Supply Ministry profits from poor people’s sugar

Omar Abdel Hamid
16 Min Read

Tea, the official drink of Egyptian citizens, also known as “halal addiction”, results in the consumption of large amounts of sugar, especially by lower-income classes, This is clearly seen in the country’s high rate of average sugar consumption per person (34 kg annually), compared to the global average consumption of 22 kg per person.

During the second half of this year, the local market suffered from a severe crisis in the sugar market, which made the prime minister form a committee headed by the Minister of Supply to control the market after the price of one kilogramme reached EGP 17, and sugar suddenly disappeared from markets.

Public companies supply 85% of the local production and account for more than 50% of imports. So did the market really suffer from a shortage in supply, or was it a made up crisis for government companies to achieve unprecedented profits?

The business results of Delta Sugar company, the largest producer of sugar from beet and one of the companies affiliated to the Ministry of Supply, was able to achieve a 466% growth in its net profits in the second half of last year (while the crisis was ongoing), and the large profit growth continued during the second half of this year, reaching a 428% growth compared to the same period in 2016.

EGP 8,000 minimum price to sell sugar from public factories, global minimum price less than EGP 6,500: Meselhi

The ministry does not interfere in the free price, decision made by the sugar committee

Companies have requested flexibility in pricing products to increase their ability to compete against the private sector, says Hassan Kamel

The Minister of Supply, Aly Meselhi, has decided the minimum price to sell sugar from public  factories to be EGP 8,000 per tonne, and any surplus should be exported to the sugar price balance fund in the ministry to get rid of the idle stock in companies.

The decision by the minister came despite the continued decline in the prices of white sugar in global markets, which dropped last week to $365 per tonne, an equivalent of EGP 6,424.

Mamdouh Ramadan, the official spokesperson of the Ministry of Supply, said that the decision to put the minimum price of EGP 8,000 is actually made by the sugar committee, which includes public sugar production factories. It is not a ministerial decision, he added.

Ramadan stressed that the ministry does not interfere in deciding the price of free sugar and only decides the price of supply sugar. The committee is responsible for deciding the free trade price of sugar.

He stressed that just because the minister heads the committee does not mean the decisions made by the committee are ministerial, noting that the committee includes public companies and supervisory authorities, such as the Consumer Protection Agency (CPA). The selling prices are decided according to the cost of production to avoid losses.

Prime Minister Sherif Ismail has issued a decision last year to form a sugar trade committee, headed by the minister of supply, with the member being the head of the Customs Authority and representatives of the ministries of agriculture and industry, and sugar production companies’ representatives, as well as reps for sugar importers and the CPA.

The committee aims to control the sugar market and limit the unreasonable price increases that exceeded EGP 15 per kg at the end of last year.

For his part, Hassan Kamel, chairperson of Nubaria Sugar Company, said that companies have requested during the committee’s meeting to allow a flexibility in pricing to enable these companies increase their competitiveness with the private sector, which stopped attending the committee’s meetings following the request the minister made from companies to deposit certain amounts of money into the sugar price balance fund in the ministry.

“The previous price obliged companies to sell sugar for EGP 8,500 per tonne and export EGP 500 to the fund. The factory gets EGP 8,000, which made the private sector offer EGP 100 discounts in the prices of the tonne, selling at the price of EGP 8,400 and achieving major profits as it was not obliged to pay anything to the ministry of its fund,” Kamel added.

He pointed out that the discounts made by the private sector lead to a recession in the production of government companies. When the issue was referred to the committee, it was agreed to reduce prices to EGP 8,000 and the surplus would be deposited into the ministry’s fund.

Kamel ruled out the possibility of the crisis happening again and the private sector reducing the prices to be less than EGP 8,000 per tonne although that it always a possibility; however, the current price covers the production cost with a simple profit margin for factories, so private companies risking this is unlikely, according to Kamel.

We await report of sugar trading committee’s meeting to discuss impact on market: ECA

The committee’s practices go against the authority’s Article no. 10 allows determination of strategic goods prices, according to El Garf

The Egyptian Competition Authority (ECA) awaits the report of the latest meeting by the sugar trading committee in order to look into its pros and cons and impact on the local market.

Mona El Garf, head of the ECA, said that the aim of receiving the report is not to eliminate the minister’s decision to specify a selling price, but to look into the possible results of such a decision and its impact on the market then write a report and pass it to the minister.

She explained that the government authorities complete each other and do not conflict. ECA has conducted a comprehensive study of the sugar market last year after the prices increased significantly, and it appeared there was an issue in distribution, not in production.

She stressed that all the meetings of the committee and its practices are against the ECA’s laws, where the law does not allow producers to meet and agree on a specific price for goods.

Article No. 10 of the law allows the prime minister and the concerned minister to determine the prices of strategic goods; therefore, the meetings of the Sugar Trading Committee are excluded and not inspected.

She said that the purpose of reporting the decisions of the committee to the ECA is to exempt its decisions officially from the ECA’s law and study them to forecast their impact on the competition in the market and the prices for consumers.

