NationalVOLUME 15 ISSUE # 17

The ugly face of sugar mafia

A report by a committee set up to probe recent sugar and wheat crises has been made public. In its 32-page report, the committee on sugar price hike termed Pakistan Tehreek-i-Insaf (PTI) government’s decision to allow the export of sugar unjustified as it caused a 30% increase in its price.

According to the report, exporters gained benefit in two ways: first they were able to gain subsidy and secondly, they made profit from increasing sugar prices in the local market. In February this year, Prime Minister Imran Khan had set up the committee to probe the sugar crisis after its price increased abnormally despite the availability of surplus stocks. The director general of the Federal Investigation Agency (FIA) was the convener of the committee, who was assisted by senior representatives of the Intelligence Bureau and the Punjab Anti-Corruption Establishment. The committee was also mandated to review the pricing structure, possibility of cartelization, impact of tax increase, justification for export of sugar and the role of government agencies in preventing the crisis.

The report revealed that PTI’s former secretary general Jahangir Khan Tareen and Federal Minister for National Food Security Makhdoom Khusro Bakhtiar were among the main beneficiaries of the price hike. Both got away with Rs1.03 billion subsidy on the export of sugar, paid out from taxpayer money, which was equal to 41% of the total subsidy the government of the Punjab paid to sugar barons. The federal and provincial governments ignored the warnings of low sugar stocks and increase in prices. Before the decision to allow the export of 1 million metric ton sugar, its per kilo price was Rs55 in December 2018, but it jumped to Rs71.44 per kg in June 2019 – an increase of Rs16.47 per kg or 30%, according to the findings.

The report points out that despite the clear calculations of the stock position after deducting the strategic reserves, the Sugar Advisory Board in its meeting on June 2019, did not ban the export. There were signs of “cartelization and manipulation” by the sugar mills and the ex-mill sugar price determination formula was also “unfair”. According to the inquiry report, six groups control about 51% of the production of sugar in Pakistan. Jahangir Tareen’s JDW Group accounts for 19.97% production, the RYK Group of Khusro Bakhtiar 12.24%, Al-Moiz Group 6.8%, Tandlianwala Group 4.9%, Omni Group 1.7% and the Sharif family 4.5% of the production.

Among the many findings of the report one is that the Pakistan Sugar Mills Association dictates the policies of the industry. The strike call that the sugar mills gave to bring sugarcane prices down was planned by the mills owned by Jahangir Khan Tareen, the Sharif family, Khusro Bakhtiar and others. Also, the increase in the sales tax rate from 8% for filers and 11% for non-filers to 17% did not contribute much to the ex-mill price increase, which was largely made before the budget.

The inquiry committee has noted that neither the provincial government nor the Centre had any clue how the ex-factory price of sugar is calculated. It says that the ex-mill pricing formula was flawed and unfair. The assumptions to set the ex-mill price were also wrong. The federal government allowed the GST into the ex-mill price which was not fair.

The Punjab government gave Rs3 billion subsidy on the export of sugar at Rs5.35 per kg to the millers. The sugar mills owned by Jahangir Tareen availed Rs561 million subsidy, which was equal to 22% of the total subsidy. The sugar mills owned by Food Minister Khusro Bakhtiar availed Rs452.3 million subsidy, which was 18.3% of the subsidy. What is more, the Punjab government was providing the subsidy for the export of sugar at a time when its price was already increasing in the domestic market.

An interesting finding is that despite a 2.7% reduction in the cultivation area this year, the sugarcane production increased 1% till February 25. The crushing season continued in March as well. The committee has pointed out that the sugar millers purchased sugarcane off the books and its production was also kept off the books to evade the general sales tax.

According to the inquiry report, the quantity of sugar produced is sufficient for annual national consumption. The retail price increased from Rs55 in December 2018 to Rs74.64 per kg in January 2020 and the major increase was enforced much before the start of the new crushing season. The committee also found that the Rs190 per 40 kg sugarcane support price was sufficient but the price increase was delayed, depriving the farmers of making a timely decision. The committee found that sugarcane was purchased at about 15% higher than the support price but it observed that the mill owners were also “larger growers” of sugarcane, which could “potentially be a reason for higher than the support price buying of sugarcane”. The committee has also warned about further increase in sugar prices before Ramazan, recommending an immediate crackdown on the major players to keep prices in check.

On the recommendations of the committee, an inquiry commission has been established by Prime Minister Imran Khan under the Commission of Inquiry Act of 2017. The commission has already started its work and nine teams are doing forensic audit, including the sugar mills owned by Jahangir Tareen. The commission will complete its work in 40 days. The people expect the government to complete the inquiry speedily and punish the guilty.