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Dismantling “sweet” cartelisation  

Huzaima Bukhari & Dr. Ikramul Haq

It is unprecedented in the country’s history that preliminary reports into sudden price hike of these commodities were released without alteration and action will be taken against those responsible for sugar and wheat price hike after receiving detailed forensic reports on April 25, 2020—Prime Minister, Imran Khan

Matthew Parker in his book, The Sugar Barons: Family, Corruption, Empire, and War in the West Indies, used the rise and fall of the sugar dynasties of the West Indies as a framework for the intertwined histories of sugar, slavery, the industrial revolution, and Britain’s American colonies. The story narrated by him portrays horrifying situation and the worst period of exploitation during the colonial period—some reminiscent of which unfortunately can still be seen in post-colonial era in many countries, including Pakistan. The only difference is that now colonial masters are replaced by sugar barons, many of whom are known politicians in our case.

For businessmen-turned politicians and landed aristocracy spending millions to win elections has been a rewarding investment—as conceded by even Imran Khan back in 2018: “We need electables to come into power”. This class knows how to protect/expand their business interests after capturing state apparatus. This conflict of interest presents an ugly facet of our politics—holding public office to make policies for promoting own business empires. Sugar barons have been allegedly using money power as a weapon to become indomitable and render toothless those very institutions meant to safeguard public interest, enforce rule of law and act as watchdogs against wrongdoings of all. Such office holders engaged in self-aggrandisement, monopolisation and cartelisation feel that they are above law and institutions are their handmaids.

According to a report [PM, DG FIA being threatened by sugar mafia, The News, March 5, 2020], “the sugar mafia has threatened Prime Minister Imran Khan as well as DG FIA and Chairman of the Inquiry Commission Wajid Zia to immediately stop the probe into the sugar scam otherwise the country will see a severe shortage of the commodity and its price may hit Rs 110 a kilogram”. The above report highlights a laudable effort of Prime Minister as under:

In a rare but bold move, Prime Minister Imran Khan….made the report on wheat and sugar scandals public and there are strong indications that some major administrative actions may follow in the coming days. Informed sources said that not only heads will roll from within the bureaucracy but Prime Minister Imran Khan is also considering removing some of his key ministers from the cabinet besides expelling Jehangir Tareen from the PTI.

It is not the first time that abuse of power and manipulations by owners of “white gold” have surfaced—it was highlighted even in many judicial decisions in recent years, most notably in judgement of Lahore High Court in JDW Sugar Mills Ltd etc. Versus Province of Punjab etc [2017 PLD Lahore 68]. The details of which can be seen in our article, ‘White gold’ wars, TNS, Political Economy, October 23, 2016.  

It may be highlighted that after price hike of sugar and wheat flour, Prime Minister in February 2020 constituted two high-powered committees headed by the Director General of the Federal Investigation Agency (FIA) and comprising a senior officer of the Intelligence Bureau and the Director General of the Anti-Corruption Establishment, Punjab to investigate the matter. In its 32-page report, the committee on sugar price-hike termed the decision of the Government of Pakistan Tehreek-e-Insaf (PTI) to allow export of sugar as the main cause causing 30% increase in its price. In the light of recommendations of the committee, the Sugar Inquiry Commission is established under Commission of Inquiry Act of 2017 to give report by April 25, 2020 for appropriate action against the culprits. The Commission has already started checking the ledgers, bank reports, export details, markets sales etc of the sugar mills.

According to report, PM, DG FIA being threatened by sugar mafia, “…. from January 2019 till May 2019, sugar was exported availing subsidy given by Punjab. It has been highlighted that during this period sugar prices in the local market increased from Rs.55 per kg to Rs.71 per kg. Therefore, the sugar exporters benefited in two ways. First by availing the subsidy of Rs.3 billion and secondly taking full advantage of the price hike”.

The report says the number one beneficiary of export subsidy and price hike was “JDW Group (mainly owned by Jahangir Khan Tareen) by availing 22% of total subsidy [Rs. 561 million], second was RYK Group run by Makhdoom Omer Sheheryar Khan (brother of Khusro Bakhtiar, (including ownership by Chaudhry Munir and Moonis Elahi) availing 18% of subsidy [Rs. 452 million] and third highest was Shamim Ahmed Khan (Al Moiz Group) availing 16% [Rs. 406 million]. The Commission has also indicated “overall collusion of sugar mills and wholesale dealers behind this scam”. Total subsidy of Rs. 25 billion was given to sugar mills during the last five years, while Rs. 3 billion was given in 2019 alone. According to consolidated data, RYK group is the single largest beneficiary with total subsidy of Rs. 4 billion, JDW over Rs. 3 billion, Hunza Group at Rs. 2.8 billion, Fatima Group at Rs. 2.3 billion, Sharif Group at Rs.1.4 billion and Omni at Rs. 901 million”.

