COMMERCE Minister Khurram Dastgir Khan must be having a feeling of being conned by sugar mill owners who, despite having received a subsidy on exports, increased the sugar price in the domestic market.

The Rs6.5bn export subsidy was agreed to by the government not only to clear the glut but also to prevent any sharp rise in sugar price to protect the interests of the consumers, a majority of whom happen to be poor but cannot do without it.

As most of sugar mill owners are often accused of working as a cartel, an inter-ministerial committee, headed by Dastgir, was set up by the prime minister to keep a watch on whatever happens on the sugar front and review every month the sugar stock and export situation.

A proposal that sugarcane prices should be deregulated was taken up by the inter-ministerial committee in its first monthly meeting. But the provincial governments rejected the proposal saying that matters relating to agriculture fall within the purview of the provinces

The committee, in its first meeting in January, was taken aback to find the sugar price in the local market going up, posing a risk to export if the price exceeded the threshold of 10pc. The wholesale price of sugar has jumped from Rs57 to Rs62/kg. The commerce minister assured the committee that while formulating pro-export policies, the government also would safeguard the interests of all stakeholders, especially consumers and farmers.

Wholesalers say sugar prices actually started crawling up in the wake of the export subsidy decision of Rs13/kg in December. Pakistan Sugar Mills Association Chairman Iskander Khan disagrees saying the cause of the rise is the cane price set at Rs180/40kg to support the farmers. He was referring to the decision of the Economic Coordination Committee (ECC) of the cabinet taken on January 13 under which the summary on ‘provision of cash support for export of sugar’ was approved. The summary recommended that cash support on sugar export be given on purchasing of cane at a minimum price of Rs180/40kg.

The committee in its second meeting, held on February 11, noted that the increase had not yet crossed the threshold to suspend sugar exports. It was 8.5pc at that moment. But speculation remains rife in the domestic market that prices would go up further.

Some officials foresee a crisis in coming months when many mill owners, who are allegedly holding back domestic sales, may attempt to create an artificial shortage to push up prices. But the federal industries secretary says a shortage of sugar is unlikely as the country has a stock of 2.25m tonnes and the current crushing season would continue until mid-April, which would further add to the stock.

Sugar production in 2016 season is expected to reach over 5m tonnes while local consumption may remain at 4.8m tonnes.

Meanwhile, it is amazing to note that sugar imports have picked up pace at a time when the unsold stocks are still abundant and the regulatory duty has been increased to 40pc making the imports dearer. According to official statistics, imports in the first half of the current fiscal went up to 8,153 tonnes from 6,437 tonnes in the same period last year. But many are of the view that for importers, it may not be a losing game. They have bought the commodity when the international market prices were very low and they will sell it at a time when local prices go high.

So far, the government has paid about Rs274m in subsidy to millers on export of 21,133 tonnes of sugar. Of the total exports, about 19,000 tonnes have been purchased by Afghanistan and the remaining quantity has gone to Saudi Arabia and Malaysia. Meanwhile, the sugar millers have also booked orders for the remaining quantity out of a total of 500,000 tonnes approved for export in December.

According to a 2011 provisional inquiry report of the Competition Commission of Pakistan (CCP), the Pakistan Sugar Mills Association (PSMA) — a group of 81 sugar mills — has been found involved in preventing, restricting and reducing competition in the sugar industry. When the CCP decided to impose a maximum penalty of Rs75m or 10pc of the annual revenue of a company, it was restrained by courts from issuing its final order after the PSMA obtained a stay order.

The CCP plans to undertake a study of how the prices of sugarcane and sugar are determined by the industry following a request by PSMA chairman to the commission to intervene in the sugarcane price market. Under the current system, the government fixes the price of sugarcane by keeping in mind the cost of production. However, the PSMA wants sugarcane price to be linked with the recovery rate.

A proposal that sugarcane prices should be deregulated was taken up for consideration by the inter-ministerial committee in its first monthly meeting. But the provincial governments rejected the proposal saying that matters relating to agriculture fall within the purview of the provinces, which have powers to take such decisions.

Published in Dawn, Business & Finance weekly, February 22nd, 2016