The reason was succinctly identified by the UN under-secretary general for Humanitarian Affairs John Holmes: "there have been very severe protests in Haiti. [There have been] riots and deaths in Egypt in bread queues and we've seen unrest in different counties in Africa.... When food prices go up for people, who are right on the edge of food insecurity of marginal survival to start with, then as soon as they rise beyond a certain point, they have no money to cover their needs or no money for anything else, and that's why the social unrest arises. There are some fundamental factors behind this. This is not just a sort of quick blip in prices, which will return to normal shortly, it's because there are these fundamental factors of the population rising, crops being used for bio-fuels, more sophisticated diets in places like India and China. Lack of strategic grain reserves and maybe also the effects of climate change and, for example, the drought in Australia affecting wheat production in recent years, that's not helped either."
That food prices have risen dramatically for the past year and a quarter in Pakistan, as well, cannot be denied. It is relevant to determine the reason behind this, so that targeted measures can be taken to resolve the issue promptly and effectively in an effort to forestall what Holmes warned against - the rise of "social unrest".
Some may point out that this hapless country has already been subjected to social unrest, as protests against continued massive load shedding continue, though rather sporadically by now. Few, however, have any doubts about the negative political fallout on the ruling party of the continuing energy shortage. In addition, loadshedding has led to a decline in productivity, as well as employment levels, though the latter is not exactly quantifiable, as the appropriate mechanisms to determine an accurate rate of unemployment are not in place in this country - mechanisms that include an up-to-date census report, and unemployment offices.
The first question is: do any of the conditions referred to by Holmes apply to this country. Pakistani population continues to rise, putting pressure on not only the government's meager resources, but also on the inadequate, and, in areas where the poor reside, crumbling physical and social infrastructure. That slum areas in cities and towns are expanding, in terms of numbers, as well as acreage, is fairly obvious to all.
Additionally, in Pakistan, bio-crops, or more sophisticated diets for the poor, are not yet relevant factors. In contrast, in Pakistan, bio-crop production is in its infancy and poverty levels have risen dramatically according to the World Bank, and even more dramatically if one lends greater credence to Sardar Asseff Ahmed Ali's statements.
However, lack of strategic grains reserves (and that of other staples) is certainly a factor that has impacted on food prices. Unfortunately, in Pakistan, this does not always imply lower productivity of the crop for the year in question. Artificially controlling supply (through hoarding/smuggling), with government complicity, has invariably been held to be the major element in the rise in food prices. The ongoing sugar crisis is symptomatic of this assertion.
The Cabinet directed the Trade Corporation of Pakistan (TCP), in February this year, to import sugar to meet the estimated shortfall. TCP failed to do so, on the advice of the Pakistan Sugar Mills Association (PSMA).
On May 4, Iskandar Khan, Chairman, PSMA, stated for the record, that "at present, sugar mills and TCP have sugar stocks of 2,226,531 tons, and 321,035 tons respectively, totalling 2,547,566 tons. Besides this, there is always a stock of 400,000 to 500,000 tons in the domestic market and pipeline. Based on the current consumption level, this stock will last for over nine months ie up to December 2009, while the next crushing season would commence in November 2009. We have enough sugar to cater for our entire year's demand.
There is no shortage of sugar in the domestic market; therefore, there is no need to import 200,000 tons of expensive sugar that would deplete our foreign exchange by $100 million." The TCP promptly cancelled its tender to import 50,000 tons of sugar. At the time, the local cost of per kg sugar production was given as between 26 to 28 rupees (the current stocks of sugar reflect that cost price) thus Rs 35 per kg was considered an adequate profit margin.
Khan in a letter to the State Bank explained the slight escalation in sugar prices by end May, "because of economic recession during the past six months, average consumption of sugar has come down to 307,853 tons, compared with the usual consumption of 350,000 tons. This reduction of 40,000 tons in sugar consumption cannot be termed as hoarding."
By the third week of July, the tune adopted by PSMA was the same. Chairman of Punjab zone Javed Kayani maintained that as of June 30, the mills had sugar stocks of over 1.740 million metric tons, sufficient to meet domestic requirements until the start of the crushing season in November. In a statement issued to the press, Kayani said "there is hardly any possibility of the shortage of the commodity in the current calendar year." He hailed the government's decision to cancel sugar import tenders by the TCP.