The inquiry report says that despite clear calculations of the stock position after deducting the strategic reserves, Sugar Advisory Board in its meeting of June 2019 did not ban the export of sugar and hinted at clear signs of “cartelisation” and “manipulation” as “the ex-mill sugar price determination formula was also unfair”. For concrete evidence, forensic audit is recommended which has already begun.

One aspect not highlighted in media and debates is the finding that the sugar mills allegedly purchased sugarcane off the books and its production was also kept off the books to evade sales tax. The committee observed that it was the responsibility of the Cane Commissioner to record full sugarcane production while the Federal Board of Revenue (FBR) was responsible for monitoring sugar production. When a few months back, businessmen asked the Prime Minister that “FBR and not NAB probe their tax affairs”, he promptly accepted their demand so now FBR should take action for tax evasion/fraud, retrieval of tax evaded along with default surcharge and penalty as well as register FIRs and prosecute the tax cheats through the Special Judge as required under the law. They need not take the approval of PM or wait for April 25, 2020 to act as per law as their competence/efficiency stands exposed. Their subservience to sugar barons is well-established as a leading audit firm, whose chief became Chairman FBR, was auditor of JWD.    

Had these types of sugar and wheat inquiry reports been released in any other country then by this time the ruling political party would have distanced itself from those among their ranks who profited by ensuring government policies helping them accumulate massive profits but the nation has been asked to wait until April 25, 2020 which is against the PM’s own assertion that those in power get the chance to influence inquiry. NAB in the case of public officeholders should proceed under its own law as it does against citizens like Mir Shakeel in the absence of concrete evidence getting reprimanded by higher courts repeatedly. When big names in power are involved, why is NAB waiting for the forensic report? The Premier keeps on reiterating, “I believe in rule of law!” It is a great test for him now to let institutions proceed as per law to ensure that his own credibility remains intact.

It is matter of record that sugar barons have been pocketing unprecedented profits both through domestic and international markets. Way back in 2010, according to a report, the Competition Commission of Pakistan (CCP) in an order levied penalty of Rs. 75 million or 10% of the annual turnover, whichever is higher, after holding that the members of Pakistan Sugar Mills Association (PSMA) had made a three-tier cartel in the industry. However, the CCP could not make its order public as the PSMA obtained a stay order from the Sindh High Court.   

In March 2016, they managed to secure extension in the deadline for exporting 500,000 tons sugar by getting subsidy at the cost of taxpayers’ money to the tune of Rs. 13 per kg. The Economic Coordination Committee on March 29, 2016 granted permission till March 31, 2016, for which no justification existed as the prices were escalating in the international market.

Besides punishing the culprit after due process of law, the viable solution is resort to free, fair but well-regulated open-markets, and end of protectionism. Let the consumers get the benefit of lower prices at arm’s length in local or international markets. We can dismantle monopolies/cartels and get rid of political clouts of businessmen in power through fundamental reforms ending elitist, protectionist structures. At the time of writing these lines, the price of sugar in international market is just Rs. 47 per kg whereas the poorest of the poor hit by Covid-19 pandemic lockout are buying it for Rs. 70 per kg at Utility Stores, if available, and Rs. 80-90 in the open market.

All governments have been extending undue benefits to the rich sugar mill owners at the expense of taxpayers’ money. On the contrary despite giving support price, growers of sugarcane are being exploited by the mill owners who do not pay in time and also under-weigh their sugarcane. Tragically, shift to growing more sugarcane led to excess production giving excuse to mill owners to export and get subsidy—another negative consequence, reduction in cotton bales, for the textile industry, major exporter, caused loss of foreign exchange for importing six million bales this year. Once we used to export cotton lint! Successive governments have not thought of giving even one-tenth of subsidy enjoyed by sugar barons to farmers as incentive to produce high quality cotton that can meet our demand and through exports we can earn billions.

As regards, sugarcane, according to an expert, Asif Sharif, “we can produce it at zero-cost with multi-cropping, while increasing sugar recovery by at least 2%, that actually means 22% more sugar produced from the same amount/volume/weightage of sugarcane over and above the current yield”—see his videos relating to best way to grow organic sugar at   https://youtu.be/SIgdS0YQN5s and   https://youtu.be/pkPlcxdgiQg.       


The writers, lawyers and partners in Huzaima, Ikram & Ijaz, are Adjunct Faculty at Lahore University of Management Sciences (LUMS). 

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