Aug 24, 2009

Sugar crisis

The agreement, which allows the mills to raise the ex-factory price to Rs45 a kilo from Rs28.28, is in violation of the Competition Ordinance, 2007. In order to facilitate the mills slash prices the government has also cut the general sales tax on their sales by half in spite of the serious threat that low tax-revenue collection can pose to the economy.

The commission finds the agreement ‘difficult to condone’ as this amounts to ‘legitimisation of practices (such as cartelisation) prohibited under law’. The commission says the government must not provide any patronage to anti-competitive practices and measures encouraging ‘collusive behaviour’. Thankfully, we have at least one institution that can rise to the occasion to protect the interests of the hapless millions.

Policymakers must understand that the market economy can function in the face of excessive government intervention on behalf of either the producers or consumers. The government must balance the interests of both. That is possible only if the market forces are allowed to function in a competitive environment, where the government neither fixes the prices nor allows the millers to form a cartel.

The commission is right in pointing out that the fixing of prices and output has always had ‘the most detrimental effects on competition’ that erodes or seriously reduces the benefits a competitive market can deliver to consumers. The ball is not in the government’s court. The consumers are watching and prodding the government to withdraw its ‘unlawful’ decision and show some respect towards public institutions.

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