Surge in cane and sugar prices

Post Source: DAWN ECONOMIC AND BUSINESS REVIEW

By Ahmad Fraz Khan


AS if the current sugar price spiral is not enough for hapless consumers, the cane price surge is threatening to keep its price high, perhaps even higher, during the next season as well. Currently, cane prices, as documented by official agencies, have shot up 60-120 per cent of the government fixed rate of Rs100 per 40kg. According to the official record, the cane price in Sindh is averaging around Rs170 per 40kg. It has touched Rs160 per 40kg in southern Punjab and Rs220 per 40kg in the central and northern parts – where 75 per cent mills are located.

The sugar mills in central and northern Punjab have refused to purchase cane and stopped crushing, citing exorbitant prices. They are now seeking official guarantees that the current cane price would be reflected in sugar price before starting their operation.

The Punjab Food Department, which is recording the cane price, says that “the price, whatever it is, will surely be adjusted in sugar price, which the government plans to fix after the season. The very purpose of record keeping is to include cane price in the final tally.”

That is a bad news for consumers. Because, current cane price, which normally forms 75 per cent of the cost of sugar production, when factored in the final tally, may cause up to 50 per cent increase in price in next few weeks. Taken in the backdrop of 100 per cent increase it already had registered price – from Rs32 per kg in July last to Rs65 at present – during the last six months, the next 50 per cent increase will take it to the region of Rs90 – some 300 per cent increase within less than a year.

The situation leads to a natural question: “Who should be held responsible for the painful situation for the common man?” Unfortunately, the governments – federal and provincial – are to be squarely blamed for a situation, which is increasingly hurting consumer, especially urban. It cannot regulate the millers because they are the rulers. It cannot control farmers because of their political (voting) power. The urban consumers are thus left pressed between rock and a hard place.

In the absence of any coherent policy, the government has been hiding behind conflicting principles of “free market economy, over-administering market and subsidies for poor.” No one knows where it currently stands on sugar pricing and where it wants to go in future.

Take current cane price as an example, the government does not want to ensure its own fixed price, resorting to the ‘stale rhetoric’ of claiming that “officially declared price (Rs100 per 40kg) is the bottom line, and it does not mind price going up, benefiting farmers.” It knows that farmers getting exorbitant price suits it politically.

But no one knows how it would respond when the same high cane price is included in the cost of sugar. That is why millers have stopped crushing to seek official assurances against administrative wrath once they have produced expensive sugar and prices go up substantially. Though the Punjab government is assuring them right now against any administrative action, it does not know how the courts would behave if the matter again assumes legal dimension. The millers are also skeptical about the preferences of the Punjab government once popular pressure builds up against price hike.

The farmers have cartelised to increase cane price during this crushing season. After the season, millers will join hands to hike sugar price. The government does not control or regulate either. It is the consumers who pay the cumulative cost.

Two more contradictions are the role of regulator and bid to run agriculture trade on the principles of free market. The free market economies elsewhere have created regulatory regimes to bring transparency in the operation of the private sector and stabilise prices. The local regulatory bodies are either too weak or non-existent in many areas.

Every set of market preferences has its own cost-benefit ratio, but confusion about them only increases the cost – economic and political – without bringing benefits. And policy-makers need to take this into account.

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