Fixing sugar prices

September 5, 2021

Sugar mills have long enjoyed impunity when it comes to joining hands to raise prices

Fixing sugar prices

Despite some serious efforts recently at regulating the sugar industry, it seems that the sector continues to operate with complete impunity. The sugar mills continue to fix the prices rather arbitrarily, making the commodity bitter for the consumers.

Although Pakistan has been self-sufficient in sugar production for some time, the soaring prices make it unaffordable for the masses. Against a yearly demand of about 5.7 million tonnes, according to various estimates, Pakistan produced close to 6 million tonnes in the 2020-21 season.

In its latest assessment, the US Department of Agriculture, has predicted that Pakistan’s sugar production will be around 6.8 million tonnes this year, up 14 percent due to significant increases in area and sugarcane yields.

So, there is no supply-demand imbalance.

In view of a bigger crop size, the government has mostly exhausted its energies to ensure due returns for sugarcane farmers. The effort had proved successful last year as farmers managed to get a very good price of their produce. On top of that, they were paid almost all of the outstanding amounts within the stipulated period.

However, the government has miserably failed in keeping the prices of the sweetener at a reasonable level.

Consumers wonder why the price of sugar remain over Rs 100 per kilogram at the retail level in spite of the fact that the government has fixed it at around Rs 85 per kg.

On April 2, the Punjab government notified an ex-mill price Rs 80 per kilogram and a Rs 85 per kilogram price for the retail market. According to a notification issued by the Directorate General of Industries, Prices, Weights & Measures Punjab, the prevailing ex-mill rates of sugar is hovering around Rs 92-94 per kilogram and the retail rate is approximately Rs 100 per kilogram. This cannot be justified in any way.

Keeping in view the cost calculation by the federal government, the director, after adding incidental charges, transportation charges and profit margin, has fixed an ex-mill price of Rs 80 per kilogram (including all taxes).

Since the start of sugarcane crushing in November last, the price of sugar has been on the rise. The price hike has been disproportionate to the cost of production and the supply-demand dynamics. During this period, the sugar industry succeeded in getting the government price notification quashed on four occasions by appealing to courts. This was done once by the Supreme Court of Pakistan, twice by the Lahore High Court and once by the Peshawar High Court in about six months. The members of Pakistan Sugar Mills Association (PSMA), through interim orders of the courts, have been able to sell sugar at prices of their choosing.

Consumers wonder why the price of sugar remains over Rs100 per kilogram at the retail level in spite of the fact that the government has fixed it at around Rs 85 per kg.

The sugar mills were allowed to sell sugar at the desired rates by the Lahore High Court in the first week of April this year, following issuance of a price notification by the Punjab government on April 2. In his order, Justice Shahid Jamil Khan restrained the government from implementing a notification about fixing the ex-mill and retail prices of sugar at Rs 80 and Rs 85 per kg, respectively, after the holy month of Ramazan. The counsel for the mills argued that the government could not enforce its prices on the mills. The judge provisionally allowed the government to enforce an ex-mill price of Rs 80 per kg to meet the demand of the commodity during the month of Ramazan. However, the relief was short-lived and sugar mills were allowed afterwards to sell sugar at their sweet will.

Since then, sugar mills have continued to sell at their own prices, charging the consumers about Rs 4.5 billion a month more than the government-notified rates.

Despite the government’s efforts to enforce the notified prices, the matter was repeatedly referred to the courts. The Peshawar High Court in the last week of April declared that the sweetener’s rate fixed by the Industries and Commerce Department would remain effective until the new rate was announced and directed the provincial government to fix a sugar price in the province after consulting the sugar mills.

The PHC also issued restraining orders against fixing of sugar price by the government. The LHC set criteria for prices on July 23. The recent fixation of price violates those.

The federal government challenged the orders of the high courts in the Supreme Court on August 10. The SC issued a stay order in favour of sugar mills on August 12 and remanded the sugar price case to the Lahore High Court (LHC) with a direction to decide the petitions related to the matter within 15 days. A three-judge bench, headed by Justice Umar Ata Bandial, heard the Federation’s appeal against the LHC order. During the hearing, Additional Attorney General Aamir Rehman contended that the government had revised the sugar price up to Rs 84.50 per kg ex-mills and Rs 89.50 per kg retail. He said the LHC had granted a stay against the ex-mill price fixed by the government. The AAG submitted that it was the government’s prerogative to fix ex-mill prices as custodian of the people’s rights.

Meanwhile, the provincial Industries Departments and the Federal Ministry of Industries and Production have been hesitant to raise objections to the high ex-mill price of sugar. They have also delayed determining sugar’s cost of production.

The high-ups seem to be interested only in ensuring price control at the wholesale stage and the retail level. Administrative action, including arrests and hefty fines, has been limited to dealers and retailers. There have been no instances of concrete action against the influential sugar mill owners on charges of selling at inflated rates.

The Competition Commission of Pakistan (CCP) objected to the Punjab government’s move on April 8 to set a relatively low price, ruling that this was against the spirit of fair competition.

On August 13, it issued a finding of cartelization against the sugar industry and imposed Rs 44 billion penalties on the Pakistan Sugar Mills Association and several mills. The landmark decision may, however, prove futile if the decision is not upheld by the courts as all such actions in the past have been challenged before the courts.

According to a recent assessment, the cost of sugar to the industry has been Rs 60-62 per kg this season. The selling price in the neighbouring India has been even lower. Unlike Pakistan, the government of India determines the price of sugar under a formula and the mills have to comply.

The writer is a senior staff reporter

Fixing sugar prices