Last week, BR Research published an attempt to map the footprint of politically influential families in the sugar industry (published in this section on May 02, 2019). Since then, two more mills owned by a PI have come to note.
Altogether, 16 distinct sponsor families/groups, owning 40 out of 90 sugar milling units installed across the country have been identified. Put together, these units command close to 50 percent share in total domestic production, based on figures published by industry association for marketing year 2017-18.
But does that speak to the influence of these sponsor groups on sector-specific policymaking? After all, it is arguable that due to factors specific to Pakistan’s political economy, it is mostly rich families that make inroads into corridors of powers.
One metric to capture the intersection of policymakers and sugar mill owners is to map the beneficiaries of subsidy extended by the government to the industry on exports. Because sugar trade is regulated under strict quota due to an intermittent history of shortages in the local market, SBP publishes daily bulletin of export orders approved.
During the last fiscal year, GoP announced an export quota of two million tons of sugar, with a subsidy of Rs10.7 per kilo. This subsidy was further supplemented by an additional Rs9.3 per kilo support by the Sindh government, but with an upper cap of 20,000 tons per sugar mill (those situated in the province only). When asked if the federal government announced the subsidy at a time of ballooning fiscal deficit to curry favour with mill owners, PSMA representatives retort that the surplus has persisted in the market for over three years.
According to Mr. Iskandar M. Khan, the best time to allow export was MY16, when sugar price in the international market was at a premium to domestic cost of production. Instead, the outgoing government chose to wait until the election year. By that time, global prices had slumped, and the federal kitty had to bear a steep cost of Rs20 billion.
But did the outgoing government announce export subsidy to the benefit of patriarchs of ruling party, who are also well-known mill owners? The answer may come as a surprise to readers.
Turns out, of the export orders of two million tons approved, one-third came from three mills owned by three political families. At the top, come three mills owned by Late Makhdum Ruknuddin family of South Punjab with export of 249,532 tons of sugar. These are closely trailed by five mills owned by JKT group, with mills concentrated both in southern Rahim Yar Khan Districts and Ghotki region of upper Sindh.
The story of Sindh is even more interesting, where the largest beneficiary is the Omni group, which incidentally also has the largest regional market share of 5 percent in total domestic output. Omni’s gains from the subsidy are also the highest in the country, considering it recorded additional gains of R 9.3 per kg support per mill for up to 20,000 tons export. No surprises there that the average export by nine Omni units stood at 20,128 tons, with no unit exporting higher than 21,948 tons and lowest at 18,066 tons. No wonder, the market share is so fragmented. Put together, mills owned by 11 distinct sponsor families had a share of 75 percent in total domestic export, of which only four have distinct political ties (the fourth being Humayun Akhtar). Seven other non-PI family units all belonged to Sindh province, who appear to be unintended beneficiaries of benevolence showered at Omni group.
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