On sugarcane support price

Last month, the Competition Commission of Pakistan finally released the findings of its open hearing on anticompetitive practices in the sugar sector. Of note among several recommendations aimed at improving sector’s efficiency was the cautious position taken on the matter of the support price for sugarcane, and the absence of any comment on the Rs2 billion spent annually on subsidy to millers on export.

Unlike orders issued by the authority, CCP’s policy notes and opinions are non-binding and reflect its preliminary findings based on an inquiry into forces and stakeholders influencing any given market place for goods and services. However, the equivocation made on the subject is uncharacteristic of CCP’s approach taken in similar instances in the past.

Recall that in 2009, CCP through an order had deemed the price fixing agreement for sugar entered by the government as illegal, while acknowledging its limited role as underwriters of subsidy to farmers and USC merited on consumer welfare grounds in wake of an artificial shortage of sugar in the domestic market. To resolve that crisis, the government at the time resorted to imposition of support price to incentivize cultivation of the crop and discourage conflicts between farmers and mill owners on purchase price.

It has been nearly a decade since, and much has changed in the global sugar commodity market. Raw and white sugar prices globally are on a downward trend, and Pakistan is listed among the top ten of global sugar producers and net exporters. Pakistan’s existing sugar policy has run its due course, and insiders agree that it is time for the CCP to issue firm recommendations to the government on the subject.

Sugarcane is Pakistan’s lead cash crop after cotton; however, unlike the latter, it is a water-intensive crop in a water stressed country. Perverse economics of incentives dictates that farmer aim for the lowest hanging fruit; i.e., sow crop that yield the highest profits. Thus, sugarcane is cultivated at expense of cotton, even as raw cotton import records year-on-year increase.

Despite growth in raw cotton demand, farmers have refused to switch over to the crop; which speaks volumes of their consistent woes of delays in payment release by sugar millers.

This is not to say that there is no truth to the persistent failure of mill owners to clear the growers’ dues; but the return appears to be too lucrative to let go of.

It is reiterated that government intervention in the market for sugar has a role to play vis-à-vis food security. However, both CCP and experts agree that such role is limited for shortages caused due to emergencies and should not become a consistent influencer in any marketplace for goods as it inhibits free competition.

In sugar sector, not only has the support price become a regular feature, it has acted as a primary incentive for cane cultivation despite oversupply and higher production cost compared to other countries. In such case, a stronger prescriptive approach is expected from the regulator of the market forces.