for the crisis. The ministry of finance is blaming the ministry of commerce and the ministry of industries and production, whose ministers incidentally are sugar mill owners. The latter two ministries are in turn blaming the ministry of finance. The federal government has also blamed the Punjab government for the rising prices of wheat.

All in all, this squabble is an indication of a government that cannot get its act together, the consequences of which are being borne by the common man as well as the sugar-consuming business concerns like the “mithai” makers and the manufacturers of soft drinks, ice-creams, biscuits, chocolates and confectionery, for whom sugar is like steel to automobile manufacturers.

The local sugar industry on the other hand has blamed the export of an extensive amount of raw sugar (gur) to Afghanistan as the primary cause of the sugar crisis. “Exports to Afghanistan” (and smuggling), it seems, has become the usual lame excuse for shortages of commodities and price spirals in Pakistan. This was the reason cited for the earlier wheat (Atta) crisis and this was also the excuse given when the prices of poultry shot up after that.

Such excuses are not going to help the common man, especially when the local sugar prices can be expected to rise even further. The international forecasts are that world sugar prices in 2006 will increase due to the expected increase in demand for sugar cane because of ethanol development.

Even more worrying is the forecast that the world prices of agricultural commodities in general, including wheat and pulses, will be on the rise. World investment funds are pouring ever increasing money flows into the booming commodities sector. This will inevitably drive up the local prices of commodities — if the government is caught napping again.

Our economic managers ought to be well aware of the measures that need to be implemented domestically in order to control and keep the prices of commodities, whether it be sugar, wheat or pulses, within the reach of the common man. The problem however, as evident in the sugar crisis, lies in timely and determined implementation of these measures after an intelligent analysis of the world commodity market situation.

Positive trend in Pakistan-Afghan ties

ISLAMABAD: Going merely by media reports one may think that Pakistan’s relations with Afghanistan are on the rocks. However, a look at the facts of bilateral cooperation will show several promising aspects. Despite the obvious security-related irritants, there is much going on between the two neighbouring countries, and there are clear signs of a positive, upward trend.

As one senior diplomat remarked, “if all were so bleak on the Pakistan-Afghanistan front, we would not have a tenth high-level visit taking place between the two countries in a span of just four years”. His reference was to President Hamid Karzai’s scheduled visit to Pakistan tomorrow, Feb 15. This will be Mr Karzai’s first after the inauguration of the new phase of his government following completion of the Bonn process.

Islamabad is particularly careful when it comes to dealing with Afghanistan. Mindful of the fact that the country has been at war for over 30 years, the government here has exercised exceptional restraint even when stinging accusatory statements emanate from across the western border. It has largely avoided responding to any hostile rhetoric through the media, as it usually does in case of India. There is a tacit policy decision not to react publicly to every negative statement that is made by members of the Karzai government.

There have been several occasions in the recent past when the Afghan ambassador in Islamabad has been called in by the Foreign Office to express concern over such allegations and hostile statements. However, the FO has been careful not to go to the press with it because it genuinely wants to mend fences with Afghanistan. Added to this is the fact that there has been direct and regular communication between the top leadership of the two countries. On several occasions when things have not looked too good, President Musharraf has himself picked up the phone and called President Karzai to take up the issue head-on without the press or, at times, even the FO getting wind of it.

One view of the Afghan finger-pointing towards Pakistan sees it as an attempt by the Karzai government to externalize its numerous internal problems, that it is at times directed at a particular domestic audience, rather than meant to malign Pakistan. “We understand the context and we don’t want to take these statements too seriously and be discouraged by them” is how one Pakistani diplomat puts it.

Notably, even the Afghan government remained quiet on the Balochistan governor’s recent pointed statement that the deteriorating security situation in his province was partly a spillover from Afghanistan due to the weakness of President Karzai’s government. Kabul must have realized that the statement was made in response to the Kandahar governor accusing Pakistan of fuelling unrest in his province.

The thinking in Pakistan foreign policy circles is that the intermittent outbursts from Afghanistan should not be allowed to undermine the marked improvement in bilateral relations. The two countries have come a long way in narrowing the trust deficit that existed courtesy the Taliban factor.

Till last year the only major accord inked between the two countries was the 1965 Afghan Transit Trade Agreement. Last year during Mr Karzai’s visit here in March the two countries signed five agreements in key areas.

The most significant in the context of strengthening bilateral relations was a protocol on political consultations at the level of foreign ministers and foreign secretaries. Other agreements related to cooperation in the fields of transportation, tourism, bus services and culture. In all today there are 13 bilateral agreements. A comprehensive mechanism is also in place for security cooperation in the border region under the Tripartite Commission.

However, the deteriorating security situation on both sides remains a serious concern for Afghanistan as well as Pakistan and this issue will be on top of the agenda during Mr. Karzai’s visit which coincides with the Tripartite Commission’s meeting in Afghanistan where the issue will also figure prominently.

During the visit, Islamabad is likely to raise the issue of warlords and drug barons pushing arms into Pakistan, while Kabul is expected to draw attention to the alleged crossing over of militants from Pakistan. The word around is that in the wake of the Bajaur incident the emphasis from both sides will be on better coordination and on improving intelligence-sharing.

No agreements are on the cards during this visit which is being seen more as an opportunity to iron out the irritants and clear the air recently sullied by a string of hostile statements.

Interestingly, a recent study conducted by researchers for a UN agency reveals that while security remains a key factor, it is not the most compelling for Afghan refugees opting to stay back in Pakistan. For most of them it is the lack of shelter in Afghanistan. Of the total surveyed, 76 per cent cited shelter as the main reason and 16 per cent put security as a key concern.

Pakistan has therefore been urging the international community to help increase the absorptive capacity in Afghanistan to pave the way for repatriation of Afghan refugees who could prove to be a valuable asset for their own country. According to the latest census conducted in 2005, there are still 2.6 million refugees in Pakistan.

There is a tendency in certain quarters here to blow out of proportion the Indian factor in Pakistan-Afghanistan relations.

Privately, Pakistani diplomats acknowledge that Afghans remain sensitive to Pakistan’s concerns about the Indian presence in Afghanistan. While Pakistan closely watches the implications of this, it does not seem too alarmed by it. India has been pursuing a proactive Afghan policy and has invested heavily in Afghanistan. Compared to Pakistan’s pledge of $250 million, India has pledged $600 million for Afghanistan’s reconstruction.

However, the fact is that today two-way Pakistan-Afghanistan trade stands at $1.2 billion compared to India’s $300 million.

Pakistan’s strategic location, geographic proximity and common bonds of history, religion, and culture with Afghanistan will always give it an edge over India — not to mention the tremendous goodwill for Pakistan, particularly among the Pukhtuns in Afghanistan. More than 50,000 Pakistanis are working in Afghanistan, mostly in the construction industry.

Among the major Pakistan-sponsored projects under way in Afghanistan are the Torkham-Jalalabad road, the Rehman Baba High School in Kabul and the Allama Iqbal Block in Kabul University.

Also in the pipeline are the Chaman-Spin Boldak rail project, a 50-bed Jinnah Hospital in Kabul and a kidney centre in Jalalabad. Pakistan has already gifted 100 buses and 45 ambulances to the Afghan government and plans to give a TV transmitter for Kandahar. Also, Pakistan has helped Afghanistan in capacity building and so far trained 200 Afghan officials from the police, judiciary, the foreign service, agriculture and medicine.

Afghanistan despite its constraints gave Pakistan $1 million in cash assistance and medicines and food items in the aftermath of the devastating October 8 earthquake. It also sent four helicopters for relief and rescue operations.