The government could have avoided the recent sugar crisis if it had implemented in time some of the recommendations framed by the Competition Commission of Pakistan (CCP) in its opinion issued to the federal and provincial governments in April 2018.
The recent sugar crisis saw the government and millers at odds over the cost and end price of sugar, while the farmers were raising their voice to get their dues in time.
A solution to these issues was provided by the CCP in its opinion, which is awaiting implementation by the federal and the provincial governments.
The CCP's opinion was issued after consultation with the stakeholders in an open hearing on 25 January 2018.
The opinion addressed all the pertinent issues that have been causing repeated sugar crisis in the country, and suggested important measures to address these issues.
The recommendations could have been effectively used to avoid the shortage/hoarding of sugar in peak demand seasons, and the issue of payment of dues to the farmers.
Price floor: In respect of price floor, the CCP opined that the provincial governments should ideally not fix price floor of sugarcane and let the market determine price based on supply and demand.
Price floors should only be imposed for limited periods in situations where food security is gravely threatened.
According to the CCP, if a price floor needs to be imposed, the government must be careful, while calculating the cost that it takes to produce sugarcane by ensuring detailed field visits and rely on firsthand knowledge, duly acknowledging the divergent conditions and factors prevalent in different areas, in the interest of accuracy.
More importantly, the opinion said that the pertinent government departments at the federal and provincial levels must ensure that they have an independent way of forecasting the production of sugarcane in any proceeding season and its impact on the total supply of sugar in the country vis-à-vis its demand, so that this consideration is built into estimation of any potential price floor for sugarcane.
In addition to the cost of a commodity, the value of the commodity held by the buyer in light of the laws of supply and demand must also be considered to ensure that the seller or the farmer gets his price.
In either of the foregoing suggestions the pertinent government department must have an independent mechanism of collecting information and should not be relying on data available with the PSMA or any other stakeholder with vested interest in the process.
While fixing the price of sugarcane, price floors or any applicable support price of other crops, such as cotton, must also be considered, so as not to discourage the farmers of those crops to grow them.
Cotton crop feeds an important industry of textile and requires a lot less water than sugarcane, and its growers must not be discouraged from growing cotton, the opinion said.
The opinion said that whenever the provincial government arrives at a price floor, the government must ensure that it pays the farmer its due.
Any policy regarding determination of price floor for sugarcane must take the emphasis away from weight and shift it to quality, so that farmers have an incentive to shift towards more efficient methods and be rewarded accordingly.
Farmers producing higher quality sugarcane must be paid a premium against farmers, who grow relatively inferior product.
This will also help in reducing the overall production cost for sugar.
Review of legislative framework: The CCP strongly recommended that provincial governments review the legislative framework under which the sugar sector operates.
The Sugar Act is severely outdated and does not serve any purpose in the contemporary times.
All provincial governments should review legislation to limit government intervention and bring it in line with the recommendations given above.
Any revised or new legislation should encourage principles of free market.
The CCP further viewed that research and development (R&D) is the cornerstone of any efficient industry.
It appears that the lack of R&D has prevented the sugar industry from realising its potential (both export and local) particularly at the farm end, where there appears to be no efforts to introduce more effective seed varieties, and indigenize them to produce superior quality sugarcane for long-term benefit.
The CCP suggested R&D in yield and quality, bringing efficiency in the mills' processes and making the manufacturing process more efficient and cost productive to making the most efficient use of the by-products.
With regard to the role of government with respect to exports, the CCP opined that, in addition to the R&D measures to reach our export potential, the concerned government departments must also be very vigilant regarding the existing stocks of sugar in the country.
"There is need for active forecasting with regard to the quantities of sugar that will be produced in any upcoming season vis-à-vis its demand and up-to-date knowledge of prevailing prices of sugar internationally, so that a timely and effective export strategy can be adopted, based on actual facts on ground," the CCP said.
Shortage of sugar: Regarding any artificial shortage of sugar supplies on the retail/wholesale or mills' end, the CCP viewed that the government through the TCP may maintain certain amount of reserves of sugar as a check/deterrent for any such market manipulation.
"Ideally market forces must be allowed to operate freely, and so this must be done very sparingly, if at all needed, as the scenario thus described, is less likely to sustain in current circumstances, where owing to excess supplies and lack of export channels, the market is very likely to correct itself within a short period of time. However any such reserve, apart for being a deterrent may also be considered for export at an opportune time, in the event of international prices of sugar rising at any point in time," the opinion said.
Lastly, the CCP recommended that the government may consider setting up a committee comprising all the pertinent government departments dealing with the sugar sector at federal and provincial levels (such as provincial food departments, research departments whether attached or independent, provincial cane commissioners, Agriculture Policy Institute, Ministry of National Food Security and Research, Ministry of Commerce and Trade Corporation of Pakistan).
The committee should also include representatives of farmers and mill owners to coordinate effectively in aligning their objectives and be able to deliberate over a workable long-term plan based on the CCP's recommendations for making the sugar sector internationally and locally competitive.
With the CCP's recommendations, the sugar sector can be made an economically efficient sector, catering to the welfare of its stakeholders as well as consumers in the longer term.
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