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Probe into increase in sugar prices: Commission admits country was in need of foreign exchange

The News International logo The News International 22/05/2020 The News International

The Sugar Inquiry Commission that probed into the increase in sugar prices, is of the view that it is correct that the country was in need of foreign exchange and there were prima facie sufficient stocks of sugar available forexport. However, the commission was unconvinced with the separate stances voiced by the then finance minister and now the Planning Minister Asad Umar and Adviser Abdul Razak Dawood on allowing sugar export and subsidy.

Asad Umar explained to the Commission that Pakistan was in dire need of foreign exchange at that time and since there were sufficient stocks of sugar available in the country, the decision to export was justified. Moreover, he stated that the crushing season was about to start and therefore, there was no apprehension of sugar shortage and that the increase in prices in sugar in 2019 cannot be attributed to the shortage of sugar due to export as mentioned in the report of Inquiry Committee on Sugar. He was asked whether there was any reliable mechanism to verify the figures of stocks and the strategic reserves that are given by the PSMA. He stated that the figures are provided by the provincial governments to the Ministry of Industries and therefore, there was no reason to doubt their accuracy.

Asad Umar was also asked why the decision of not allowing any subsidy by the federal or provincial government in the first meeting was subsequently changed by allowing the provincial governments to decide about the freight support (subsidy) on their own, if deemed appropriate. He stated that the matter had been discussed informally that after the 18th Amendment, the matter of such subsidy was purely a provincial matter and therefore, it was not the mandate of the federal government to decide about it.

He was further asked that the decision of the ECC did not reflect this discussion and instead it was mentioned that the reason was the varying support prices of sugarcane in different provinces. His response was that the actual reason was as earlier explained by him. He added that the sugar mills were threatening that they will not start the crushing season unless export is allowed. He further stated that this increase of price was because of cartelisation and collusion between different players, producers of sugar and due to their collective market manipulation to increase the price.

Dawood explained that the country was in dire straits with very low level of foreign exchange available and in this background since there were sufficient surplus stocks available therefore, export of sugar was allowed. He said one of the items that China had agreed to include in the list of imports that China allowed, was sugar and this added to the reasons for allowing export of sugar. When asked whether the stocks and strategic reserves position as stated by PSMA could be relied upon, he stated that all this data is provided by the cane commissioners in the meetings of the SAB and therefore, were reliable. As regards the reasons for the increase in the price of sugar due to export and the shortage of stocks of sugar in the country, he contended that there was no shortage of sugar in the country at any point during the year and the stocks always remained sufficient and in fact, there were carry-over stocks available even at the end of the year.

In his opinion, the linkage between exports and shortage of stocks with the increase in price was therefore, not justified.

Responding to another question that why the fortnightly meetings of inter-ministerial committee headed by him, as decided in the meeting of the ECC, were not held, he stated that the Inter-Ministerial Committee and the SAB have the same participants and therefore, due to this overlap, the matter was regularly discussed in the meetings of the SAB which was the more appropriate forum.

He was further asked that why despite the fact that the issue of rapidly increasing prices was raised in the SAB meetings by the provinces, no decision was made to discontinue the export of sugar? He responded that they had international commitments to export sugar by May 2019 and these obligations had to be fulfilled. He further stated that since there was no shortage of stocks, the increase in prices of sugar cannot be attributed to the exports.

The Commission, however, expressed the view that the subsidy on sugar was unjustified. The reason cited by Asad Umar was that the lack of legal purview of the federal government to decide about a provincial matter of freight support was the reason for this change. But this reason is not reflected in the subsequent decision of the ECC at all and the reason of decision stated, therein, is completely different, the Commission said, adding that even if the explanation cited there that varying costs of sugarcane procurement in the provinces is the reason for the change of decision is considered, it is still not plausible as the cost of procurement of sugarcane was Rs180 and Rs182 in Punjab and Sindh respectively and this is a minor difference.

The Commission said that Dawood's stand regarding the continuation of export of sugar despite the price hike was not found convincing by it. The decision to export sugar was followed by an increase in price of sugar in the local market. The Commission has gathered enough evidence to establish that the export of sugar is one of the reasons for increase in price of sugar in the domestic market as well as other factors like market manipulation hoarding, forward contracts and "Satta" (speculation), by the sugar sector players.

The Sugar Advisory Board (SAB) headed by Dawood, the Commission said, should have considered that if the increase in price of sugar was not due to shortage of stocks, then the intervention of the government was necessary to counter the market manipulation. The ECC had asked the inter-ministerial committee to closely monitor stocks, price of sugar and recommend discontinuation of further exports, in case of abnormal increase in the domestic price of sugar.

The contention that the export was not discontinued because export commitments to China were to be honoured, does not hold much weight. The export only to China could have been allowed to continue. This intervention was required to curtail the manipulative activities and give a clear message to the market about the seriousness of the government to intervene and control the prices through ban on exports. The Commission is of the opinion that the SAB failed to take a timely decision to ban the export of sugar.

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