PM refuses to bow to pressure to stop inquiry: Centre, Punjab, KP blamed for sugar, flour crises

ISLAMABAD: The inquiry committee constituted by Prime Minister Imran Khan to investigate the sugar and wheat crisis has held the federal and Punjab and Khyber Pakhtunkhwa governments responsible.

Prime Minister Imran Khan had constituted the inquiry committee to unearth the reasons for the crisis, leading to a raise in their price.

The prime minister faced immense pressure to stop the committee from investigating the crisis and fixing the responsibility but he due his heels in, refusing to succumb to pressure.

The committee found short-of-target wheat procurement, failure in grasping the market situation, and malpractices by flour mills as reasons for the recent wheat crisis across the country and held Passco, Ministry of National Food Security and Research, and provincial food departments responsible for the crisis.

The committee says a few sugar mills control the commodity supply to manipulate the market sale price.

Jahangir Khan Tareen (JKT), Makhdoom Omer Shehryar Khan (brother of Khusro Bakhtiar) and his partners Chaudhry Munir and Chaudhry Moonis Elahi are the major beneficiaries of sugar export subsidy and price hike.

The three-member committee, headed by DG Federal Investigation Agency Wajid Zia, has submitted its report making some startling disclosures about the prevailing sugar crisis and price hike.

Prime Minister Imran Khan had constituted the committee to probe into profits earned during the sugar crisis in March.

According to the report, the information collected so far reveals that the whole information system used for decision making by the government is totally dependent on the information provided by the sugar mills.

This includes information about the pricing of sugarcane, the amount of sugarcane crushed, recovery ratio, and the sugar produced, sold, lifted and pledged etc.

The committee has revealed that maximum benefit of export was drawn by JDW Group (Jahangir Khan Tareen) by availing itself of 22% of total subsidy of Rs561 million.

Similarly, second highest beneficiary was the RYK Group run by Makhdoom Omer Shehryar Khan availing itself of 18 percent of subsidy of Rs452 million. The Group owners also include Chaudhry Munir and Moonis Elahi. The third highest was Shamim Ahmed Khan (Al Moiz Group) availing itself of 16 percent of subsidy of Rs406 million.

In response to an additional question, the committee responded with data on subsidy given for the last 5 years to the tune of around Rs25 billion, 3 billion out of which was given the previous year.

According to the consolidated data, RYK Group has been the largest beneficiary with total subsidy of 4 billion, JDW with over Rs3 billion, Hunza Group with Rs2.8 billion, Fatima Group with 2.3 billion, Sharif Group with Rs1.4 billion and Omni with Rs901 million.

The continued practice of subsidy for sugar export points to the political influence of sugar industry in all governments and the undue benefit drawn by a few industrialists at the cost of loss of other and perhaps better cash crops like cotton which has been compromised over the years for earning quick profits by the sugar industry.

The committee has indicated that the commission constituted by the federal government will further conduct forensic audit of sugar industry to unearth all such practices, which could lead to penal/regulatory actions and also recommendations for rethinking of future agriculture strategy.

The report said it was a fact that the major beneficiaries of export policy and subsidy were politicians having direct impact on the decision-making.

“Interestingly, this decision and profit-making also resulted in the current sugar crisis and price hike in the country,” the report says.

As per the report, the inquiry committee has been able to draw a reasonable picture of the possible ways in which the malpractices in sugar sector can be used to hide the real production and possible off-the-record sales.

“The production of sugarcane this year has actually been 1% more than last year. However, the area cultivated was lower than the last year. It is also predicted that the quantity of sugarcane crushed will be higher than last year, and we should have enough sugar for need this year”, says the report.

The finding of the Inquiry Committee on Sugar Crisis and price hike in Pakistan puts blame on the decision of allowing export of sugar in 2018 and subsequently Punjab providing subsidy to the tune of Rs3 billion.

According to the findings, when the PTI government came into power in 2018, the country had surplus sugar. Therefore, the Sugar Advisory Board (SAB) under the chairmanship of Advisor Commerce, Industries and Production recommended export of 1 million ton which was approved by the ECC, although Secretary Food Security raised the concern about expected lower sugar production next year.

The export was allowed and later the Punjab added subsidy for the export.

“From January 2019 till May 2014 sugar was exported availing subsidy given by the Punjab. It has been highlighted that during this period, sugar prices in the local market increased from Rs55 per kg to Rs71 per kg. Therefore, the sugar exporters benefited in two ways. First by availing themselves of the subsidy of Rs3 billion and secondly reaping the benefit of price hike in local market”, the report says.

The committee has also pointed out the practice of 'Forward buying' and 'Satta' practice which could take the sugar price upwards of Rs100 per kg by Ramzan.

