Well-informed sources in the Commerce Ministry said that support price has been announced for farmers as a guarantee that in the event that their produce is left unsold in the market it will be bought by the government. The principal objective is to incentivise the farmer to produce more crops so as to ensure that sufficient produce is available in the market.
According to Commerce Ministry, an ideal scenario of fixing the support price is one in which market prices are higher than support prices. When new crop enters the market, it will be sold at market prices and a situation may arise when on fulfillment of needs of industry and consumers, a surplus is left with farmers.
The Commerce Ministry maintains that in Pakistan sugarcane price is generally believed to be more than its market price. This assumption is corroborated by the calculations of Agriculture Policy Institute (API) of Ministry of National Food Security and Research (MNFS&R) and is also part of the summary of Commerce Ministry sent to ECC in which the sugarcane price was recommended to be deregulated.
What happens when the government fixes the SP for sugarcane? (i) If the government fixes the SP (more than the market price) for sugarcane the farmer is incentivised and the crop yield and cultivation area increases. This fact was endorsed by the representative of the Government of Punjab in a meeting held at MoIP on January 28, 2016 as he stated that "Government of Punjab resorted to indicative/support price for sugarcane in year 2005 for the first time and since then the cultivation area of sugarcane has increased from 4-6%"; (ii) the over-priced and over-produced, sugarcane, due to fixing of SP higher than the market price, compels the sugar millers to procure more sugarcane and that too at a higher price which leads to increased production of sugar with potentially artificial higher cost of production. Some millers may even manipulate prices leaving the domestic consumers at a disadvantage; (iii) the production outpaces demand leaving behind the surplus sugar stocks prompting sugar millers to request the government to export the surplus; and owing to depressed sugar prices in the international market, the millers demand proportionate export subsidies. The situation is further embroiled due to absence of a proper mechanism to calculate the export subsidies. (Ministry of Commerce is already dealing with a National Accountability Bureau (NAB) inquiry on the subsidy given to sugar millers in 2013).
The Commerce Ministry further argued that the government is losing at both ends. Ultimately, it is the sugar millers who are better-off; the farmers who are still better-off and the domestic consumers who are worse-off. The perverse incentive to grow more sugarcane has resulted in a sharp decline of cotton acreage particularly in Punjab, with negative implications for the whole country.
The sources said, almost 70% of sugar mills are located in the core cotton zone of the country, especially in Punjab. The presence of mills in top cotton growing areas and their increasing crushing capacity have caused a 26 percent decline in cotton sowing areas, especially in south Punjab including Rahim Yar Khan and Muzaffargarh.
Commerce Minister Engineer Khurram Dastgir who has also angered the sugar industry by not recommending rebate for export of additional quantity of 0.6 million tons of sugar maintains that sugarcane plantation in the areas meant for cotton sowing has badly hurt the production of cotton. He expressed concern that the trend may eventually bring down exports of cotton products in the country.
During a recent ECC meeting, he insisted that a study should be undertaken to secure a balance between sowing of the two key crops and ensure that one crop was not cultivated at the cost of the other. Sugarcane cultivation has risen by 27 percent so far in Punjab. Cotton cultivation areas have been squeezed by the popularity of maize and potato crops in Sahiwal, Faisalabad and Khanewal districts.
Copyright Business Recorder, 2017