CCP raids Pakistan Sugar Mills Association offices, impounds record

The Competition Commission of Pakistan (CCP) on Monday conducted raids at the offices of Pakistan Sugar Mills Association (PSMA) on suspicion that the barons were abusing their dominant position, which caused up to 29 per cent hike in the prices of the sweetener this year.

The CCP carried out search and inspection of the PSMA’s Lahore and Islamabad offices, as part of an ongoing inquiry against the possible anti-competitive activities in the sugar industry, according to a statement issued by the commission.

The raids were conducted as part of an inquiry that the CCP had launched in December last year. It got some leads on the basis of record submitted by about 41 sugar mills, according to the CCP officials.

The Prime Minister Office has also separately ordered an inquiry against the PSMA to determine whether the industry was abusing its dominant position. But the process remains painstakingly slow due to the intervention of courts.

It is the second time in the last 11 years that the PSMA -the representative body of the millers – has come under the microscope. Ten years ago, the CCP had completed an investigation against the PSMA and submitted its report to the Sindh High Court (SHC).

Although the findings of the investigation were never officially announced due to a bar imposed by the courts, the CCP had found evidence of cartelisation in the sugar industry and had recommended maximum penalty under the CCP law.

The SHC is still hearing the case despite a lapse of over 10 years and the matter remains inconclusive.

The CCP authorised its officers to ‘enter and search’ PSMA premises under Section 34 of the Competition Act of 2010, following indications of PSMA’s anti-competitive activities, including, but not limited to, the collective stoppage of crushing in the 2019-20 season, collective rise in the prices of sugar, and collective refusal to supply sugar to the Utility Stores Corporation (USC), as recently reported, according to the CCP statement.

Two different teams, authorised by the commission, simultaneously carried out the search operation at the PSMA’s Islamabad and Lahore offices and impounded relevant record, it added.

The anti-monopoly watchdog stated that through its various enforcement orders, the CCP warned the associations against indulging in activities, which may violate the competition act.

The rule of thumb is that the associations are not allowed to discuss, deliberate or share sensitive commercial information that may allow its members, who are competitors, to coordinate business policy or discussion on economic aspects, the CCP said.

The CCP officials said that there was a clear pattern in the closure of sugar mills and subsequent re-commencement of crushing operations, which indicated the possibility of a collective strategy on part of the sugar mills to delay the crushing season.

The sugar prices that were on an average at Rs75 to Rs77 per kilo in January this year, have risen to on average Rs98 per kilo. The minimum average increase of 22% was witnessed in Islamabad and the maximum -- 29% -- in Karachi.

The retail prices of refined sugar have witnessed an exponential increase, especially between July and August 2020, across all cities of Pakistan with the media also reporting that in some cities, such as Peshawar, sugar was selling for as high as Rs110 per kilo.

Between July and August 2020, prices of sugar increased by Rs11 per kilo and the overall average increase in the price of sugar between January and August 2020, across various cities, was 26%.

In a statement in July, the PSMA said, “There is not at all sugar crisis in the country. Sugar stocks are available in Pakistan.”

The PSMA’s stance has been that the increase in prices was due to the rising cost of production; however, it admitted that the purported cost of production is Rs72 per kilo. In the same statement, the PSMA also claimed that there were enough stocks of sugar in the country.

The CCP officials said that news reports also suggested that the Utility Stores Corporation of Pakistan had asked for supply of sugar at Rs63 per kilo so that it could be sold at Rs70 per kilo to consumers. However, in a letter to the industries ministry, the PSMA indicated that it had not received any letter from the USC. It stated, “It will sell sugar to the ministry at Rs70 per kg as against the demand of Rs63 per kg.”

The government had also given three months to the CCP to complete inquiries to determine whether there was a sugar cartel in the country. In his letter to the CCP, Adviser to the Prime Minister on Interior Shahzad Akbar highlighted that the Sugar Inquiry Commission had conducted a forensic inquiry of nine mills and had found evidence of “cartelisation and anti-competitive practices” by mill owners as well as brokers “which led to hoarding” of stocks.

However, the PTI government’s decision to allow export of 1.1 million metric tonnes of sugar also led to a hike in the prices.