CCP questions Punjab embargo on new sugar mills

Punjab embargo on new sugar mills

Punjab is home to more than half of the sugar mills in Pakistan. But, for the past six years, there is a complete ban in the province on the setup of new sugar mills as well as the expansion of existing mills.

In its latest policy note, the Competition Commission of Pakistan advised the Punjab Government to lift the ban that had been imposed in December 2006, in order “to allow a fair competition in the sector”. The said policy note, available on the Commissions website, questions the rationale for dual barriers on entry and expansion in the sector. Heavy on reiterating the valuable principles of economics and competitive forces, the policy note must have refreshed the recipients (Punjabs Chief Secretary and Secretary Industries) memory of the courses they attended in government academies. The CCP started looking into this matter when it was approached by a complainant who wanted to establish a sugar mill in Bhakkar, Punjab, but could not do so because of the complete ban on establishment or enlargement of sugar mills in the province.

The Commission contacted the Punjab Government in March 2011 with its queries, and the latter responded that the ban was imposed to protect cotton growing areas.The sugar cane crop – due to its strong substitution effect – was feared to encroach upon the cotton belts if more mills started operating. Interestingly, the Punjab Governments response mentions a February 2008 letter from the PM Secretariat in which the latter advised all the provincial governments to consider imposing a complete ban on new sugar mills and further expansion for at least five years. As the note illustrates, the Federal Government seemed to discourage increase in sugar cane acreage, on grounds that the crop was water-intensive; that it nourished pests and bacteria; and that it is already substituting wheat and cotton crops in many areas.

The CCP found these reasons hardly satisfactory, noting that the imposition of the ban cannot, per se, deter farmers from substituting the sugar cane crop for cotton crop. Citing the latest Economic Survey, it states that the area under cotton cultivation has actually increased despite the increase in area of cultivation of sugar cane crop. “Furthermore, based on climatic and other factors, cotton cultivation is not substitutable with sugar cane cultivation. Therefore, the substitution ground does not seem to explain or justify the ban,” it stated.

The Commission addresses the water-availability issue by citing a 2009 report published by the Punjab Irrigation Department. The report found that – barring certain districts lying in tail reaches like Lahore, Okara, Lodhran, Multan and Jhang – groundwater levels had been improved in many parts of Punjab. Moreover, the Commission suggests that there is room for more sugar mills in the province. “It is worth mentioning that despite the fact that there are maximum number of sugar mills in Punjab, i.e. 44 out of 82, the sugar cane crop utilisation percentage by these sugar mills has been 64.02 percent for the year 2008-09, 66.95 percent for the year 2009-10 and 74.37 percent for the year 2010-11.

Hence, it can be inferred that the total sugar cane crop produced was not utilised fully”, observed the Commission. The CCPs counter-arguments are strong, and should compel the Punjab government to test them in the light of evidence-based research and dialogue with the private sector. As of now, it is unclear what effects lifting the ban can potentially have on the industrys stakeholders (growers, millers and consumers), food security and broader agricultural competitiveness in the country. – Brecorder