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October 24, 2020

15 sugar mills stopped crushing on call of PSMA: CCP

Top Story

October 24, 2020

ISLAMABAD: The Competition Commission of Pakistan (CCP) has found evidence that 15 sugar millers in Punjab zone ceased operations to end last crushing season on the call of Pakistan Sugar Mills Association (PSMA) that impacted approximately 20 percent production of sugar.

This step also triggered sugar crisis where the stock positions were manipulated to mint extra profit.

The CCP quoted in its inquiry report that the cane commissioner during this period presented figures to the Punjab cabinet specifically mentioning the status of crushing for different mills in Punjab from January 04 to February 06, 2020. The report dated January 04, 2020 quotes that 26 mills were closed out of which 15 were closed on call of the Association, whereas 11 were non-functional. On 5th and 6th January, 2020, 15 mills that ceased operation on the call of PSMA, included Chanar, Hunza-1, Husein, JK, Haq Bahu, Layyah, Shakargang II, Baba Farid, Tandiawalla-I, Hunza-II, JK, SW, Huda, Safina, Two Stars and Madina Sugar Mills. Based on these respective shares, the CCP found that approximately 20 percent production was impacted as result of this strike.

The CCP in its inquiry report probed whether major players in the sugar industry collectively decided to cease crushing of sugarcane during crushing season 2019-20?

The CCP found that from the evidence available, it appears that during the crushing season 2019-20, PSMA Punjab Zone ceased to crush sugar from December 30, 2019 to January 11, 2020.

“It is evident from the data received from the cane commissioner Punjab, this closure was a collective decision on part of PSMA Punjab wherein 15 mills appeared to have ceased crushing on the call of the Association,” the CCP stated.

Evidence impounded from PSMA indicates that during this period PSMA Punjab held back to back meetings with the agenda of sugarcane procurement.

The purpose of holding these meetings appears none other than to coordinate on taking decision on crushing and procurement of sugar cane as merely procurement is a commercial decision and does not appear to hold relevance for collective deliberation using the Association platform.

“Therefore, prima facie PSMA Punjab Zone, particularly the 15 units named by the cane commissioner Punjab, are taking a collective decision on procurement,” the CCP inquiry report stated.

In its conclusion, the CCP stated that sugar being the essential commodity is an important item in the consumer basket of goods, however, despite abundant supply it is not available to end consumers at an affordable price.

Also it cannot be ignored that the related industries such as beverages, confectionaries, etc being the largest consumers of sugar are also affected due to lack of competition in the sugar industry. To ensure its availability to ordinary consumers at a reasonable price, large amount of public money is spent on subsidising sugar through USC, Ramzan bazaars and imports.

As per findings of this enquiry report, there is a huge disparity in the cost structure of the efficient and inefficient sugar mills however due to existence of cartel the inefficient mills have been protected and the benefits of the efficiencies are not being passed to the end consumers. The CCP calculation found that the average cost of efficient mills stood at Rs43 per kg, while inefficient mills went up to Rs78 per kg. Why these inefficient mills were not allowed to weed out and the possible reasons could be 100,000 votes in the constituencies where these mills are located.

There is huge disparity in the cost structure of the efficient and inefficient sugar mills, however, due to the existence of cartel, the inefficient mills have been protected and the benefit of the efficiencies are not being passed to the end consumers.