Spiralling sugar prices

Sugar prices have now sky rocketed to Rs78 per kg that have been Rs71 on July 14 and Rs73 on August 8, 2011. The manufacturers and wholesalers have now planned to take the price of sugar to Rs90 – Rs100 per kg in the near future, although peak demand season of Ramadan has passed. There is expected to be a sugar shortage of 300 to 350k tonnes up to the months of December to January 2012, when new sugar will come in the market.
Sugar shortage expected
However, the government officials and TCP are not ready to admit that there will be shortage of sugar and are continuously saying that the country has surplus stocks. Federal Minister for Industries, Ch. Pervaiz Elahi, has informed the National Assembly that 1.46 million tonnes stock of sugar is available in the country, which is sufficient to meet the demand till December 27, 2011. Monthly consumption of sugar is 350,000 tonnes. He admitted that the price increase was due to hoarding and speculation. The minister stated that to control the price of sugar about 100k tonnes of sugar at subsidized rate of Rs55 per kg was being sold at USC outlets during Ramadan. Sugar has been exempted from sales tax while 8 per cent Federal Excise Duty (FED) has been imposed. Moreover, to stablise price of sugar government has allowed import of sugar without any regulatory duty and in the budget 2011-12, 2.5 per cent FED has also been withdrawn. He said that the ex-mill price was Rs60 per kg and with the 8 per cent of FED, Rs4.80 per kg; wholesale price comes to Rs65.80 per kg and retail price should not be more than Rs66.8 per kg. Therefore, any increase in price above this level is unwarranted, however he did not mention that the authorities would take any action against the culprits.
Sugar smuggling
He successfully shifted his responsibility to the provincial governments and said that they were responsible for taking measures to control hoarding and artificial shortage of sugar. Market sources said reasons of this price hike were hoarding and the smuggling of sugar to neighbouring countries. Sugar is being smuggled to Afghanistan and Iran, where the price of sugar is more than Rs100 per Kg. The Minister refused the allegation of smuggling and stated that sugar price in India is Rs61 per kg. Therefore, sugar smuggling to India is not possible due to price difference of Rs10 per kg. However, he could not justify the smuggling to Afghanistan where sugar price is Rs104 per kg. He said its annual demand is only 235,000 tonnes which is imported from India, China and Brazil. Moreover, as far as smuggling of sugar to other neighboring countries is concerned, he said it is not a viable option because of high fuel costs by road. However, Interior Ministry is taking preventive measures to check sugar smuggling, the Minister added. On the other hand, the Pakistan Sugar Mills Association (PSMA) said that sugarcane crop area is much less than the last year, therefore, obviously sugar production may not be more than 3.1 to 3.2 million tonnes. The monthly demand is estimated at 300 to 350k tonnes, i.e., at least 3600k tonne per annum. To meet the shortage of about 1.2 million tonnes, sugar will have to be imported. In the first half of the crushing season, the authorities were claiming that sugar production will equal the consumption of 3.5 million tonnes. In spite of this claim, it was estimated that country will need to import 0.5 million tonnes sugar in 2011-12 to build up buffer stocks to meet the challenge of millers or dealers hoarding stocks to create artificial shortage, official said. The present position of sugar shows that sugar stocks were 1.669 million tonnes, on August 16, 2011, of which 1.413 million tonnes were in the provinces and 256,000 tonnes were with the Trading Corporation of Pakistan (TCP).
Production
The first monthly statistics of sugar production have contradicted the PSMA projections and prospects that crushing season 2010-11, may end up between 3.9 to 4 million tonnes as against the market estimates of 3.1 to 3.2 million tonnes. Further, a report submitted by the Ministry of Industries and Production to the FBS also indicated that sugar production in the first month of the crushing season, December 2010, was 0.575 million tonnes. They hoped that prospects of sugarcane would be very bright and net sugar output may be 3.9 to 4.0 million tonnes. In January and February crushing is at its peak while March and April are the last month of the crushing season. The fresh crop of sugarcane arrives in December and crushing starts in the last week of December and sugar comes in the market in January. Thus, to meet the local demand the government will face severe shortage or will have to import sugar. Presently, the price of sugar in international markets is also high and remained at about $0.80 per Kg. Its landed cost at Karachi port is about Rs85 per Kg and if sales tax and other taxes are added then it would be available for at least Rs90 per Kg and would be sold in the local market at Rs100 per kg, which would be too high for the common man. It is to be recalled that Ayub Khan’s government faced public pressure because of increase in sugar prices. At that time price of sugar was increased to Rs2 per Kg. The then Punjab Governor Ameer Muhammad Khan immediately took strong action against the hoarders and brought the sugar prices at the previous level. Then another hike was seen in Zulfikar Ali Bhutto’s government. In the Pervez Musharraf era in 2001 the price of sugar was around Rs14 to 16 per Kg and in 2005 it reached Rs24 to 25 per Kg but decreased to Rs19 per kg. The biggest hike was recorded in 2008-09, in the present government regime, when the price of sugar was more than Rs58 per Kg. Later on its price reached Rs100 per kg but decreased to Rs65 to Rs78 per Kg. The courts also took action and ordered to bring down the sugar prices. The CCP also observed that there is evidence of a history of collective decision making by the sugar mill owners cartel through PSMA to increase prices.
Sugar industry
Sugar production and distribution provides jobs to the rural people of Pakistan and supports the economy by generating huge amount of taxes. It provides backward and forward linkages that benefit the economy. The structural features of Pakistan sugar industry are inefficiency in the sugar mills and obsolete technology that lead to the product struggling to compete in international markets. The industry has failed to meet the challenges, exploiting opportunities emerging in the regional and international markets. In spite of ranking as the fifth largest country in the world in terms of area of sugarcane crop, favourable climatic conditions and having one of the best irrigation systems, Pakistan is not a regular exporter of sugar, but imports sugar from time to time. Mill owners and retailers blamed that wholesalers are manipulating and keeping sugar prices high. The wholesalers said that despite continuous decline in the wholesale markets, the price of sugar remained at Rs78 per kg in the retail markets of the country. The traders are misleading the consumers that there would be a severe shortage of sugar due to floods in the country and sugar would touch Rs100 per kg. A retailer said that the wholesalers are keeping the sugar price high by restricted supply to Jodia Bazaar Karachi, Akbari Mandi Lahore and Narankari Bazaar Rawalpindi which increases the prices all over the country. Similarly, traders in Islamabad said that wholesale price of sugar was between Rs76 and Rs77 per kg and it was not likely to decline in the coming months. They said sugar rates were increasing in the international markets and it would have an impact on the local markets as well. The ministry said Pakistan had more than one million tonnes of sugar, including up to 600k tonnes with sugar mills and 200k tonnes with the TCP. More than 300k tonnes were the liquid stocks floating in various wholesale and retail markets. Due to limited control of authorities over the retail end, the prices were being decided by retailers who take no time in increasing it and pass the impact of burden to consumers. The retailers said in the retail market sugar is sold to unregistered shopkeepers for sale in retail and also directly to people in small packing of 1 kg to 2 kg and they are unorganised therefore they cannot fix prices. In short the blame game continues unabated and the end sufferer is the consumer who is struggling to make ends meet in recessionary times, where inflation is hitting the purchasing power of the common man and there are few jobs in the job market.