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Tuesday November 30, 2021

Sugar prices jump up to 50pc in 14 months

January 19, 2020

ISLAMABAD: Sugar prices surprisingly soared by over fifty percent (50%) since Pakistan Tehreek-e-Insaf's (PTI) came to power, thus witnessing a record hike in the country's recent history. Consequentially, sugar millers & middlemen earned around Rs155 billion additionally from Oct 2018 to Dec 2019, presuming annual consumption of sugar at 5,500,000,000 kilograms. This windfall was in addition to normal trade profit and after accounting for additional sales tax. Sugar prices soared from Rs53 to Rs80 per kilogram in past fourteen months in retail market while its wholesale trading price went up from Rs47 to Rs68 during that period.

Increase of over Rs27 per kilogram in retail markets and Rs21 per kilogram in wholesale market exposed weak control of regulators on sugar manufacturers who paid around Rs13 billion on account of extra sales tax which was raised from 8% to 17%.

Geo Television Network's programme (ASKK) in its months long intensive investigation has reviewed official record/files of both regulators and Pakistan Sugar Mills Association (PSMA) as well as interviewed two dozen government officials, representatives of cane growers and sugar mills owners to assess the factual position directly from the stakeholders. This hike may reappear in coming weeks too if the government does not intervene timely, suggested the markets' trend.

"Sugar prices were expected to jump up by 10 to 15 percent (from Rs53 to Rs62 per kilogram) during sugar season 2018-19 due to increase in sales tax and accounting for inflation. But the current hike is quite alarming and not justified at all," observed Agri Forum Pakistan chairman, Ibrahim Mughal. Sugar in Pakistan is mostly produced from sugarcane whose prices have remained stagnant to Rs180 per 40-kg since 2015, Mr Mughal said. On the other hand, agricultural inputs (fertilizer, oil, electricity, pesticide, raw materials, seeds, machinery, labour) witnessed record hike of 55% to 60% in prices and costs after the government abolished subsidy thereon, he added.

Previous governments collectively paid over Rs18 billion on account of subsidy and freight reimbursement to sugar manufacturers on export during past five years (2014-15 to 2018-19), as per record exclusively available with Geo News. Breakup of those figures indicate that subsidy and freight support worth around Rs11 billion was paid to sugar mills owners in 2018-19 in Punjab and manufacturers were also allowed to export 1 Million Metric Tons (MMT) sugar. Subsidy of Rs3.9 billion, Rs1.54 billion and Rs1.64 billion was disbursed to sugar manufacturers in Punjab during 2017/18, 2016/17 and 2014-15 respectively. Sindh government disbursed around Rs11 billion subsidies to sugar mills during this period where major portion of the subsidies (Rs7 billion) was doled out to Omni Group.

Among seven top recipients of subsidy/freight support are: Fatima Sugar Mills Limited of Mian Faisal Mukhtar (Rs1.5 billion), Hunza Sugar Mills Limited of Chaudhry Saeed (Rs1.9 billion), JDW Sugar Mills Ltd, owned by Jahangir Khan Tareen (Rs1.8 billion), Tandlianwala Sugar Mills Ltd, owned by Haroon Akhtar Khan, (Rs0.8 billion) and Two Star Industries Pvt. Ltd, RYK Sugar Mills of Khusro Bakhtiar (Rs2.3 billion), Chamber Sugar Mills Pvt Ltd (Rs1.39 billion), New Thatta Sugar Mills Pvt Ltd (Rs0.13 billion), Larr Sugar Mills Pvt Ltd grabbed Rs1.43 billion while rest of the share in subsidy went into pockets of some two dozen mills' owners in the provinces. Top four sugar exporters included JDW Sugar Mill, Hunza Sugar Mill, Al-Moiz Sugar Mill and Etihad Sugar Mill, revealed official record.

Data obtained from PSMA, ministries of finance, industries and production and food security revealed that over 6MMT sugar was consumed during past 14 months, and consequentially price increase of Rs27 per kg translated in to Rs155 billion extra profit for sugar manufacturers. The 50% hike, after going through official record, appeared rather unjust this year considering the comparison of sugar manufacturing and selling cost. Manufacturing cost of sugar was Rs17 to Rs19 per Kg while sugar was being sold at Rs25 to Rs28per kg during 2008-09, revealed CCP record.

Geo News evaluated major components namely 'cost of cane, recovery, finance cost, by products cost and taxes' which determine cost of production of sugar in Pakistan. Sugar manufacturers collectively paid around Rs21 billion on account of indirect taxes to the Federal Board of Revenue (FBR) in 2017-18 and Rs26 billion during last fiscal year, official record revealed but those were ultimately borne by the consumers. Tax regulators also told Geo News that tax evasion of around Rs3 billion by sugar mills through suppressing sales had been detected. FBR also unearthed massive tax dodging by sugar millers on sale of molasses – a by-product of sugarcane and put six sugar mills owners on notices, confirmed Dr Hamid, spokesperson for FBR without disclosing names.

Thirty-eight sugar mills belong to politically connected persons, while 30 units are owned by 20 prominent families like JWD Group, Shezan, Dawood, Habib, Crescent, Fatima, Deewan and Thal Industries, among others, revealed the findings. Security and Exchange Commission of Pakistan documents revealed that 13 sugar mills have been excluded as their directors/significant shareholders were identified with no other known major commercial interests. Political icons who run their sugar mills business included families of Sharifs (Nawaz & Shahbaz), Jahangir Tareen, Akhtar Brothers, Makhdoom Khusro Bakhtiar, Omni Group, Zardari Group and Noon family.

