The political economy of sugar import

Hasnat Abdul Hye Sugar is sweet to all; it is sweeter to those who have sweet tooth and to those having interest other than gastronomical one. The power and influence of the last group were driven home to me as I attended a cabinet sub-committee in 1994. In the agenda was a proposal from the ministry of commerce to allow import of sugar by private importers. The argument made was the rising price of sugar in the retail market. As the secretary, ministry of industries I was authorised by my minister to register our objection to the proposal on the ground that import would adversely affect local sugar mills. The minister of commerce waxed eloquent about his personal experience about the rising price as he went for marketing every day following his old habit. There was no denying the spike in the price of sugar in the market but it was normal for the lean period when local sugar mills made preparations for their annual production after the harvest of sugarcane by farmers. With new sugar coming to the market price would fall and the market would be stabilised. But the pressure to import even for the brief period of reduced supply was intense. It was not only the economic consideration of keeping supply and demand more or less in balance, the political motive of obliging a powerful group also came in to play. Political economy of import was propelled by the exigencies of patronising the importers of sugar who supported the party in power. Consideration of maintaining popularity among the consuming public was not paramount either in the case of keeping the status quo (keeping the supply unaltered) or in increasing the supply during the lean season. It was group interest and not general public welfare that guided policy making regarding import of sugar. The outcome of the discussion in the cabinet sub-committee that I attended in 1994 was a foregone conclusion. My objection, backed by the authority of the minister of industries, was brushed aside and the decision was made allowing import of sugar immediately. What surprised me was not the decision but the sudden departure of the commerce minister as soon as the decision was taken, because he was supposed to attend the meeting till its end. Within ten days after the decision ships carrying sugar reached Chittagong port. It was obvious that the importers knew what would be the decision and made advance preparations. There was no miracle in the arrival of the ships. Import of sugar by private sector has been a topic of animated discussion since the Eighties. During president Ershad's regime one of the ministers earned the sobriquet 'Chini' which was used as prefix to his name. One industrialist turned in to a sugar importer-trader, sensing windfall gain and reportedly bought almost all the permits issued, thereby establishing near monopoly control over the market. As a result of the unlimited import allowed the local sugar mills incurred huge loss as they did not have competitive edge over imported sugar. Import of sugar is in the news again for which the past experience is worth recounting. The times have of course changed, changing the parameters of the political economy of import of sugar. But in essence it remains the same. The demand for sugar has increased, far outstripping the local production and supply. Sugar import used to be seasonal, only during the lean season i.e. before the local mills started their annual production. It is no longer so, the gap between local production and demand being continuous all through the year. The question now is not whether to import sugar at a particular time but whether there should be duty on import. According to a news published in an English daily the commerce secretary requested National Board of Revenue (NBR) to fix duties on raw and refined sugar to help local mills. He also requested NBR to re-impose specific duty on import of refined sugar. The ministry of industries also made similar request, being responsible for local sugar mills. Accordingly, NBR issued a statutory regulatory order (SRO) on November 23, imposing Tk. 2000 per tonne. The NBR, on its part, argued that import duty would help the government earn additional revenue amounting to Tk. 4000 million in addition to protecting local mills. The proposal to impose duty as a measure of protection was sent by both the ministry of commerce and industries, which is a departure from the past, indicating the change that has taken place in the sugar sector. Regular import of sugar now being routine, the ministry of commerce does not have to send proposal during the lean season for import of sugar, citing scarcity of supply. It now joins hands with the ministry of industries for imposition of import duty. So the old configuration between the decision to import and the objection raised against it has undergone a sea change. Protection of local sugar mills has now become the shared concern of both the ministries and both of them work in tandem towards this end. This however can be derailed by the exigencies of political economy as will be explained below with reference to the latest development on the issue of duty on imported sugar. The image of government as a monolithic entity that the public holds is misleading. There are divisions and groupings within it whose configurations may change on the basis of issues like import of sugar with or without duty. Extraneous pressure sometimes take advantage of the internal fissures or engender this phenomenon within the governmental structure, particularly the forum concerned with policy decisions. When there is such division within the government, conflict between private interest and what is perceived as public can create tension, transcending the inner sanctum of power. It is on these occasions that reports are published in newspapers and the public come to know about it. Transparency in decision making occurs, not because of but in spite of the wish of the power that is. Allowing import of sugar without duty benefits a private group of importers but sacrifices public interest, firstly because it adversely affects the local sugar mills; secondly, because it deprives the government from additional revenue. It may be argued that import of sugar will enable importers retailers to sell sugar at a lower price. In reality this does not happen because of the profit motive which leads the importers to exploit their control over the market almost in a monopolistic manner. The inefficient local mills cannot compete with them because of their high cost of production. Both of these factors, the near monopoly control of the importers and lack of competitiveness of local mills give ample opportunity to the importers to retain the economic benefit of duty-free import. Price at the retail level is thus determined not by the market through competition but on the basis of manipulation by the cartel of importers. Therefore, duty-free import of sugar does not promote public interest through lowering of price while contribution to public exchequer is sacrificed. Given this reality, when sugar is imported without duty it is a deliberate and conscious attempt at benefiting a certain group of importers and traders. Policies that benefit the consumers are based on political as well as economic considerations as would happen when duty is imposed on import and market is allowed to function freely. Policy decisions that help a particular group in rent-seeking facilitated by duty free import can also be said to be political but it is in a narrow sense, because the decisions are not populist but pander to the interest of a group. In a conflict between the two, i.e. the general public and a particular group, favouring the latter is a clear-cut decision to help the numerically few through patronage ignoring the loss (denial) of benefit to the numerically many (consumers public). Because sugar is not such a sensitive item as salt or edible oil its availability at a slightly high price (compared to market-determined price) does not cross the tolerance threshold of the consuming public. The decision makers in the government may take advantage of this in promoting private groups like importers of sugar. Let us now revert back to the present situation of sugar relating it to what has been discussed above. From the news published it is learnt that ministers and advisors were divided among themselves over the issue of imposition of duty on imported sugar and this has led (forced, according to news report) NBR to propose the cancellation of the SRO only three days after issuing it. Report on this development, as published in the English daily, reads as follows : 'Sources close to the sector claimed that sugar importers spent huge amount of money and hired two advisers to get the SRO withdrawn.' According to this report the finance minister has rejected the latest NBR proposal for cancellation fearing destabilisation of the sugar market by the control of retailers. As was said by Alice (not an economist but is quoted frequently!) 'the matter is getting curiouser and curiouser'. The matter now will, in all probability, be referred to the highest authority. It would be interesting to find out which side in the debate over duty wins the day. Apparently, a simple matter of decision, it will be revealing as to how issues of political economy are resolved when private and public interests are in conflict. The writer can be reached email: hasnat.hye5@gmail.com