ISLAMABAD: While price manipulation by the private sector is against the law, the Competition Commission of Pakistan (CCP) has pointed out that the recent move by the Punjab government to fix the sugar price too should be avoided.

The commission in its Policy Note, issued on Saturday, advised the government to deregulate the sugar industry to promote free trade mechanisms.

Referring to the Punjab government circular of fixing of the maximum retail price of sugar at Rs85 per kg, the CCP observed that since Punjab is the only province to set a rate ceiling, one immediate effect could be that sugar could move to other provinces where no price ceiling is in place and it can command a higher market price.

The CCP has pointed out that the price control could also encourage hoarding by suppliers or impulsive buying by consumers, especially ahead of Ramazan, both of which will likely result in shortage in the market and even higher prices for consumers.

Advises deregulation to promote free trade mechanisms

However, the commission feels that the promulgation of the Sugar (Supply-Chain Management) Order 2021 by the Punjab Government to prevent hoarding of sugar by the mills is a step in the right direction.

Due to various factors such as economies of scale, labour, equipment productivity and access to crop vary between different mills, it may not be possible for all the mills to produce sugar at the same cost and offer the same rate, the CCP note highlights.

“Imposing the maximum retail price could mean that some mills, which must purchase sugarcane at the minimum support price, may not be able to break even,” the CCP note said.

It added that most of the problems in the sugar sector stem from both over-regulation and lack of competition.

“If the market is deregulated, with free entry and exit, regulations and repeated interventions would not be needed,” the CCP said, adding that in an environment of open market competition, even mandatory crushing laws would not be required.

The CCP observes that the price fixing, particularly at the time of Ramazan, is also likely benefit the industrial consumers and perhaps, not to the target poor population, because the industrial consumers make up for about 70pc of total consumption. For the end consumers, the prices may go up once such price fixing is lifted.

The CCP has also pointed out that the price of sugarcane was the major cost factor in sugar production and mills may be hesitant to buy sugarcane at the Government’s minimum support price and pressurise farmers to sell sugarcane below the government rate.

Such a move could force farmers to shift from cultivating sugarcane to other crops thus setting the stage for reduced domestic production and undesirable shortages in the market in future.

As a result of this, the government may have to import sugar and pay the price in the shape of rising import bill for a commodity for which there is sufficient land and infrastructure available in the country.

The CCP has also blamed the policymakers for giving protection to country’s sugar industry through tariffs and subsidies that has not allowed it to develop the necessary capability to compete in the international market for sugar by-products including ethanol which was in a much higher demand compared to sugar itself.

The CCP has also recommended the Punjab government for a more efficient agriculture policy may be considered, which would take all factors into consideration, including domestic exigencies as well as international reality and direction.

“This will be in line with the federal government’s desire to achieve effective deregulation,” the Policy Note has said.

It has suggested that a better option for Pakistan than setting a price ceiling is in deregulation, removing subsidies, and ensuring competition in the market.

Published in Dawn, April 11th, 2021