The committee suspects collusion of sugar mills and wholesale dealers behind this practice; however, it indicates that the Commission constituted by the federal government could unearth evidence and parties involved.

The committee has also indicted that the Sugar Advisory Board not only failed to foresee less sugar manufacturing next year (2019), but also ignored despite being pointed out the sudden hike in sugar price as just in first five months of export of sugar the price increased between Rs16 and Rs17 per kg.

“The minimum support price of 190 per Kg was also considered to be appropriate by the committee; however, the average procurement ratio of sugarcane was higher than the support price.

The average purchase price for 2020 was around 217 per kg. However, the committee opined that the higher price of sugarcane this year had no bearing on the current sugar crisis or price hike”, the report says.

The committee also pointed out that some large sugarcane growers and sugar mills owners had an overlapping interest and this factor will be thrashed out by the Commission.

Meanwhile, the Inquiry Committee’s report highlights the current wheat crisis as the consequence of a saga of failures at the policy and planning levels both by the federal and provincial governments who massively failed in public procurement of wheat. The inept handling by the provincial food departments and collusive malpractices of the officials of food departments and private stockists and millers further compounded the crisis. The three-member committee indicts the federal and the provincial governments for failing in wheat procurement.

“Failure of public procurement was the prime cause of wheat shortages, price hikes, leading to a crisis-like situation. Broadly speaking, all entities responsible for procurement of public wheat stocks failed to meet their set targets during a crop year when national wheat production fell short substantially and when the carry forward stocks remained the lowest as compared to those in the last five years. As a consequence, the carry forward stock before the corning procurement season will be critically low, i.e. 0.800 million tons, which is by far the lowest during the last five years”. According to the report, for 2018-19, Punjab was given a procurement target of 4.00 million tons out of which the province could procure 3.32 million tons — the lowest since 2016.

This time, the province's opening stocks also were the lowest in comparison to the preceding five years. Consequently, the Punjab ended up with the lowest total stocks in last five years, i.e. 4.88 million ton, at the end of procurement season. Total stocks in Punjab were less by 30% as compared to previous year. “In the given scenario, Punjab's failure to meet the procurement target played a crucial role in recent crisis. This low stock coupled with early releases by the Punjab Food Department, in the month of August, not only created pressure on stocks but also generated speculations in the market. Subsequently, when the shortages hit the market, it was the low,” the report says.

“Overall the stocks of Punjab prompted the government to check the inter-provincial movement of wheat in January, causing shortages and soaring prices in KP and Sindh and large scale panic in the country. This was a tailor-made situation for the hoarders and profiteers to exploit and make maximum gains. With lowest total public stocks in the last five years, reports of crop damage, overplay of the exports factor, restrictions on inter-provincial movement of wheat, corruption and malpractices in the system and hoarding by the private sector resulted in price hike and wheat shortage,” the report says.

According to the report, the provincial wheat management mechanism is beset with serious malpractices at every stage of the public wheat stocks management system: procurement, storage, release, grinding and distribution of wheat products. The committee believes that stringent measures are needed on an urgent basis to address the policy and planning issues highlighted in this report; initiate reforms with the aim to overhaul the Provincial Food Departments, introducing transparency and fair play in their decision making and operations; introduce IT-based solutions, enabling these departments to take stock of the national produce and procurement, storage and distribution practices and enabling them to keep track of every bag of public stocks; and enabling them to get rid of the corrupt mafia that in collusion with departments' officials resort to profiteering at the expense of the public.

According to the report, Sindh’s decision not to procure wheat, the unreliability of their stocks position as exposed by the NAB raids and delay in releasing their public stocks till November 2019 were crucial factors in triggering the crisis.

“The export decision in November 2018 and February 2019 was correct given the stock position at that time and the expected bumper crop which necessitated creation of physical and fiscal space for the new wheat procurement. The decision to impose ban on wheat and flour was taken in July 2019 whereas complete ban on wheat and all wheat products was implemented in November 2019. The later decision should not have been delayed till November 2019 and a total ban should have been imposed in June 2019 when it was absolutely dear that procurement and stock position was very low,” the report says.

The committee arrived at the following findings.

“The Passco failed to meet its procurement target and fell short by 0.42 million tons in a year where the national carry forward stocks remained the lowest during the last five years. For this failure, the secretary MNSF&R and incumbent MD Passco during the procurement season are responsible. The ministry failed to grasp the market situation following low national produce and as such their recommendations to the federal government were routine and misleading, for instance, the ministry kept reporting to the ECC in May and June 2019 that the procurement targets were achieved and the wheat stock position was stable and thereby recommended continuation of exports”.

