Sugar price manipulation

The influence of industrial lobbyists on the government appears to be getting out of hand. The latest example of this is the rapid rise in sugar prices, an increase severe enough to have a noticeable effect on the overall measure of inflation: the consumer price index. While consumers struggle to cope with the rising prices shrinking the purchasing power of their incomes, the government seems content with taking only cosmetic measures.

The Competition Commission of Pakistan (CCP), the regulatory body charged with preventing collusive behaviour amongst industrial groups, has on more than one occasion pointed to oligopolistic behaviour amongst the sugar industry. It is alleged that the sugar industry creates deliberate shortages of supply by hoarding sugar in large warehouses in a bid to create an artificial price increase. Consumer lobbyists allege something further: that the Trading Corporation of Pakistan was pressured to deliberately mistime its purchases of sugar in order to ensure higher import prices so that domestic prices remain high. These are serious allegations indeed and given the CCP’s earlier misgivings and litigation regarding the sugar industry, they deserve to be investigated.

We would also like to point out some of the techniques that the government has used in the past to create the illusion of action. Perhaps the most commonly used one is that of price controls. Even the courts have been persuaded to establish a legally binding price at which it is declared that a given commodity must be sold. The problem with this approach is that, to the common man, it sounds like a solution whereas it does absolutely nothing to address the underlying problem. As proof, sugar is retailing for Rs120 per kilogramme when its legally mandated price is Rs45 per kilogramme. Prices are not high simply because the sugar industry deems it so. They are high because market conditions have been manipulated to force buyers to pay more. The difference may seem subtle, but it is critical. In order to bring prices to normal levels, collusion within the sugar industry must be effectively banned. It is time for the government to swing the regulatory bat of the recently passed Competition Act.

Published in The Express Tribune, November 11^th, 2010.