Monday June 24, 2024

Sugar prices soared to 200pc in three years

The PSMA have their own opinion about the price hike as they blame the government for the current sugar crisis

By Zahid Gishkori
November 08, 2021
A representative image
A representative image

ISLAMABAD: Sugar prices surprisingly soared by over two hundred percent (200pc) since the current government came to power, official statistics revealed.

The cost of sugar witnessed a record hike as the prices soared from Rs53 to Rs160 per kilogram in the retail market while its wholesale trading price went up from Rs47 to Rs88 in the past three years.

Increase of over Rs107 per kg in retail markets and Rs41 per kg in wholesale market exposed regulators' weak control on sugar manufacturers, wholesalers and middlemen who collectively paid around Rs17 bn on account of extra sales tax, which was raised from 8pc to 17pc during this period.

Geo Television Network reviewed official record/files of regulators and interacted with officials, sugar mills owners and representatives of cane growers to assess the factual position on rising sugar prices and its declining stock directly from the real stakeholders.

The prices of sugar might dip slightly in the coming weeks if the government gets millers convinced to start crushing season this week, suggested the markets' trend. This unusual hike in sugar prices has provided an opportunity to the sugar millers, wholesalers and middlemen (satta mafia) to collectively extract around Rs270 bn as an extra profit from Sept 2018 to Oct 2021, presuming annual consumption of sugar at 6MMT (six billion kilograms), official figures suggested.

This windfall was in addition to normal trade profit and after accounting for additional sales tax as the sugar industry collectively earned Rs141 billion profit in the last crushing season (2020-21), figures revealed.

Officials familiar with the provisional statistics of turnover in sugar business said that the profiteers earned maximum profit between Oct 2021 to Nov 6 this year, then in Dec 2020 to Feb 2021 and in Sep 2019 to Mar 2020 when sugar prices were witnessing a drastic increase in the open market.

During Oct 2021, average sugar price was Rs107.7 per per kg while production cost almost remained the same, with a slight increase in transport charges, official statistics revealed. Average sale price of sugar jumped up to Rs140 in the past one week, official figures revealed. From Aug 2021 to Sep 2021, sugar remained between Rs90 to Rs110 per kg while the government continued to give relaxation on taxes for this specific edible product granting special subsidy of billions of rupees, according to official figures.

Officials also admitted that sugar prices were expected to jump up by 15pc (from Rs52 to Rs73 per per kg) during sugar season 2020-21 due to inflation, uncertainty in market and uneven rise in sugarcane prices. But the present alarming hike does not have any correspondence with millers’ justification that the production cost goes high as sugarcane’s prices remained stagnant at Rs180 per 40-kg from 2015-2019 and only last year the prices touched Rs200 to Rs240 per Rs40-kg last year. “We are hopeful sugar prices will go down in the coming days. Crushing season is being started and sugar stock has been released to avert the crisis. Investigation into sugar price hike was hurt due to courts’ order,” said State Information Minister Farrukh Habib.

Investigation by the Federal Investigation Agency and National Accountability Bureau into sugar subsidy and price hike went at snail’s pace as almost one and a half years have passed but no progress was made so far, informed officials said.

Geo News, after getting data from the regulators, evaluated major components namely ‘cost of cane, recovery, finance cost, byproducts cost and taxes’ which determine cost of production of sugar. It all suggested that an average production cost, including taxes, of sugar remained from Rs63.3 to Rs72.7 per/kg during Jan 2020 to Oct 2021. Sugar, however, was being sold by the profiteers, with an average price of Rs110 per/kg in the open market. Official data on production cost of sugar showed, “all inclusive taxes/charges were Rs53.1 per/kg in 2019 and Rs72.7 per/kg in 2020 and it might touch Rs83.9 to Rs88.1 per/kg during the upcoming crushing season.”

