Sugar ban or sugar scam? – Pakistan & Gulf Economist

• Competition Commission recommended lifting ban on new sugar mills to enhance competition and fairness

According to media reports, the Competition Commission of Pakistan (CCP) has sent a strong recommendation to the federal government asking it to lift a decades-old ban on the establishment of new sugar mills, a move aimed at countering falling domestic production, supply shortfalls, and rising consumer prices. The policy shift comes amid a renewed sugar price crisis, with rates soaring in wholesale and retail markets.

The price instability is not due to any shortfall in sugarcane production in the country, but due to the alleged market manipulation by dominant sugar mills and retailers. At the center of the policy conversation is the CCP, which has been actively investigating cartel-like behavior in the sugar industry and pushing for regulatory reform to restore fair market conditions.

In its latest advisory to the federal government, the CCP recommended: 1) lifting the ban on new sugar mills to break the oligopoly of existing players; 1) Deregulating sugar pricing, allowing the market to determine fair consumer and producer prices; 3) Enhancing competition by encouraging new entrants in both production and distribution; and 4) Ending reliance on mill-reported data, which has historically been used to justify sugar exports and stock decisions, often to the detriment of consumers.

The CCP’s internal assessments have identified repeated instances of data misreporting, coordinated stock hoarding, and price manipulation by the Pakistan Sugar Mills Association (PSMA) and its affiliated mills. These practices have led to artificial shortages, unwarranted export approvals, and unjustified price hikes.

In 2021, CCP imposed a record PKR44 billion fine on PSMA and its members for collusive practices, including fixing sugar prices and sharing sensitive commercial data. However, the order was set aside by the Competition Appellate Tribunal (CAT) in early 2024 due to procedural issues.

While sugar mill owners argue that rising costs of production justify higher prices, farmers allege delayed payments and unfair procurement practices.

As the government signals a decisive shift in sugar policy —opening doors to new investments and enhanced competition—the outcome of the upcoming cartel rehearing and follow-through on CCP’s reform roadmap will determine whether Pakistan’s sugar market can finally escape its cycle of collusion, shortages, and price shocks.

If implemented effectively, the combined push for deregulation, enforcement, and market liberalization could mark a major step toward restoring public trust and stabilizing one of the country’s most politically sensitive commodities.

Many industry players and analysts outright reject the CCP recommendation of granting permissions for the establishment of new sugar mills. They say that the existing mills are capable of producing around 9 million tons refined sugar as against domestic demand of less than 5 million tons. The production capacity is determined based on the aggregate crushing capacity per day a then multiplying it by the number of days the mills operate.

At an average the mills operate from 90 to 120 days, as against the historic operation of 150 to 180 days. Shrinking to crushing days is attributed to limited supply of sugarcane, which is a blatant lie. According to sugarcane growers, delayed payment by the mills that too less than the rate fixed by the government, forces the sugarcane growers to either operate their own Gur making facilities or supply the sugarcane to the Gur manufacturers.

According to the researchers, declining trend of yield and sucrose content is because of various factors that include: 1) cultivation of sugarcane in cotton belt, 2) use of outdated verities, 3) inadequate availability of water, in adequate use of nutrients and pesticides/ insecticides and on top of all 4) failure of the research/ agricultural universities in developing better verities.

Without mincing it should be said that the country does not need establishment of more sugar mills. We need to develop a better ecosystem. The suggested measures that include:

1. Making listing of sugar mills at Pakistan Stock Exchange mandatory,
2. Ascertaining per hour crushing capacity of each mill,
3. Stipulating minimum number of crushing days for all the three provinces,
4. Offering incentive if mill is operated beyond stipulated number of says i.e. exemption from payment of taxes on the production beyond the stipulated days,
5. Demarcation of area for each mill and banning purchase/ sale to mills other than the designated mill,
6. Making it mandatory for mills to make payment within one week from the delivery of sugarcane to the mill,
7. Making it mandatory for mills to issue indent to grower, and completely excluding the middleman,
8. If support price of sugarcane is fixed by the government, then maximum retail price should also be fixed by the government.

Since General Ziaul Haq era granting permissions to establish a sugar mill has become a tool to buy political loyalty. There is no opposition to politicians owning sugar mills, but at no point they should be allowed to exploit sugarcane growers or the end consumers.