Ayesha Saba

The Institute of Cost and Management Accountants of Pakistan (ICMA) has cautioned that deregulating the sugar market without robust competition safeguards could increase the risk of cartelisation, hoarding, and coordinated price manipulation, according to a policy document reviewing the proposed reforms in the sugar sector.

The document states that the sugar industry in Pakistan is highly concentrated, with a limited number of large mills and major traders exerting significant influence over production, stocks, and supply flows. In such a market structure, ICMA notes, the withdrawal of direct government price controls could allow dominant players to exercise greater market power if effective oversight mechanisms are not in place.

According to the study, deregulation by itself does not automatically create competitive outcomes, particularly in sectors where entry barriers, information asymmetries, and historical coordination among firms already exist in the sector. The report highlights that sugar has repeatedly been associated with allegations of cartel behaviour, including coordinated stock withholding and parallel pricing practices.

ICMA observes that, under the current regulatory framework, government interventions, such as price caps, stock inquiries, and export restrictions, have often been used to respond to suspected manipulation. However, the document notes that these reactive measures have not addressed the underlying structural issues that enable collusion in the first place.

The report stresses that moving toward a deregulated market would require strengthening the role of competition authorities, particularly in monitoring pricing behaviour, investigating coordinated actions, and enforcing penalties for anti-competitive practices. Without such safeguards, the study warns, deregulation could inadvertently shift control from public regulation to private market dominance.

According to ICMA, transparency is a central weakness in the existing system. The document points out that limited visibility over actual sugar stocks, production levels, and sales volumes has made it difficult for regulators to determine whether price movements reflect genuine supply-demand conditions or coordinated market behaviour. In a deregulated environment, this lack of transparency could further amplify cartel risks.

The study also notes that sugar is a politically sensitive and widely consumed essential commodity, which magnifies the impact of any anti-competitive conduct. Price increases driven by collusion, the report states, would have direct consequences for household budgets and inflation expectations, potentially triggering renewed government intervention.

ICMA records that international experience shows deregulation can succeed only when competition laws are actively enforced and supported by real-time market data. The document emphasises that effective deregulation requires not just the removal of price controls but also the creation of systems that allow regulators to detect and deter coordinated behaviour early.

The report further notes that the presence of vertically integrated groups, spanning sugarcane procurement, milling, storage, and trading, adds complexity to competition enforcement. Without clear disclosure requirements and monitoring tools, ICMA warns, such integration could be used to influence supply and prices in ways that are difficult to trace.

In this context, the study urges that any move toward sugar market deregulation be accompanied by explicit competition safeguards, including enhanced monitoring powers, mandatory disclosures, and coordination between economic regulators. The document makes clear that deregulation without these measures could undermine market fairness rather than improve it.

ICMA concludes that addressing cartel risks is essential for ensuring that sugar deregulation delivers its stated objectives. The report underscores that competition safeguards are not an optional add-on but a necessary foundation for a functional and credible deregulated sugar market.

Credit: INP-WealthPk