The CCP in its two latest reports also exclusively available with Geo News revealed, "sudden sky rocketing of the price of sugar in the current year still appears to be an anomaly given that the supply of sugar still appears to be in excess of its demand."

“Such increase in price of an essential commodity obviously places a burden on the citizens. Which is why the finance committee had asked the CCP to investigate,” says Asad Umar, Federal Minister for Planning. “His committee had taken up the issue of price hike and asked CCP to look into 5 sectors. Of those 5 sectors the CCP said that increase in price of sugar and ‘atta’ were not explained by market fundamentals and there was prima facie collusion amongst industry participants which resulted in abnormal price increase. These findings have been shared with Finance Ministry with the instructions to follow up on the initial findings of CCP,” he told Geo News.

Government allowed export of 1.1MMT sugar but millers rejected that offer as it was not accompanied by subsidy, during December 2018-19. Government allowed sugar mills owners to export 1.1 MMT sugar in 2017-18, and subsequently millers did export 1.1MMT sugar in 2018-19 and 0.13 MMT sugar during current year, revealed the record. Punjab announced an export quota of 2 MMT of sugar with a subsidy of Rs10.7 per kilogram, Sindh stood at Rs9.3 per kilogram while KPK did not allow sugar export to Afghanistan.

Former chairman PSMA Iskandar Khan said that there was a gap between domestic price and cost of production during the previous government. "Previous government did not allow owners to export sugar during 2015-16 when its price was $550 per metric ton--otherwise we could have earned $1 billion by exporting 2 MMT sugar--increase in sales tax, transportation cost and increase in minimum wages caused this hike," observed Iskandar Khan. High support price has adverse impact on mill profitability and also leads to decreased sugarcane production gradually in the country, added Iskandar Khan.

Pakistan is the 5th largest country in the world in terms of area under sugar cane cultivation, 11th by production and 60th by yield where sugar industry is the 2nd largest agro based industry comprising 89 sugar mills with annual crushing capacity of over 65-70 million tonnes (which translates in to 65-70 Billion Kilogramme), Mr. Khan said. The industry’s share is 7% in GDP, doing business worth around Rs450 billion annually, he observed.

In response to PSMA's concerns, the then federal minister for Commerce Khurram Dastgir says, PTI government has ushered in an extortionate increase in domestic retail price of sugar since it took office, from Rs52 per kilogram in September 2018 to Rs81 per kilogram today. "This avaricious 53.5 percent increase is not supported by any rational factors and points directly to collusion between sugar-cartel and the government to fleece consumers. Some of important PTI ministers and members are top beneficiaries of additional tens of billions in export subsidies from the PTI government. Hundreds of billions of rupees of additional profits made by sugar barons since PTI took office have not translated into a single rupee of benefit to sugarcane farmers.

Geo News' findings also revealed that some 20 out of 89 sugar units (Punjab: 5 [where four were owned by Sharifs], Sindh: 14, [majority owned by Omni Group] and KP:1) are not operative rendering 30,000 employees jobless. That situation affected over 0.3 million growers as well.

Geo News approached Amir Ashraf Khawaja, Secretary of Industries and Production, Naveed Kamran Baloch, Secretary Ministry of Finance (MoF), Ahmed Nawaz Sukhera, Secretary Ministry of Commerce, Dr. Hashim Popalzai, Ministry of Food and Agriculture, CCP, FBR, Prime Minister Office and the then Chairman National Assembly Standing Committee on Finance (Mr. Asad Umar) for government version and major sugar mill owners were approached for their point of view.

MoF stated that sugar price was Rs52 per kg when provinces were announcing the price of sugar cane last year. At that time PSMA reacted that they couldn’t give this price to growers [Rs180/40 kg], revealed the ministry. Rather they [PSMA] said if sugar price was Rs62/kg then it will be break even, the ministry added that now they have increased the price to Rs81/kg which requires them to pay reciprocal price to growers. Ministry's response further continued to state that now provinces have to announce sugar cane prices and this account must be kept in mind. "PSMA have their own opinion about prices hike as they say around Rs8 has been added for increase in energy prices but even then, the current price of sugar is too high. If we import sugar at current international price it will be around Rs45/kg. PSMA is enjoying 4 different subsidies and this is a highly subsidised sector. This year they were given export subsidy by the government of Punjab under the garb of transport charges," revealed the response. Ministries of Food and Agriculture and Commerce in their response stated that sugar mills were the beneficiary of previous subsidy scheme.

In the previous schemes a subsidy of Rs.10.7 per kg was allowed by the ECC on the export of sugar by the sugar mills, with the condition that in case of 5% increase in local sugar prices the export permission will be withdrawn. However, that condition has been withdrawn and SAB in its meeting merely allowed its export, without subsidy, without giving any justification or any information for the destination of the export, added the ministry's response.

Resultantly, prices in the local markets escalated. “Sugar mills have also installed alcohol and electricity plants, which are not included in the working of cost of production of sugarcane crop, despite the stagnant indicative prices of sugarcane crop. Political members are the part of the government which influence over the provincial governments not to interfere for the interests of farming community. Growers are unable to scale their product because of limited alternate choices," read the response.

Government officials further revealed that in wake of Sugar Factories Control Act, 1950 Provinces are authorised to fix, monitor, control and announce the crushing season for mills. Effective representation from the farmers’ association is also a weak link to build pressure on the government.

There is no mechanism to notify price of sugar after evaluating the cost of producing sugar and to ensure that sale price of the industry does not fall below the level ascertained," an official told Geo News.

Sugar manufacturers did not respond despite this correspondent approached them repeatedly for weeks.