LAHORE: Sugar is the sweetest business in Pakistan even if it often leaves a bitter taste in your mouth.
Sugar manufacturing in Pakistan is perhaps the most uncompetitive industry with serious ramifications for the country’s future water security. Yet it has profited hugely from its strong and extensive influence over politics that cuts across political divisions and party manifestos. The sway sugar magnates have over political parties cannot be matched by any other sector. Industry analysts attribute the presence of blurry lines between the sugar economy and politics to overregulation of the industry.
Helped by decades of favourable government policies that restricted competition and rewarded uncompetitive practices, the sugar industry has thrived as the most protected and profitable business in the country. It is perhaps the only business that has secured consistent financial, policy and political support from successive governments every step of the way because, in its case, it is hard to separate the industry elite from the political leadership.
The sweetener industry is helped by favourable government policies that restrict competition and reward uncompetitive practices
“The sugar cartel is represented by ATM machines in every political party,” Pakistan People’s Party legislator Dr Nafisa Shah had commented during a hearing by a parliamentary panel on rising sugar prices on August 8 last year.
According to analysts, politicians, who directly or indirectly own or co-own around 40 mills out of a total of 89, control more than 50 per cent of the sweetener’s highly fragmented market. Among the major players in the sugar business directly involved in the country’s politics, Jahangir Khan Tareen, a former industries minister under Gen Pervez Musharraf and now a close confidante of Prime Minister Imran Khan, is the largest with 14-16 per cent of the total market share.
PPP co-chairman and former president Asif Zardari is alleged to have controlling shares in the nine mills being operated by the Omni Group in Sindh. The group and its directors are currently facing investigations on charges of money laundering and corruption. Similarly, Interprovincial Coordination Minister Fahmida Mirza’s husband and former Sindh minister Zulfiqar Mirza is said to be the other major stakeholder in the sugar business in the province.
Khusro Bakhtiar, the national food security minister, and his brother Hashim Jawan Bakht, the finance minister of Punjab, are said to be other prominent players in Punjab apart from PTI ticket-holder and former federal minister Hamayoun Akhtar Khan and his brother Senator Haroon Akhtar Khan, who was the adviser on revenue to former prime minister Nawaz Sharif.
Sugar industry and politics
In Punjab, the immediate and extended family of Nawaz Sharif too owns several sugar mills. The Sharifs were recently caught up in a controversial relocation of two of their units to south Punjab as the previous Shahbaz Sharif administration in the province quietly lifted the decade-old ban on the establishment new and relocation of the existing mills from one place to another to benefit his family business.
Other prominent politicians who own or co-own or have owned sugar mills in Punjab include the Chaudhrys of Gujrat, Zaka Ashraf, Sardar Nasrullah Dreshak, Makhdoom Ahmed Mahmood and Mian Mohammad Azhar. Abbas Sarfaraz Khan, a former federal minister under Gen Musharraf, owns five mills in Khyber Pakhtunkhwa and is the largest producer in that province.
“The partnership between the sugar industry and politics has developed over the decades because of over-regulation of the industry in the name of protection of interests of farmers and consumer. When you have such a heavily over-regulated business, it is natural for the industry to form and maintain direct strong political connections to have access to policymakers,” a former commissioner of the Security and Exchange Commission of Pakistan (SECP) said on condition of anonymity. “The alliance between the industry and politics is a clear conflict of interest at the cost of public good. How can you expect anyone holding a public office ignore his interests? This naked alliance resulting from government policy of over-regulate the industry is the reason for formation of sugar cartels.”
Technically, the industry is over-regulated by the government in the name of protecting the interests of farmers and consumers as sugar is listed as an essential food item. Practically, the over-regulation is used to profit the industry elite as it allows the government to annually fix the price of sugar cane to influence the farmers’ decisions to grow enough raw material for the mills, purchase large quantities of the sweetener or heavily subsidise its export during years of surplus domestic production, hand out import quota in times of shortages, shield the producers from foreign competition and looks away when the industry cartel delays payments to the growers or jacks up their prices.
“The government claim of protecting the interest of farmers is exposed when the mill-owners delay harvest mostly to around middle of December instead of early November and withhold payments for their cane supplies for months and sometimes even for more than a year. So while higher cane support price increased the area under cultivation to 1.17mn hectares in 2014 at the cost of displacement of important cotton crop, the delayed payment of farmers is now reversing the trend,” the ex-SECP executive commented. “Similarly, the way retail sugar price is increased under pressure of the industry shows the level of authorities’ interest in safeguarding the consumers.”
Theoretically, the industry is also against regulation of the market by the government and uses it as an excuse to press for higher prices. But the mill-owners always shy from demanding its deregulation because they understand the importance of political patronage for their profits in years of surplus and shortages. Between 2012 and 2019, the industry produced surplus sweetener and forced the government to pay significantly large cash subsidies on exports to help it offload its stocks in the international market. In 2018, for example, the industry exported a hefty 1.6mn tonnes of commodity as the federal government gave a subsidy of Rs10.7/kg to “make the exports financially profitable for the mill-owners”. Sindh topped it with an additional subsidy of Rs9.3/kg for its mills. In 2019, only Punjab allowed a subsidy of Rs5.3/kg to the mills operating in the province.
An investigation conducted by the Competition Commission of Pakistan (CCP) in 2009 had found the Pakistan Sugar Mills Association (PSMA) involved in acting as a frontrunner for sugar cartel to encourage collusive behaviour from its platform to fix date for commencing crushing season, industry output and retail prices to ensure a closed and protected market. It also found the government’s involvement as encouraging anti-competitive practices by fixing the retail prices of the commodity.
Policy note
In a policy note issued in May 2018, the CCP advised the government to get out of the sugar business and let the market forces of demand and supply work to determine its everyday retail rates. To protect consumers against any pressure on prices, it said, the government should maintain a strategic buffer of the commodity to allow itself the ability to intervene in the market and stabilise the prices in times of real or managed shortages.
According to the CCP, the government interference encouraged anticompetitive practices and cartelisation by the mill owners and had proved to be a disincentive for the industry to become competitive and efficient. “How come we have 89 sugar producers (with their cost of production varying from mill to mill and province to province), but every manufacturer is able to sell his product at the same price? Where is the competition?,” wondered Rahat Kunain, a former CCP chairman who had ordered the 2009 anti-trust investigations.
The government interference in the sugar market is creating rent for factory-owners and growers, a major factor responsible for the quick expansion in the manufacturing capacity in Punjab and Sindh. “We had 78 mills in 2009. Today we have 89 producers with industry running at 70 per cent of its installed capacity,” another former CCP official argued on condition of anonymity.
He said only deregulation of the industry could force the industry to become internationally competitive and venture into value-added products to reduce its cost of production: pharma and fuel grade ethanol; co-generation from bagasse; and molasses for both local and international markets. “An industry, which is over-dependent on government support and interference in the market for its viability will always look to increase and use its political clout to influence government policies to promote its business.”
It is not an easy job to separate business from politics. However, the deregulation of the markets can help weaken such links and force the industry to learn to survive on its own.
Published in Dawn, January 29th, 2020
from The Dawn News - Home https://ift.tt/314IUGd
via IFTTT
Comments
Post a Comment