The committee in its findings further said that the ministry's decision to allow the export of other wheat products like Maida and Sooji on 7th of August 2019 is inexplicable and the secretary MNFS&R could not defend it by giving any plausible explanation of relaxing this ban. All wheat products are exported under the same code in the system of ERR and it is very difficult for even custom officers to say that wheat flour was exported in the garb of fine Atta and Maida. The export figures for the period August 2019 till date are however low as only 21,885 MT was exported.

Similarly, the ministry failed to timely advise the federal government on import of wheat — a policy intervention that could have effectively discouraged speculations, hoarding and profiteering that subsequently fuelled wheat shortage and price hikes. The responsibility for above failures lies with Secretary MNSF&R Hashim Popalzai whereas the responsibility for failing to meet the procurement target of Passco lies with ex-MD PASSCO Muhammad Khan Khichi (retd).

According to the findings, the Punjab Food Department delayed procurement by crucial 20-22 days and ultimately failed to meet its procurement target by 0.67 million tons less in a year where its carry forward stock remained the lowest during the last five years. Similarly, the Punjab Food Department failed to exercise control on flour mills which resorted to profiteering campaign as they sensed the government was ill-prepared to handle the wheat demand and supply chain.

A sample survey by ACE Punjab has identified some mill owners who are involved in malpractices. Post audit of flourmills, specially involved in such practices, needs to be conducted. “Punjab Food Department allowed, with tacit approval, the Poultry Feed Mills to purchase huge quantities of wheat from private market; Punjab government resorted to erratic transfers in Food Department including posting/transfer of four food secretaries and of nearly all DFCs, thrice during the year,” the report says. According to the report, the Punjab Food Department failed to devise a mechanism to regulate the demand and supply of wheat, and keep track of the government and private wheat stocks that started heading in every direction, without being accounted for. The Punjab Food Department did not put in place any reforms to rectify the situation.

“The responsibility for failure to meet procurement targets lies with the ex-food secretary Naseem Sadiq and ex-director food Punjab Dr. Zafar lqbal. Minister for Food Samiullah Chaudhry is responsible for not devising any reform agenda to address the chronic ailments in the functioning of Punjab Food department,” the findings say.

According to the findings of the report, the Sindh government decided not to procure stocks, whereas the MNFS&R had set up a target of 1 million ton for the year, at a time when the national surplus remained the lowest during the last five years; “Sindh government claimed having carry forward wheat stocks to the tune of 0.8 million tons, whereas the veracity of those stocks was seriously put into question when the National Accountability Bureau found massive pilferage and theft in the Sindh wheat stocks,” the report says. Similarly, the Sindh Food Department failed to intervene in the market early when the prices of wheat started rising as early as August 2019 and, despite claiming to have 0.2 million tons of stocks, delayed releasing its stocks till October 2019, thereby allowed the private hoarders to fleece the general masses at high prices.

“Sindh Food Department failed to lift wheat allocated to it by Passco in time, thereby allowed the shortage and price hike to continue; the Sindh Food Department failed to devise a mechanism to regulate the demand and supply of wheat, and keep track of the government and private wheat stocks”, the report says. The responsibility for failure to procure cannot be fixed in Sindh individually as the decision on summary to procure wheat was taken by the cabinet.

According to the report, the Food Department Khyber Pakhtunkhwa failed to meet its procurement target for the last two years. The responsibility for failing to meet procurement targets lies with ex-secretary food department Akbar Khan, ex-director food department Saadat Hussain and Minister for Food Qalandar Lodhi.

According to experts, the government authorities which facilitated and bent rules to allow someone to benefit should have been named in the report. “If the Punjab government made an export policy and businessmen benefited from it, then they haven’t done anything illegal unless it is specifically pointed out that government policies were made under ‘someone’s’ influence. In that case, people who made the policy should be named and that has to be the Punjab Chief Minister Usman Buzdar,” believe the experts.

Moonis Elahi tweeted, “I indirectly hold the shares of RYK Sugar Mills, but am not involved with the company management. As shown in the report, the RYK Mills has a 3.14% share in national export. As I welcome the report, I hope people will quote this truthfully and responsibly.”

Talking to Capital Talk, Jahangir Khan Tareen said, “the Competition Commission said that there is no cartelization in the sugar industry. The sugar price has increased only due to increase in the sugarcane price and only the farmers have benefitted from the situation. The reports given by the agencies to the PM have been proven wrong.”

Meanwhile, the Sugar Mills Association has appealed to Abdul Razak Dawood, Adviser to the PM on Commerce, Textile, Industry & Production and Investment, to arrange their meeting with the prime minister in which they could explain their point of view, as the inquiry report did not include its version.