Official statistics collected by the sugar commission suggested that the advantage gained by the sugar industry/companies by overstating their production cost ran into Rs20.93 bn in 2018-19, Rs15.93 bn in 2019-20 and then again they got extra profit of Rs53 bn 20-21 till the filing of this commission report earlier this year.

The government also imported nearly 0.5MT of sugar this year to build the strategic reserves to overcome the alarming hike, beating the hoarders and profiteers, officials said. Regulators started action against the profiteers but millers went to court against the sugar commission’s recommendations. In the wake of the Sugar Factories Control Act, 1950, the 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, added the officials.

Thirty-eight sugar mills belong to politically-connected persons, while 30 units are owned by 20 prominent families. Over a dozen sugar mills, linked to Sharifs (Nawaz & Shahbaz), Omni Group and Zardari Group either are not properly functional or have been closed after court and investigation agencies’ intervention in the past five years, official statistics revealed. Presently, Humayun Akhtar, Jahangir Khan Tareen, Chaudhry Brothers and RYK Group linked to Makhdoom Khusro Bakhtiar have a major contribution in sugar industry in Pakistan, which is the 11th largest in the world in terms of sugar production having 89 sugar mills with annual crushing capacity of around 60MMT worth around Rs600 bn annually. Geo News’ findings also revealed that some 23 out of 89 sugar units (Punjab: 5 [4 owned by Sharifs], Sindh: 14, [6 owned Omni Group & 2 owned by Zardari Group] and KP:1) are not operative affecting nearly 0.3 million growers.

Sugar manufacturers collectively paid around Rs30 bn in 2020, Rs28 bn in 2019 and Rs26 bn in 2018 on account of indirect taxes to the Federal Board of Revenue (FBR), official record revealed. Tax regulators also told Geo News that a special audit team of the FBR created a demand of estimated Rs469 bn tax against 81 sugar mills, some of them owned by politicians, who directly or indirectly own or co-own these industrial units. The Competition Commission of Pakistan also slapped a penalty of Rs44 billion on the sugar industry for cartelisation, price fixing and market manipulation.

Previous governments also collectively paid over Rs18 bn on account of subsidy and freight reimbursement to sugar manufacturers on export during the past five years (2014-15 to 2018-19), as per record exclusively available with Geo News. Among seven top recipients of subsidy/freight support are: Fatima Sugar Mills Ltd. (Rs1.5 bn), Hunza Sugar Mills Ltd of Chaudhry Saeed (Rs1.9 bn), JDW Sugar Mills Ltd., owned by Jahangir Khan Tareen (Rs1.8 bn), Tandlianwala Sugar Mills Ltd., owned by Haroon Akhtar, (Rs0.8 bn) and Two Star Industries Ltd., RYK Sugar Mills of family of Khusro Bakhtiar (Rs2.3 bn), Chamber Sugar Mills Ltd. (Rs1.39 bn), New Thatta Sugar Mills Ltd. (Rs0.13 bn), Larr Sugar Mills Ltd. grabbed Rs1.43 bn while the rest of the share in subsidy went into the pockets of some two dozen mills’ owners in the provinces.

The PSMA have their own opinion about the price hike as they blame the government for the current sugar crisis. The government should provide a business-friendly environment to the sugar industry rather than start a crackdown against the millers, Senior Vice Chairman PSMA Iskandar Khan said. “I’ve informed Premier Khan about the price crisis months back. Mill owners are not responsible for this alarming hike in sugar prices — it is middleman and wholesale dealers who are earning undue profit now,” he told Geo News.

Premier Khan on sudden jack up in sugar prices said he ordered the Punjab government to deal with stay order millers obtained against the government action from the courts. “We found out that since July, the sugar mills have obtained a stay order against the rule. And so our government was unable to do anything,” PM Imran Khan said. With Mr. Khan’s excuse, it is a fact that the courts did not stop FIA and NAB from investigating the sugar price hike matter. Both, NAB and FIA, continued their investigation against millers and ‘satta mafia’ involved in profiteering but no progress could be made so far.