On 26 July, the Government of Pakistan imposed a ban on the export of sugar and removed the sugar import duty in an attempt to avert a potential sugar crisis. By August, the PSMA began saying that next year's crop would decline by 10 percent. The reason: growers would shift from producing sugarcane to other more lucrative crops. Stocks, PSMA continued to maintain, remained sufficient to meet the domestic consumption needs. So why did the price of sugar in the open market skyrocket?
The PSMA maintains due to speculation, which accounted for the value of the stocks being held by the PSMA members, even those that had been sold to the Trade Corporation of Pakistan (TCP), used as collateral several times over - speculations generated by the prospect of a lower crop output next year. Wattoo, the Minister for Industries stated that the price rose because the international price had risen, the implication being that PSMA would be tempted to sell their unsold stocks abroad, if the price in the local market was not comparable. He did not recall that the government had banned sugar exports less than a few weeks ago.
It is instructive to note the sequence of events that have led to the escalation of sugar prices in recent days. On August 11 newspaper reports indicated that the government was considering a massive crackdown on sugar mills for the release of stocks that were already contracted to TCP. The biggest offender, or so was proclaimed on the floor of the House, was Humayun Akhtar Khan's family. Wattoo quickly denied that this was so, though no proof was provided either by Akhtar or Wattoo.
This of course does not imply he is the only politician who is, directly or indirectly, involved in the PSMA. Sugar mills ownership is truly a bipartisan activity and if PSMA was the Parliament of this country, there would be no political instability. The political ownership of sugar mills is as follows: Sharif Brothers own nine sugar mills, Chaudhry family owns 4, Jehangir Tarin, former Minister of Industries owns 2 and Humayun Akhtar's brother, Anwar Cheema and Nasrullah Dereshak own one each. In Sindh, there are a total of 28 sugar mills, out of which around 6 belong to President Asif Ali Zardari.
Former Minister Abbas Sarfaraz owns six mills in NWFP. All mill owners are united under the PSMA umbrella. It is not yet clear if ownership has changed recently, however PML (N) did carry out raids against mill owners in the Punjab, which have yet to be carried out by the PPP in Sindh, or any other province. Tarin, Federal Finance Minister, in a recent interview this week past, stated that the government cannot go after mill owners as they are too powerful.
Interestingly, on 14 August, the threat of raids led to a decline in the price of sugar from Rs 5250 per 100 kg (Rs 52.5 per kg) to 4950 per 100 kg (Rs 49.5 per kg). On 15 August, with the sugar storm brewing in the country the FBR, in its infinite wisdom or single-minded drive to raise revenue, decided to revise GST upward on sugar, by Rs 3.84 per kg, leading to the PSMA stating they would raise sugar prices by Rs 5 per kg, if this decision was implemented. The next day, the Minister of State for Industries stated that only three mills were involved in hoarding, namely Tandlianwala (Humayun Khan's brothers), Brothers Sugar Mills, and Kashmir Sugar Mills.
On 17 August, Wattoo stated that 50,000 tons of imported sugar would arrive, in 3 days, at a much higher price, as the international price had risen since February, when the cabinet had directed the TCP to import sugar. Wattoo stepped in again on 19 August and agreed to an ex mill price of Rs 47 per kg, for Sindh, and Rs 49.75 per kg for the rest of the country, much to the chagrin of the people. After much hue and cry, with allegations of Wattoo's complicity with the PSMA being openly bandied about, the Prime Minister decided to fix the price at Rs 45 per kg, by slashing GST by 50 percent. Thus the Prime Minister did not touch the influential mill owners, but reduced government revenue for the year, a fact that may well raise the budget deficit, unless taxes under some other head are raised.
The onus to provide relief fell on the shoulders of the judiciary. The Punjab High Court directed that sugar not be sold at more than Rs 40 per kg - a decision that the Punjab government has committed to implementing. Wattoo states that the federal government has no administrative powers to implement the decision and the Punjab government has committed to implementing it. Be that as it may, sugar price is hovering over Rs 50 per kg today, while it is available at Rs 38 per kg at Utility Stores, with massive queues baton-charged on occasion. Given this background of action and non-action, it remains inexplicable as to why the PPP does not know precisely why its popularity is steadily declining.