This was the predominant view of economists as well as the general public in a survey carried out by Business Recorder. The Competition Commission of Pakistan (CCP) in a detailed report on the sugar sector, which was undertaken under the directives of the Supreme Court, had among several recommendations proposed that free market system should be allowed to prevail in pricing of sugar, and that price fixation must be avoided.
In the words of the CCP report, "a free and competitive market is an indispensable tool to give our country's economy the best possible chance of providing a level playing field to all stakeholders while at the same time protecting the interests of the consumers." It recommended that the price of sugarcane should be determined by the sucrose content, and not by the weight of the crop.
The pricing of sugar in most countries of the world is determined under conditions of perfect competition. This definitionally implies that there are sufficiently large number of buyers and sellers which operate within perfect competition conditions and are, therefore, unable to manipulate price through collusion, hoarding or, indeed, smuggling.
None of these conditions apply to the sugar sector in Pakistan, according to many analysts and members of the public while talking to this correspondent. The Pakistan Sugar Mills Association (PSMA) is a cartel of sugar mill owners who are charged with manipulating supply to set price at a rate higher than perfect competition conditions would have allowed. Several members of PSMA are influential politicians.
These people are therefore extremely 'influential' and have full access to the power corridors which may fix price at public insistence. This fact has already been disclosed by the CCP and has been reported extensively in the media. Additionally, smuggling to Afghanistan and Central Asian Republics has been going on for awhile as it is extremely lucrative, given the sugar price differential between Pakistan and the neighbouring countries.
The CCP report has recommended that as price fixing by the government (or the Supreme Court in this instance) is unhelpful, "the role of the federal government should be restricted to maintaining a strategic reserve of commodities deemed essential. This reserve can be released into the market to ensure provision of commodity to the general public without allowing the prices to reach prohibitive levels."
In other words, the report recommends that the government should intervene to stop manipulation of supply as and when it may occur. Not answered in the report is the cut-off price that should activate government intervention. That this cut-off price would differ from person to person was evident when Minister Manzoor Wattoo agreed to a price with the PSMA but was opposed by the general public.
The CCP further has argued that "a commodity selling at a high price in a free market does not necessarily mean that it will shoot up further. Increased prices almost always bring more sellers (including growers and mills) to the market, thereby increasing supply and at a certain stage likely to arrest prices."
In Pakistan's case there is a wide discrepancy between the cost of manufacturing sugar, returns on its sale in Pakistan which are markedly still lower than returns if the commodity is smuggled to neighbouring countries. How is the cost of sugar determined? Through data provided by PSMA, a cartel that has colluded to set the price. The CCP rightly argues that data collection must be independent of the PSMA--a sound advice, according to economists.
The survey showed that Pakistani consumers are strongly opposed to free market operation in the sugar sector, which would empower the millers to create further distortions in the supply chain of the commodity.
Professor Javed Iqbal, Dean of Arts at AJK University, expressed reservation over the recommendations of the report of Competition Commission of Pakistan (CCP) on sugar by pointing out that many of the conditions "simply cannot be applied" to this country.
The report also showed that about 70 percent of sugar produced in Pakistan is consumed for commercial and industrial purposes. Domestic consumption forms the residual 30 percent of total consumption. By fixing a price ceiling the government would in fact be subsidising commercial and industrial users, the report argued. As compared to international markets, Pakistan's sugar price is not set by the market but by the mill owners, as well as retailers. A man buying sugar at a private outlet pointed out that with collusion between the sellers, Pakistan's market is not a perfect market.
Many disgruntled people in long queues at Utility Stores outlets told this correspondent that free market mechanism effectively works only in those countries where consumers' rights are duly protected and market forces follow the rules/regulations relating to consumer rights. In case of Pakistan, there is no protection to consumers and, with the exception of the Supreme Court, no government ministry/department has made any attempt to meet the needs of the common man. However, weak enforcement of Supreme Court directives has created problems for the general public, they said.
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