If price were a measure of sweetness of sugar then ours surely should be twice as sweet because it is almost double the price of that in the international market.
The reality is that sugar is a chemical compound and all sugars have the same level of sweetness.
The retail price of sugar in Karachi ranges between Rs 75- 80/kilogramme, whereas in the international market its price is $0.1224/pound or Rs42 per kilo -a whopping increase of up to 98 percent. Why should the consumers pay the price for subsidising an inefficient industry that enjoys government’s protection on this pretext or the other? This is not only unfair to the consumer but also highly inflationary, especially as sugar is an essential daily-use commodity.
Last year the government set a support price of Rs182/maund (40 kilogrammes), whereas based on the current international prices, the support price should not be more than Rs154/maund.
It should further be noted that despite a hefty support price, it is the Arhatis (middlemen), who benefit from this and not the farmers.
Moreover, the sugar mills hold back the payments to the farmers until the very end of the crushing season. Another injustice to farmers is they do not have the liberty to vend their produce beyond a certain radius. Thus, they are bound to sell it only to the captive mills in the area. Because of this, they are unable to get the best price for their produce amid stifling competition.
Sugar has become a highly politicised commodity controlled by a few on both sides of the political divide, and sadly, the government functionaries, who should otherwise be influencing a fair government policy, lack the courage to make difficult decisions.
The government policy works best when it has a clear bias in favour of the public at large and by creating efficient markets, the commodity prices can be maintained in a reasonable range through healthy competition. The sugarcane crop consumes disproportionate amounts of water that can be put to better use as determined by the market. Subsidising an inefficient crop should be avoided at all costs.
We need to explore other viable alternatives such as growing white beetroot. We should only produce commodities if there’s an advantage compared to the international cost of production. If we are not able to produce competitively, we should re- allocate our input resources to other commodities such as cotton, which gives us a greater bang for the buck and also offers promising foreign exchange earnings.
Local production and employment sound like lofty ideals, but then that is exactly what they are. Lofty and unrealistic ideals which have no place in a fiercely competitive global economic environment. Only competitive and transparent markets deliver value to the consumer, not the price control or subsidy-driven economies.
A case in point is the communist/socialist regimes that promised affordable food, clothing, and shelter to the masses, but were not able to deliver on them, whereas the capitalist economies which promoted fair competition on a level-playing field saw the competitive forces working to the advantage of the consumers. The differentiation factor is the market dynamics, which drive the private sector to deliver value to the consumers.
In light of the foregoing, what should the government policy be with respect to sugar?
1. The support price for sugarcane should be derived from the international price of sugar, less the conversion premium payable to the mills.
2. The government may use an entity such as Trading Corporation of Pakistan (TCP) to arrange to get the sugar produced from the mills based on open auction for the conversion price linked to the recovery they are able to achieve.
3. Farmers should not be left at the mercy of the captive mills. Instead, the TCP should act as an intermediary between the farmers and the mills. It should buy sugarcane from the farmers directly and release payment to them upon delivery of cane stocks to the mills.
4. Local sugar contracts should be listed for trading at Pakistan Mercantile Exchange for better price discovery. Participation by the international traders as well as local distributors should be encouraged to ensure prices in local market remain in check.
This will help achieve optimal capacity utilisation, based on efficiency of the respective mills, and deliver better value to the farmer.
The writer is the chief executive of a brokerage house