Sugar industry reform

09 Jul 2020


THE federal cabinet’s decision to form a Sugar Reforms Committee indicates the government’s intention to eliminate the widespread informality in the country’s sugar market. The decision comes as a legal battle rages between the government and the industry association over the multiple inquiries ordered against individuals and companies held responsible for the winter sugar shortages and price hike. Though the government is yet to share the mandate of the proposed committee formed in light of the recommendations of the probe commission report on the misuse of sugar and wheat subsidies, the reforms body has reportedly been tasked with the formulation of a long-term strategy for appropriately regulating and documenting the sugar business, without waiting for the outcome of the court battle.

The sugar probe commission did well by bringing to light the long-standing systemic problems in the sugar supply chain. For example, it has pointed out that the sugar industry is not regulated properly. This allows politically powerful mill owners to fleece sugarcane growers, manipulate the domestic market, steal taxes and blackmail governments into giving the industry huge subsidies in the name of smallholder farmers and urban consumers. The findings of the report have also raised a number of questions regarding the existing, flawed sugar policy and the lack of transparency in the distribution of billions of rupees in subsidy. Government interventions in the sugar market through direct and indirect subsidies given at different stages of the supply chain are ostensibly necessitated by a ‘desire’ to ensure a fair cane price for growers and lower rates of the sweetener for urban consumers for political reasons. The probe report shows that none of these objectives are ever met despite huge subsidy spending. Thus, the committee will need to work on two fronts. One, it will be expected to propose actions to document the supply chain to effectively regulate the business and prevent owners from manipulating the market and stealing taxes. Two, it will be required to suggest changes in the existing sugar policy to reduce the government’s presence in the market. This will involve the elimination of price controls, removal of restrictions on the establishment of new mills, revision in the policy regulating crop movement, and liberalising the regime governing sugar imports and exports. No sugar-sector reform effort can succeed unless the government decides to pull itself out of the value chain to ensure competitive market practices by shifting from price controls towards a liberal trade regime.

Published in Dawn, July 9th, 2020