ISLAMABAD: The Competition Commission of Pakistan (CCP) has completed its inquiry into alleged anti-competitive activities in the sugar industry, and recommended initiating proceedings against the violations.
As per the recommendations of CCP report, despite an abundant supply, sugar is not available to consumers at an affordable price. It cannot be ignored that the related industries such as beverages, confectionaries, etc. – which are the largest consumers of sugar – are also affected due to lack of competition in the sugar industry. International competitiveness has also suffered due to the higher cost of production.
To ensure its availability to consumers at a reasonable price, a large amount of public money is spent on subsidising sugar through Utility Stores Corporation (USC), Ramzan bazaars and imports.
As per the findings of this report, there is a huge disparity in the structure of efficient and inefficient sugar mills. However, due to the existence of cartels, the inefficient mills have been protected and the benefits of the efficiencies are not being passed to the end-users.
Therefore, it is in the public interest to initiate proceedings under Section 30 of the Act for the violations in mentioned in this report, recommended CCP.
The federal government had earlier ordered relevant departments to launch formal investigations and, where necessary, take “penal, corrective and mitigating measures” against the “sugar cartel” implicated in the commission’s report.
Special Assistant to Prime Minister on Accountability and Interior Shahzad Akbar wrote letters to CCP, Sindh chief secretary, Punjab chief secretary, State Bank of Pakistan (SBP), Federal Investigation Agency (FIA), Securities and Exchange Commission of Pakistan (SECP) and Federal Board of Revenue (FBR) to “undertake a comprehensive investigation” into the matter.
The CCP, in its meeting held on December 19, 2019, authorised an inquiry, under Section 37(1) of the Competition Act, 2010, into “Possible anti-competitive activities in the Sugar Industry” and constituted a committee.
During the inquiry process, CCP observed that most of the sugar mills established in the early 1950s and 1960s are still operational despite outdated technology, low recovery ratio and very high cost of production. This shows that mills are not competing on the basis of efficiency and better technology; rather, each mill appears to be somehow compensated through a managed operation of the industry.
According to CCP report, from analysis of cost information received from sugar mills, it is observed that cost of production varies from mill to mill due to various factors, which include different recovery ratios, economies of scale, conversion cost and the purchase price of sugarcane.
Even mills located in the same area have different cost structures. The analysis of the cost of production of sugar for the year 2018-19, shows that, within the Punjab province, the manufacturing cost varies between Rs43.61/kg to Rs78.60/kg. In Sindh, the cost varies between Rs47.20/kg to Rs66.74/kg.
The report also disclosed that for its calculations on the cost have been taken for the crushing season 2018-19, three different types of mills: highly efficient, moderately efficient and inefficient mills. Furthermore, these costs have been taken from mills from each province i.e. Punjab and Sindh.
The highly efficient mills are the ones with maximum recovery ratio and other economies of scale due to larger capacity and better technology. The inefficient mills are the ones with obsolete technology, low recovery ratio and high conversion cost.