Daily Times

Last week I’d promised three things! To write in more detail about the sugar issue (with a word or two about IPP’s).

To offer a perspective on PM Imran coming into his own skin.

Finally, to determine whether the sugar and now IPP reports are the start of a major effort to eliminate Pakistan’s elite capture of governance, policy and regulation or just more smoke and mirrors and flashes in the pan?

All three manifest in their own ways Pakistan’s torturous historical journey and the nature of her power elites. Our feudal, landed, bureaucratic, military, business and religious groups and individuals who’ve dotted our landscape, before and after partition to our present times.

Sugar cane also has the luxury of a minimum support price or MSP, guaranteed and enforced by the government to ensure a minimum level of profit for the sugar cane farmers

And importantly raise some key questions.

Why did resource misallocation, wrong developmental priorities, inequity, exploitation, corruption, misgovernance, institutional destruction and economic distortions take place?

Why couldn’t we make a constitution in the first 9 years of our existence? Why did military leaders intervene and rule directly for 33 years and indirectly for more?

Why haven’t we been able to figure out our identity? Are we a Muslim society or an Islamic state? What was the Quaid’s vision?

Why have the exploited masses of this geography not risen up in revolt to fight for their rights?

Why have we as a society allowed ourselves to be ruled by autocrats, military dictators, oligarchs, plutocrats and kleptocrats?

How did our elites acquire so much power and influence? Will they continue this capture as a means of enriching themselves and making themselves more powerful?

What is it in our DNA, our history, our culture, that makes the collective behaviour of our vast majority so spineless, self centered and hypocritical?

More importantly what is our collective vision for Pakistan’s future?

Will we continue to be haunted by our current religious, sectarian, ethnic and linguistic faultlines?

Will we ever be able to throw off the yoke of ever spreading military control, direct or indirect, in most if not all spheres of our lives?

Will national security, as defined by a highly regimented, well meaning perhaps, but grossly ill informed military, who clearly thinks otherwise, hold away over our governance, our politics and our domestic and foreign policies?

Will our poor masses ever get access to the same opportunities of education, healthcare, employment, business, entrepreneurship and politics as our elites?

Will our judiciary respond to the needs of our people or living in an ivory tower, attempting to fix all other institutions, except itself?

What does democracy mean to us? Is it a genuine means of state administration that manifests the hopes and aspirations of the people, or a tool used by clever elites to pole vault themselves into power and loot and plunder?

Has COVID19 opened our entire system to intense scrutiny and all its failings and inequities?

These represent just some of the questions we should be asking ourselves.

Certainly the thinking ones amongst us, without prejudice and political biases, as we try and understand the Sugar and IPP reports, mere tips of huge icebergs, or PM Imran’s governance or the current state of our society, our economy, governance, politics etc.

Over the next weeks and months I’ll attempt to look at these and try an offer a perspective on the why and hopefully some directional whats!

But as promised, here’s a “Sugar for Dummies” tactical primer with a future deeper dive into our agricultural policies.

Sugarcane is by far the most profitable of our 5 main crops: Wheat, Cotton, Maize, Rice and Sugarcane. The last grown over 2.7 million acres.

It generates the highest average revenue per acre of Rs 111,000, as against Rs 78,000 for Rice, Rs. 58,000 for Maize, Rs 38,000 for wheat and Rs 28,000 for cotton, the lowest. It’s also most resistant to climatic changes and pests, especially compared to cotton which is most vulnerable to changes in the weather.

Sugar cane also has the luxury of a minimum support price or MSP, guaranteed and enforced by the government to ensure a minimum level of profit for the sugar cane farmers. This coupled with subsidies on fertilizer and water increases their margins, further.

So a simple question – If you were a farmer with the capability and the land to grow either cotton or sugar cane, what would you grow? Sugar cane of course!

So here is where it becomes even more interesting.

As farmers grow more and more sugar cane, sometimes reaching twice the amount necessary for domestic consumption, and because mills are forced to buy the sugar cane, there’s clearly over production of sugar.

So what do the millers do? They go to the government, seek permission to export the surplus, and because of the MSP, often 80% of the cost of production, their pricing is not competitive with international rates. As a result they are given a subsidy to cover the difference between their higher cost of production and lower international sugar prices.

It’s a business, readers! Everyone wants to make money. Because the growers were growing a lot of sugar cane, driven by higher profits, more sugar mills were established to produce sugar, resulting in supply usually exceeding domestic demand, and hence the exporting of the surplus and hence the subsidies!

Our 100 or so sugar mills can produce nearly double our domestic demand. It is therefore in their interest to have higher volumes of sugar cane as well. As the sugar mills are constrained by the MSP, which increases their cost of production and reduces profit margins, they resort to other methods to reduce cost, which is largely the price they pay for sugar cane, by delaying buying, forcing farmers to sell below the MSP, selling sugar initially at lower rates to pay farmers, then stockpiling to sell later in the season at higher prices or export through subsidies.

The forensic sugar report should be out today. Hence in my opinion the answers PM Imran should be seeking from the Sugar Inquiry Commission are the following:

What is our domestic demand for sugar? How is it estimated, and who estimates this demand?

What is the purpose behind the MSP? Who sets it? How? Is it to ensure we produce enough for domestic consumption? Or are there other hidden influences, such as farmer and sugar mill lobbies, which determine this price? Why aren’t Sugar mills also given a guaranteed retail price?

Who benefits the most from the MSP?

Why are sugar mills forced by law to pick up every cane of sugar produced?

Why do we have surplus sugar cane and sugar production over and above our domestic demand resulting in subsidies being given to sugar mills to export this surplus?

What will happen if we deregulate the sugar industry, remove the MSP and allow market forces to determine supply, demand and price levels?

Will our farmers suffer? Will many sugar mills close? Will only the fittest and most efficient survive? Will sugar cane and sugar production go down? Will domestic prices rise? Will we have to import sugar? Will it lead to domestic unrest?

Can this be done in isolation from other major crops such as cotton, wheat, rice and maize?

More importantly the PM should be reviewing this in the context of a complete revamp of our agricultural policies and regulatory framework, instead of a result of palace intrigues between a bureaucrat close to the PM, supported by other courtiers, in a fierce power struggle with a former close friend and sugar baron

Unlike sugar, the IPP story is different. In this case, it is a clear policy and regulatory capture by big business in connivance with the PPP government, under the garb of enhancing power production, resulting in obscene profits. Nadeem Babar and Razzaq Dawood, both in the current government, and all others who benefited cannot hide behind “but this was government policy”. They knew this was unfair highway robbery and clearly against national interests.

But are they only to blame or the then government in power and policy makers who deliberately sold the family silver to these unscrupulous robber barons and also benefitted themselves?

The answer to this and other questions may give us better insights to what needs to be done.

And it is in this context that we must view PM Imran and his administration. Whether he and his administration are willing partners of the same elite capture or genuinely attempting to reform Pakistan?

Till next week, as we start to unpeel the factors leading to our current sorry state and hopefully a better direction for our future. Wishing everyone a safe, healthy and spiritually uplifting, Ramzan!

Haider Mehdi is a Geo political commentator / blogger on National and International affairs. Formerly a media anchor, corporate leader, management consultant, start up entrepreneur and military officer, he tweets @HaiderKonsult and blogs on shrmehdi.com