Wednesday, September 1, 2010

Who to blame for sugar price hike?

Sugar prices are hovering at around Rs 90 per kg and it is difficult to determine which of the key players is to blame: the government, including TCP, the sugar mill owners, the stockists, the wholesalers, or the retailers. Background interviews with officials and private sector stakeholders, however, do establish the fact that sugar price is at an artificially high level and someone is making windfall profits during Ramazan.

"The government is unable to control the rising price of sugar, which is as high as Rs 90 per kg in some parts of the country. The large stockists, who purchased sugar from mills and stocked it in their respective mills, are to blame," said an official who has been closely monitoring the sugar situation. The Cabinet, which is scheduled to meet on Wednesday, is expected to take up the issue of rising sugar price.

The Ministry of Industries and Production (MoI&P) which according to the Rules of Business is also responsible for taking measures to keep prices of essential items at a reasonable level is not accepting any responsibility for the price hike. Some officials of MoI&P told this correspondent that it is the responsibility of provincial governments to have check on prices through administrative measures and not that of the federal government.

The Pakistan Sugar Mills Association (PSMA), which was invariably blamed for manipulating sugar prices in the past, claimed that the industry sold 95 percent of sugar stocks at low rates and the current high price does not benefit the mill owners. "The failure of Trading Corporation of Pakistan (TCP) to import sugar well in time has increased market prices. Mills have hardly any stocks. Prices will stabilise if and when TCP sugar arrives," said PSMA Chairman Iskandar Khan while talking to Business Recorder. However, TCP Chairman Anjum Bashir, who was present in the federal capital on Tuesday, acknowledged that the delay of sugar import might have contributed to its current high price.

"I do not agree that it was TCP's failure; I will rather say that delay in sugar import is one of the reasons for the increase in its price," he added. Lengthy process due to procurement rules in addition to delay in release of funds by the Finance Ministry are the main reasons for the delay in shipment as TCP cannot open LC without funds, he added.

He, however, itemised several other reasons which, he claimed, contributed to an increase in sugar price including higher rates of transportation, destruction of infrastructure due to the floods, excessive oil prices in flood-hit areas and disordered distribution of sugar among the affectees. TCP Chairman said that the provincial governments had picked up only 40 percent of sugar from the TCP so far, which implies that they have sufficient stocks.

In previous meetings of the Cabinet and the ECC, some Cabinet members expressed reservations over the delay in sugar import and demanded a formal probe to establish responsibility. These members will also be present in the cabinet meeting when this issue will come under discussion on Wednesday.

The Cabinet is also expected to ratify the decision taken by the Economic Co-ordination Committee (ECC) on July 20 and 29, 2010. On July 29, the ECC had directed the TCP to complete the ongoing sugar import process of 5,75,000 tons including the already arrived quantity of 2,64,000 tons and make all possible efforts to open tenders of the advertised quantity of 3,75,000 tons of sugar.

TCP implemented the decision of the ECC but it was not provided the required funds to open LCs despite the fact that the ECC asked the Finance Ministry to arrange funds for TCP immediately so that LCs for the tenders could be opened on July 31, and August 7, 2010, respectively.

The ECC had also decided that 100,000 tons of sugar, imported by TCP, would be offloaded in the open market at import price through provincial mechanism starting from July 28, 2010. The provinces were required to arrange payment through their selected dealers as they lift the stocks from TCP well before Ramazan. After completion of the current sugar import process the market forces would be allowed to prevail and the private sector would be encouraged to import sugar.
Copyright Business Recorder, 2010

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