Large booking by country's importers not offering relief to consumers

May 09 - 15, 2005

In 2002, Pakistan joined the ranks of the world's major sugar exporters, thanks to good monsoon rains despite following severe and a prolonged drought. But Pakistan's sugar growers still looking for prospect in selling their crop in a glutted market where prices are falling steeply. The squeeze on prices paid to sugar farmers has increased trade frictions, and prompted emergency support from the government.

Many sugar producing countries, including Pakistan, have taken steps to protect their sugar-growing farmers from competition.

Pakistan slapped a 25% tax on sugar imports in June after refiners and grower complained that imports of refined sugar were about $100 cheaper per tonne than locally grown refined sugar.

Brazil and Australia have joined forces to file a complaint with the World Trade Organisation about EU sugar subsidies.

But a converse situation emerged in 2004 when domestic sugar output dropped because of the water shortage, which slashed the sugarcane crop to 47.3 million tonnes this season, compared with 52 million tonnes in the previous one. Country's annual sugar consumption is around 3.6 million tonnes and the government abolished a 6.0 percent withholding tax on imported sugar to cover the domestic shortfall and hold prices in check in addition to waive import duty.

Pakistani sugar importers booked shipments just to cool down the market. And the sugar stocks reached to about 500,000 tonnes. The sufficient supplies from international market suggested that Pakistan may not have to look for many more imported sugar cargoes as recent purchases to make the domestic supply situation comfortable.

There was no big shortage in the market after the purchases indicating Pakistan's comfortable domestic sugar supply situation.

Prices shot up to round 28 rupees a kg, against 21 rupees a couple of months ago. Traders expect the market to ease when the bulk of the imported sugar starts arriving.

A Finance Ministry official said that Pakistani importers had booked 380,000 tonnes of sugar since January, when the government scrapped a 25-percent import duty in a bid to check runaway domestic prices. Every body was expecting that the market should soon stabilise but the efforts go in vain. The federal government asked the Trading Corporation of Pakistan, which had bought a buffer, stock and provided it to state-owned chain of Utility Stores to sell on Rs25 per kg. It did not work too.

There came an unprecedented observation when Economic Coordination Committee of the Cabinet (ECC) in its last meeting pointed out existence of a sugar cartel in the industry. The sugar cartel is out to hit the poverty-stricken masses, already howling under the heavy burden of prices, ECC said.

"The sugar price of Rs26-28 per kilogram is unrealistic. It is the cartel price," Dr Ashfaque Hasan Khan, Economic Adviser to the Ministry of Finance announced after the ECC meeting chaired by Prime Minister Shaukat Aziz.

The government's abortive attempts to check food prices had already resulted in the 10.25 percent inflation in March.

People are intrigued that as to what compelled ECC make announce the existence of the cartel. It was, however, being tipped out by some quarters that ECC may have taken action at some ministers in the existing cabinet, who owned sugar mills. They also doubt that with many sugar mills belonging to the ruling elite, who would take action against the cartel?

Ashfaque, who has been asked to submit a report in the next ECC meeting, was reluctant to say that he would recommend punitive measures against the culprits, or whether he would like to recommend the case to the so-far toothless Monopoly Control Authority (MCA). "It is up to the ECC to take a decision," he responded.

The country has enough sugar stocks of two million tonnes. The Trading Corporation of Pakistan (TCP) is holding another 360 thousand tonnes in its stockrooms. Then the decision to allow refined sugar imports has resulted in new orders for 212 thousand tonnes till April 16, 2005. It is a lot of sugar given to the market size. However, there are still supply constraints, putting pressures on the prices, like it happened in case of wheat, flour and other food items in recent months. Ashfaque, however, maintained that Sensitive Price Indicator (SPI) has shown a marginal 0.07 percent downward trend during the week ending April 21, 2005, which he attributed to the arrival of fresh wheat crop.

The Cabinet Committee has also decided to import 250 thousand tonnes of Urea for Kharif crop, as the existing market demand of 2.43 million tonnes is higher than the domestic production of 2.27 million tonnes. On the other side, Pakistan Sugar Mills Association (PSMA) has denied existence of any such cartel in the country. It further said that Pakistan has been turned into a dumping ground for European sugar due to the government's policy of zero-rated unlimited quantities of sugar import into the country. The PSMA spokesman said the European Union, on the other hand, has imposed anti-dumping duty on Pakistani textile products besides withdrawing GSP facilities and the European authorities have paid no heed to even the repeated requests from President General Pervez Musharraf and other senior government representatives.