Thursday, March 27, 2014

Plight of Sugarcane Growers: The Economic Costs of Regulatory Barriers for Small Businesses and Entrepreneurs


During the winter holidays, often extending from mid of December to mid of January, I often drive to Islamabad and back. The biggest nuisance on the National Highway as you pass through the upper Sind and lower Punjab are the miles and miles of queued tractor trolleys with over loaded sugarcane. The sugarcane is loaded in a manner that it extends on both sides of the trolley, doubling the width of the trolley and also increasing its height to an extent that the whole contraption is precariously balanced and is prone to overturning at the slightest pretext. It also becomes a major hazard by occupying most part of the two lanes of the road. The trolley now provides no rear visibility to the driver for traffic coming from behind, and providing no clue to the rear traffic of what lies ahead. On top of it, the drivers can't hear the horns or anything as their loudspeakers blare music at the top of the volume jarring the hearing.



They are a hazard to the fast moving highway traffic, that is forced then, to reduce speed to a snail pace, often leading to traffic jams that extend to miles because of the frequent overturning of the overloaded trolleys, accidents with other trolleys, or collisions with trailer trucks and other vehicles [3]. These miles long train of tractor trolleys move forward laboriously, at snail pace, a few feet at a time towards the gates of sugar mills, while waiting for their turn to unload.

Sugarmills now specialize in making these tractor trolleys wait in such queues for several weeks. The queues often extend to both the coming and going side of the highway.  The sugar mill owners make sure that these tractor trolley stand in queues for weeks so that the moisture in the cane evaporates and when the time comes for weighing they would be paying less [5].

Add to this the sheer wastage of time as the poor farmers wait for weeks in these queues; sleep and prepare their food,  and relieve themselves along the road creating social and environment issues for the residents of nearby villages. Each tractor trolley often requires more than one person to go through this ordeal; to keep a vigilant eye on their load, as one person can not remain alert all the time and continue to make the trolley move after every hour or so. Adjoining villages often report increase in crime rate as drivers of these trolleys belong to faroff places and it is difficult to differentiate the criminals from the poor farmers who have to subsist while they are in queue. It is also reported that the payment for the sugarcane is not given when it is delivered. It is often paid several months later. Furthermore, the loss of time and petrol of the traffic stuck in jams is overwhelming. The situation has now become increasingly hazardous as this buying season now coincides with the advent of fog. The fog and the queues of overloaded trolley makes driving in sugarcane territory a highly dangerous and timeconsuming affair, with deaths, accidents, and loss of life, property and limbs.
Front-end of the queue extending for miles

What is the cause of this? Studies reveal that the cause of this is the monopoly of the sugar mills whose owners are powerful politicians that have made a mockery of Competition Commission of Pakistan which could not do any thing to break their monopoly. They have erected and consolidated various legislations [1,2,4,7] to enable exploitation of farmers and pay them peanuts and that too in installments with mafias controlling access and enabling payments for their sales and asking for their protection money/bhatta.

History indicates that the moment legislation reforms come under consideration by the government, the sugarmills owners collude and create shortages and surpluses that leads to massive protests by the constituencies who would be the beneficiaries of such reforms. Protests by common people is engineered by creating artificial shortage of sugar in the market. Protests of growers is engineered through imports and artificially reducing the demand for sugarcane by delaying the purchases. Protests by employees and day laborers and their families is engineered by stopping or slowing down the production. The poor growers do not have the cash flows to even wait for a few months. They have to get the sowing done in time for the next season and to pay their bills of the previous season. The sugarmills have the capacity and the financial strength to hold on to their stocks and even to suspend production for several months to engineer such protests by the public, growers and the laborers.

The cartel supported legislation and enactments give no space to the growers for becoming independent, for becoming self entrepreneurs by turning sugar cane in to homegrown value added products such as various varieties of "gur". The monopoly restricts entrepreneurship, innovation and development of technologies that can easily develop variants of "gur" through well known and well tried technologies and processes used in various other fields. The restrictive legislation forces the farmers to sell to these exploitative sugar mill owners. The price paid to the grower is fraction of the price mills are going to get when they deliver the finished sugar to wholesalers and then to the retailers. Middlemen take everything leaving nothing to poor farmers of Pakistan. The exploitation also fixes the price of the sugarcane but allows them to keep increasing the price of sugar pocketing all the margin.

Various pieces of legislation such as the "gur control order 1948" and the "Sugarcane Act of 1934" act are the legacy of the times of centralized permits, centralized controls, price fixing and socialist philosophy. In today's free market economy and the environment for enabling small businesses and entrepreneurship it is ridiculous to force growers to sell to only a particular type of buyers. Legislations should not artificially impose restrictions but enable an environment in which market forces of supply and demand should determine the prices. There appears to be a cartel of these buyers consisting of about 75 sugarmills who get elected, obtain influential positions, and ensure that price fixing continues to their advantage. Today we must let the market play out. Let the sugar mills import sugarcane compete on the basis of prices and other facilities if they want sugarcane for producing sugar. Let the market enable new competition to emerge such setting up of smaller of units, cottage industry and other variants of gur.

Repeal of such controls would enable other smaller players to enter the market, enable other value added products to be designed from sugarcane, enable new and cheaper technologies for converting sugarcane to sugar. Today the technology has progressed so much that there must be smaller mills that can be set up for a fraction of the huge mega sugar mills. This will spur innovation in the engineering sector and would also allow the growers to get together with other entrepreneurs to establish alternative supply chains.

A rough conservative estimation of the traffic problem indicates that if the total sugar output of Pakistan is taken to be 60 million tons and the amount of gur that could be loaded on a tractor trolley is around 1500 maunds (or 1.5 tons), this would mean that at least 40 million tractor trolleys are required to transport sugarcane to the mills. Let's assume that half of the output i.e. 30 million tons is not transported through these trolleys, but goes through trucks and other mechanisms we are still looking at 20 million trolleys. However, if we assume that the weight transported by the trolleys is only 15 million tons (i.e. one-third of the total output),  even then we are loooking at around 10 million tractor trolleys. Now one can do the math of how much fuel these trolleys would be wasting while inching towards the gate of the sugar mills during the weeks they spent in the queues. This can also give us the amount of foreign exchange that we waste on the import of oil just to satisfy the hunger games played by the sugarmills enacted legislation. If we also estimate the fuel charges of other traffic stuck in the jams during this period all through the lower Punjab and Upper Sind area, the cost of lives lost every year due to accidents (as per the rules of the supreme court), the costs of the vehicular damage in these accidents, and the cost of time wasted of the growers and their drivers while standing in the queues we can come to the colossoal wastage of time, effort, money and foreign exchange. We also need to factor in the economic costs of the control of our legislatures by cartels such as these, including the social costs resulting from such control of decision making.

[I would appreciate your help in making concrete some of these preliminary estimates that require vast improvement]

Some Selected References  (Google using these keywords for more interesting articles):
  1. Gur Control Order
  2. Gur Control for Stopping the Farmers to produce gur
  3. Traffic Accidents and Overloaded Trolleys 700 maunds excess, 1200-1300 maunds
  4. Sugarcane production of 2013-14  63million tons
  5. Farmers protest over non-payment and delayed payments 
  6. Exploitation through price fixing and protests of sugarcane farmers
  7. Sugarcane Act of 1934

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