How to reconcile the conflicting interests
By: Ahmad Fraz Khan

THE ongoing cane pricing crisis seems to have exposed everyone involved in the business.

Official decision-making has become highly vulnerable to pressure groups — be it farmers or industrialists.

The industry, fed on low-priced cane for too long and facilitated by an elaborate regime of duties and tax relaxation, is unable, or unwilling, to vigorously innovate and add much value to its products.

The farming community, already suffering on account of cotton and rice crops was ready to take to the streets for sugarcane.

And defanged by the 18th amendment, the federal ministry of food and research is confused about its own mandate, and has reduced itself to advising and condemning the acts of provinces.

This is a sorry state of affairs for a country that has a big agricultural base. The official decision-making is at its worst.

To begin with, Punjab and Sindh fixed cane prices at Rs180 and Rs182 per maund respectively, because they both had not increased them for the past two years.

But as the industrial pressure grew against such increases, the Sindh government buckled and reduced the price to Rs155 per 40kg — even less than the 2012 level, when prices were last increased.

The industry in Punjab pressured the provincial government to follow suit.

However, before that could happen, the farmers started protesting in different parts of the province and the country. They threatened to besiege mills and homes of respective parliamentarians, block national highways and set cane on fire on the roads.

Instead of facilitating sugarcane growers through other means — like lowering taxes on inputs or through loans — the government tried to do so directly (through the support price) and drove the industry out of the export market.

As the strength of the growers’ resolve dawned on the Sindh government, it backed off. Punjab kept mum for a few days, but as the protests spread, it announced maintaining the price.

When the industry turned on the pressure, the provincial governments reduced the price of cane. As soon as the famers’ protests started, they backed off. This can only be termed bad decision-making.

The industry, on its part, has long been relying on official facilitation, be it through low cane prices, official buying during times of glut, export rebates, or higher sugar prices.

Purchasing sugarcane is the only business where procurement of cane by mills on credit has a legal cover.

At present, sugar is available at round Rs40 per kg in the international market — London sugar was being traded at $402 per tonne last week — against Rs58 per kg in Pakistan.

One reason is that the industry is focused on producing sugar, which is a by-product for the developed global sugar industry.

The international industry produces a range of products — from ethanol to plastic — while our industry relies on official support instead of diversify into new products.

The industry would surely use the higher cane price as an excuse to raise the sugar price next season, despite the glut of 1.5m tonnes in the country at the end of the current season.

The government, on its part, also needs to realise that fixing the support price for any crop entails four factors: import position, export parity, domestic stock and the cost of production.

Linking the price to any one factor for political reasons, or as compensation for its failure on other fronts, would only complicate the situation — as it did this time.

The Agriculture Policy Institute opposed the increase in cane price when sugar was being traded at $458 per tonne in the international market.

The government tried to do so when international prices had dropped to $400 per tonne because it has not been able to reign in the farmers’ cost of production.

Instead of facilitating growers through other means — like lowering taxes on inputs or through loans — it tried to do so directly and drove the industry out of the export market.

The industry cannot export unless the government now arranges some export subsidy. The government would pay anyway, in the shape of providing such a subsidy.

It is time that both the government and the industry make a paradigm shift. The government should take a holistic view of the crop, especially given the changing water realities.

And the industry should diversify into new products. Until then, the government, the industry and the farmers would remain engaged in fire-fighting, instead of resolving conflicting interests.

December, 2014

Source: Dawn News