She stressed that the exclusion of the decisions of the committee aims to protect consumers.

She added that in case the ECA received information about government companies achieving exaggerated prices, investigations will be carried out, and the prime ministry will be informed in order to reconsider the existence and decisions of the committee.

Regarding ECA’s decision against the Dairy Market Regulatory Committee in 2011 and condemning Juhayna, Beyti, and Enjoy for agreeing on prices to receive dairies from farms, even though that the committee was formed by a decision from the Ministry of Agriculture and the Ministry of Industry, El Garf said that the case was different from the case of sugar, a strategic commodity subsidised by the state.

“I do not have the ability to change a ministerial decision. However, communication can be made with the minister to inform him of the possible damages caused by a decision,” El Garf added.

Setting minimum price of sugar violates free market rules: private sector

Representatives of the private sector of sugar industry rejected the government’s decision to set a minimum price for selling sugar at EGP 8,000 per tonne, stressing that imposing fixed prices violates the free market rules and the supply and demand mechanism.

Ahmed El-Wakil, chairperson of the General Federation of Chambers of Commerce, said the government should not be set certain prices for any product, as the market should be ruled with the supply and demand mechanism.

He pointed out the sugar supply in the local market is much higher than the demand rates, which made factories suffer from the accumulation of large stocks of sugar. It resulted in a drop in sugar prices from EGP 15 per kg to its current EGP 9.50.

El-Wakil expected that the coming period will witness further decline in sugar prices in the local market due to the huge reserves of sugar at factories and the decline in international prices.

He added that the decline in sugar world price does not reflect on the domestic market at the same time, because it is variable. The imported product takes about two months to reach the domestic market, while the prices can change during that period.

He stressed that the sugar trading committee, headed by the Minister of Supply, aimed at providing the local market’s needs of sugar, which has been achieved significantly during the past seven months, resulting in a gradual decline in its prices.

El-Wakil revealed that Delta Sugar Company achieved profits up to EGP 350m in the first half of this year. The company, therefore, began to reduce its prices at the present time, he added.

Mohamed Shoukry, a member of the Chamber of Food Industries and the chairperson of Misr Food Additives (MIFAD), said that the private sector is forced to accept current sugar prices and calculate the cost of production according to them.

He added that government companies account 90% of sugar production in the local market, therefore they determine prices and everyone follow them regardless the ​supply and demand mechanism.

Shoukry stressed that the food industry is suffering from several problems, including high sugar prices but it is not the biggest problem since its effect on the production cost varies from one company to another.

He pointed out that the high prices of fuel, the value-added tax (VAT), and inflation have more negative effects on the sector than sugar.

He added that the rise in sugar prices had affected the food industry and led to an increase in production cost during the last period. Undoubtedly, the decline in sugar prices will have a positive impact on local products’ competitiveness in world markets.

Ahmed Abu Douh, deputy chairperson of the Sugar Crops Council, called for separating the production from distribution, as the sugar factories control the entire market. They determine the purchase prices of sugarcane from farmers and control the sale price to the final consumer, whether commercial or industrial.

He pointed out that the cost of planting sugarcane reaches EGP 17,000 per feddan after the increase of all production inputs including fertilisers, pesticides, labour, irrigation, and others. He called for increasing the prices of sugarcane in the next season to ensure that farmers will continue the production.

Douh noted that the EU has provided a grant for the development of irrigation in Kom Ombo, but the grant was cancelled because of the sugar factory’s rejection to disclose the cost of producing sugar in the governorate.

Sugar prices are exaggerated: CPA 

Head of the Consumer Protection Agency (CPA), Atef Yacoub, said the prices of sugar in the Egyptian market are exaggerated, since the companies calculate the costs according to the sugar production only and ignore the revenues of selling production waste which generate large profits.

He pointed out that the sugar production waste can be used in producing (paper, feed, ethanol, dry yeast, alcohol, vinegar, molasses, oils, aromatic pastries, etc). All these products have large financial returns that cannot be ignored, Yacoub added.

He noted that the CPA always rejects to impose protection tariffs on any product in the market to protect the consumers’ right to obtain products at an appropriate quality and price. However when the government factories asked the agency to protect them from sugar imports, the agency agreed because it is a strategic commodity.

Yacoub refused to exploit the state-run factories to make big profits at the expense of consumers, stressing that their main role is to control the market and face the unjustified increases in prices set by the private sector. He added it is not acceptable to allow government factories to turn into a new greed competitor in the market.

He stressed the public companies should sell sugar at a cost price, adding a slight profit margin that helps them to continue production and the maintenance, replacement, and renewal of machinery and equipment.

The government companies should not aim to achieve profit only, but they should contribute to protect low-income consumers and provide their products at affordable prices, Yacoub said.

He noted that the Cabinet formed a committee of sugar management under chairmanship of the Minister of Supply, and it opposed the high prices of sugar during its recent meeting, while there are large stocks of sugar at the factories.

Share This Article
Leave a comment