Sugar price hike: Did subsidies play any role in controlling prices?

The inquiry committee on sugar crisis in its report released last week suggested that the prices remained low during the Pakistan Muslim League-Nawaz’s (PML-N) tenure, however, the prices went out of control during the incumbent Pakistan Tehreek-e-Insaaf’s (PTI) government despite both the governments paying subsidies to the mill owners.

So, did the subsidies to sugar mills owners play any role to keep the sugar prices under control in the local market?

During the PML-N tenure, 0.92 million metric tonnes of sugar was exported in 2017 and 1.53 million metric tonne sugar was sent abroad in 2018. Despite the huge quantity of export, sugar prices decreased from Rs65.2 in January 2017 to Rs53.7 in June 2018. On the other hand, according to a The News report, the PTI government allowed export of 0.74 million metric tonne sugar and the prices went up from Rs55.9 to Rs71.7 from January to December 2019.

The inquiry committee issued a supplementary report on the subsidies paid to sugar mills owners during the last four years. According to the supplementary report, in 2016-17 and 2017-18, the government allowed sugar mills to export the commodity but there was no impact on the retail prices in the local market. However, with the export of sugar in 2018-19, the prices went up from Rs55 to Rs74 from January to June 2019.

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According to the report, the production of sugar in 2016-17 and 2017-18 was more than the estimated domestic consumption of the country; hence the sugar was exported. The estimated domestic consumption of Pakistan is around 5.2 million metric tonnes (MMT) per year. In the year 2016-17, Pakistan had a record 7.08 MMT production of sugar while the production in 2017-18 was 6.63 MMT.

The production of sugar was more than the domestic requirement in 2016-17 and 2017-18. Therefore, there was no impact on the export of sugar on the retail price in the market. During the year 2018-19, the production of sugar was expected to be low and this was intimated by the Secretary Ministry of Industries and Production but even then the PTI-led government approved export of 1 MMT sugar.

“The export of 1.00 million tons of sugar was recommended during the Sugar Advisory Board (SAB) meeting held on September 11, 2018, as excess sugar was available. The ECC approved the export of 1.00 and 0.10 million tons of sugar on October 2 and December 4, 2019, respectively. 

However, during the same meeting Secretary Ministry of National Food Security raised the issue that low production of sugarcane was expected in the upcoming season due to water shortage. Despite that the export was recommended and without making it time-bound. In the meeting of SAB held on April 15, 2019, and May 6, 2019, Punjab raised concern over the rising prices of the sugar in the local market.

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The issue of increasing price of sugar was discussed in the subsequent meetings in June 2019 as well but no decision was taken recommending a ban on export even though estimated stocks calculation presented during the meeting showed net stocks as negative 0.191 million tons (excluding the stocks of seven sugar mills of Sindh).

Finally, the ban on export was recommended on January 28, 2020, and the ban was imposed on February 18, 2020”, the report says.

According to the report, the sugar mills owners were paid Rs14.71 billion subsidy in 2017. The sugar prices in the local market in January 2017 were Rs65.2 per kilogram. However, at the end of the year, the sugar prices went down to Rs54.7 per kilogram. This shows that the sugar prices were reduced by Rs10.5 per kilogram from January to December 2017.

During the year 2018, the sugar prices remained almost constant as on January 2018, the price of 1-kilogram sugar was Rs54.1 and in December 2018 the price was Rs56.1 per kilogram. 

The hike in sugar price, according to the publication, started from January 2019. This was the time when the PTI government allowed the sugar mills owners to export the sugar and approved Rs3 billion subsidy for them. As per the inquiry report, Makhdoom Khusro Bakhtyar’s brother Omer Shehryar’s group RYK was given Rs2.68 billion subsidy in the year 2017.

Jahangir Khan Tareen’s JDW group was given Rs1.83 billion, Sharif family Rs899 million, Hunza Sugar Mills Rs1.56 billion, Fatima Sugar Mills Rs1.25 billion, Al-Moiz Group Rs653 million, Omni Group Rs424 million and all others were given Rs1.19 billion subsidy in the year 2017.

Similarly, these sugar mills were given Rs4.58 billion in 2015 and Rs3.13 billion in 2016 by the PML-N government. 

In total, the PML-N government gave away Rs22.42 billion subsidy to the sugar mills owners from 2015 to 2017. Whereas, the PTI government approved Rs3 billion subsidy for the sugar mills owners for the year 2018-19.

Originally published in The News