Key takeaways from the sugar probe

A preliminary report of an ongoing investigation against the price hike of sugar was made public. Dated March 24, the report has been prepared by a four-member committee headed by the director of FIA, Wajid Zia.

While a final report is slated for April 25, here are some key takeaways from the 32-page probe:

Demand vs production

— The year 2016, 2017 and 2018 were peak years for sugarcane production. As a result, the quantity of sugar produced was much higher than the national demand.

— In 2019, the total cultivation area of sugarcane decreased by 2.68% in Pakistan, compared to the previous year. However, the production of sugarcane increased marginally by 1% in the same period. As a result, a perception existed in the market that less cultivation meant less production, which led to a spike in the price of sugar bags.

— From January to June 2019, the price of sugar per kg increased by Rs18. And it went up again in January 2020.

— In order to protect farmers, the government provided a support price, in other words, it fixed the price at Rs190 per 40kg for Punjab, Rs190 for KP and Rs192 for Sindh. A support price is fixed by the provincial governments to motivate growers to increase cultivation. However, this measure was announced too late, during the crushing season, and hence did nothing to surge cultivation.

Findings

The committee recommends that the government consider a proper mechanism to calculate a support price and to also earmark the target area for sugarcane cultivation. It is shocking, it adds, that the federal government did not have any clue about how to calculate a support price.

What role did the sugar mills play?

— Initially, some mills purchased sugarcane at a price of 15% higher than the support price. One reason was that farmers were unwilling to sell it at the government-approved price, citing it to be too low.

— Then on December 30, 2019, sugar mills in Punjab called a strike and many shut down. The Pakistan Sugar Mills Association blamed the closure on low availability of sugarcane in the country. They also claimed that the low produce increasing their overheads and caused losses.

— Out of the 39 mills in Punjab, 27 shut down. In Sindh, 10 out of 32. They reopened on January 11, after negotiations with the government.

— The inquiry report rubbishes the Association’s claim. It states that the shutdown was to put pressure on farmers to sell their sugarcane at lower prices. It adds that the reason given by mills of low availability is not plausible, as ample was available.

— The PSMA also told the committee that they change factory prices of sugar as the demand increases.

Findings

The inquiry report states that it finds it difficult to comprehend that once a fair profit margin is already added in the factory price, then how can the mills change the price due to demand. “This opens up the possibility of manipulations of prices by creating artificial demand and withholding supply.”

Manipulation and cartelisation by sugar mills

— To understand the manipulation and cartelisation of sugar mills, concrete evidence is required which can only be obtained through a proper forensic audit of the mills, the report highlights. However, it goes on to explain that a few mills in the sector control the industry.

— Six groups control 51% of the production of sugar and have political influence.

· JDW group – 6 mills

· RYK Group – 5 mills

· Al Moiz Group – 5 mills

· Tandlianwala Group – 3 mills

· Omni Group – 10 mills

· Sharif Family – 9 mills

· Others – 51 mills

Findings

“These groups have the capacity to manipulate the market by joining hands,” the report states, adding that most of these sugar mills worked in “collusion” and offered farmers a very low price of Rs72 per kg to buy their produce.

Hoarding of sugar

— On hoarding, the report explains that the stocking of sugar is not being monitored despite laws in Punjab and Sindh. Barely any go-downs are registered. “This again leads to complete dependency on the PSMA for assessment of the stock in the country.”

The export crisis

— On September 2018, the government decided to export 1 million tons of sugar. The decision was approved by the ECC.

— During the same period, the minister of food security raised alarm about the low production of sugar in the upcoming season due to shortage of water. Yet, export was recommended.

— In April-May 2019, Punjab raised concern about the rising prices of sugar. Still, export was not banned.

— In 2020, a subsidy of billions of rupees was allocated for the export of sugar. The largest of which went to JDW Sugar Mills and JK colony, owned and controlled by Jehangir Khan Tareen. The second-largest dole out went to Shamim Ahmed Khan’s mills and then to Omar Sheryar, the relative of Khusro Bakhtiar. “It may be noted that Chaudhry Munir and Monis Elahi are also partners of this group”, the reports explains.

— The probe adds that it “can be seen that the sugar mill owners who availed the maximum subsidy had political clout and influence in decision making and tried to gain maximum benefit.”

Findings

The exporters of sugar benefit in two ways, first they made a profit from the increase in sugar prices and second, they took home a government-approved subsidy.

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