Despite the prime minister's own admission that he had been misled by sugar mills operators into instituting a restriction on the import of sugar, the government is considering extending the quota restriction on sugar imports, a decision that could result in a hike in sugar prices during the festival season.

Though the Ministry of Industry, Commerce and Supplies said that no decision has been taken on the issue yet, traders believe that their lobbying will lead to the restriction being extended.

“The ministry has not decided on the issue yet,” said Navaraj Dhakal, the ministry spokesperson. “Instead, the ministry is planning to import 35,000 tonnes of sugar for the upcoming festivals as a buffer stock to stabilise market prices during high demand.”

However, sugar mills operators held a meeting with the Department of Commerce, Supply and Consumer Protection Management on Monday to lobby for an extension of the quota on sugar imports.

Shashi Kant Agrawal, president of the Sugar Producers’ Association, said that they had held talks with Yogendra Gauchan, director general of the department, to continue with the import restriction.

“We have 88,000-90,000 tonnes of sugar in stock, so we have requested the government to continue with the restriction until the festival season so we can clear our stock,” Agrawal told the Post.

In September last year, sugar mills operators had lobbied for an import restriction, saying they had enough stock in their godowns. After the government imposed an import quota of 100,000 tonnes annually, traders raised prices from Rs 60 per kg to Rs80-85 during the festival season, citing a shortage. The quantitative restriction was supposed to last till mid-April, but the government had extended it to mid-July.

Prime Minister KP Sharma Oli later admitted that he had been misled.
“The government imposed quantitative restrictions according to their [sugar mills’] request, but mill owners raised the price of sugar exorbitantly after the government took the policy measure,” Oli told the 16th annual general meeting of the Confederation of Nepalese Industries on April 8.

Trade analysts say that the government, like in the past, is likely to bow to industry pressure.

The government seems to be taking decisions that favour some interest groups, said Posh Raj Pandey, executive chairman of South Asia Watch on Trade, Economics and Environment.

“A country can impose a quota restriction only if the import of the particular goods causes serious problems in the country’s balance of payments,” Pandey told the Post.

Sugar has enjoyed considerable government protection in the past. Two years ago, the government doubled customs duty to 30 percent on imported sugar, but sugar mills have been lobbying to raise the customs duty to 60 percent. As a compromise, the government, in its budget for 2019-20, hiked the customs duty on imported sugar to 40 percent.

Trade analysts say that the demands of sugar mills operators is doubly unfair because not only do customers suffer under increased prices but they have consistently delayed clearing their dues to sugarcane farmers.

Kapil Muni Mainali, president of the Nepal Sugarcane Producers’ Association, said sugar mills still owe Rs3 billion to farmers—out of Rs9 billion—from last year’s harvest.

“The sugar factories have been delaying payments to farmers saying they can clear the dues only after they receive money from selling their sugar,” said Mainali.

Sugar is one of the fastest selling commodities during festivals. According to the Ministry of Industry, Commerce and Supply, the demand for sugar during the month-long festivals of Dashain, Tihar and Chhath soars almost four-fold from the normal monthly consumption of 8,000 tonnes.

According to the ministry, the country’s annual demand for sugar stands at 240,000 tonnes, out of which 54,000 tonnes are purchased by industries. Domestic sugar mills produce an average of 150,000 tonnes of sugar a year.

“Apart from being used to prepare delicacies, people from a number of communities purchase sugar in large amounts to give as gifts to their relatives during the festivals,” said Vimla Thapa, an officer at MV Dugar.

With price hikes in sugar during the festivals, sweet shops even resort to using substandard products, posing risks to consumers’ health, she said.

The government, via Salt Trading Corporation, will be importing sugar as a buffer stock to prevent price hikes during the festivals, said ministry spokesperson Dhakal.

The sugar industry is further demanding that the government revise prices so that they are on par with their production cost.

“We have urged the government to revise the price as we are facing a loss of Rs4-5 per kg,” said Agrawal.

Analysts say government needs to rethink its policy on sugar and stop taking ad-hoc measures in the name of safeguarding domestic industries.

Though Pandey says there is nothing legally wrong with the sugar producers’ demand to raise customs duty to 60 percent on imported sugar, the government needs to take a prudent decision and stop working in favour of a handful of interest groups.

As per the rules of the World Trade Organisation, a country can impose duties to safeguard domestic products if the imported goods are severely affecting local products, according to Pandey.

“But continuous import restriction quota can have a snowball effect,” said Pandey. “If one industry continues to get government protection all the time, other industries too may start seeking similar protectionism, which is not good in the long run.”

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