Double trouble for consumers

One kilogramme (kg) of sugar used to cost a consumer below Tk 40 until the first week of August last year. But since the third week of the same month, the price of the item started soaring and, after nine months, it is now selling at Tk 56 at the retail level.
However, there has not been any noticeable change in international price of sugar when the retailers sell the item at a price 40 per cent more than that of August last. Who is to blame for this unjustified price rise? Traders, as usual?
No, this time both government and traders are responsible for the price rise. Hike in duty rate and tariff value of both crude and refined sugar twice and imposition of value added tax (VAT) since July last have fuelled the rise in sugar price.
The hike in flat duty rate from Tk 2,000 per tonne to Tk 7,000 in the second week of August last was more for the purpose of generating additional revenue. But the second hike in tariff value by $30 per tonne and levying of 15 per cent VAT on both crude and refined sugar at import stage, made effective in the month of December last, was not on the agenda of the Ministry of Finance. The proposal to hike tariff and levy VAT had come from the Ministry of Industry with a view to saving the state-owned sugar mills from virtual liquidation.
Rather reluctantly, the Ministry of Finance had decided to increase the import value of sugar through fresh fiscal measures. It, possibly, knew the futility of the duty-hike exercise.
The size of the aggregate annual financial loss of 15 sugar mills under the control of the Bangladesh Sugar and Food Corporation (BSFIC) has even grown bigger. The new pay scales for the government and public sector employees could not be implemented in these mills for fund scarcity. Rather two months' salary and wages of employees and workers of the sugar mills in question have fallen due.
Efforts are on to manage some funds from the finance ministry which has been indulgent towards errant state-owned corporations and units operating under them. In the immediate past fiscal it had made available Tk 500 billion to the BSFIC for payment of salary and wages of employees and workers. In the fiscal year 2014-15, the succor amounted to more than Tk 1.0 billion.
Why are the mills incurring loss despite the government move to make the imported sugar costlier? In fact, no amount of government patronage at the cost of consumers can help these mills survive, economically. Inefficiency and mismanagement are two chronic problems that have been affecting the operations of these entities seriously. Besides, the machinery and technology used in sugar production in these mills are outdated and obsolete.
The reasons mentioned above are responsible for making the operational cost of the state-owned sugar mills very high. The average cost of production of one kg of sugar in these mills is now estimated at Tk 85 when the private sugar refineries are selling better quality sugar at around Tk 50 a kg. The production cost in the state-owned mills has been rising unabatedly. In the middle part of last year it was estimated at around Tk 65 a kg.
However, importers and wholesalers do have a role in pushing the sugar price up during the last few months. When the tariff value was raised and 15 per cent VAT was levied in December last, traders and NBR people projected a price increase by Tk 5.0 to 7.0 a kg. But the current level of price of the item shows an increase by about Tk 15.
So, in the name of supporting the state-owned sugar mills, the government is not only forcing the consumers to pay an unjustified amount for sugar but also making available taxpayers' money worth millions every year to foot the salary bills of people working there.
It remains a puzzle as to why the government is sticking to the state-owned sugar mills that have been causing haemorrhage to the economy year after year. Since there is no way of making these mills profitable, those should be divested without further delay. Land remains to be a scarce resource under the country's current investment scenario. So, lands under the control of the state sugar mills could partly meet the requirement.
The situation prevailing with the public sector sugar mills is nothing unique. Most other state entities are not that better-off, financially. A large number of units have been divested since the late seventies. The remaining ones do exist only in name. They, however, owe a substantial amount to the government which is well aware of the fact that one day the SoEs' debts will have to be written off, fully. Still the government continues to be protective of errant entities under its ownership.
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