The Ministry of Finance recently imposed an import quota on sugar in order to promote the domestic sugar industry. The Cabinet approved a quota of 100,000 tonnes annually. The decision followed pressure from domestic sugar producers who sought government help to protect local sugar mills since Nepal imports the household sweetener mainly from India. Owing to cheaper foreign products, domestic mill owners have been complaining about unsold sugar piling up in their warehouses. They have also not been paying sugarcane farmers on time for their crops citing issues of excess stocks.

This led the government to impose import quotas in a bid to promote local products in the market. Although producers had promised not to increase the rates after the quantitative restriction was implemented, the price of the sweetener jumped from Rs65 per kg to Rs85-90 per kg after the quota went into effect. Such a move has not only hurt consumers, but also raised questions about the intention of the government.

Data from the Department of Customs show that Nepal imported sugar worth Rs6.72 billion in the fiscal year 2016-17, a jump of 38 percent over the previous year. A study of the import figures of the first six months of the current fiscal year shows that imports of sugar and sugar-related products have reached around Rs10 billion. There are 13 sugar mills in the country, and their production currently meets about 50 percent of the domestic requirement.

A majority of lawmakers in the parliamentary Public Accounts Committee also suspect wrongdoing in the government decision. Some have even pointed out that domestic sugar mills import sugar from the Indian market, and repack and resell it under a Nepali brand. As the producers are engaged in malpractice and the government seems to be promoting such misconduct, official policy looks like it is more ‘pro-producer’ than ‘pro-consumer’.

But this could prove to be ineffective at best, and market-distortive at worst. In global commodity markets, it is axiomatic that prices move not on the basis of current demand-supply fundamentals, but on anticipated changes in the future. By imposing import quotas, the government is supporting an open syndicate in the interest of sugar mills, and at the same time, forcing consumers to buy an overpriced product right before the start of the festival season.

Any decision by the government should have the interest of the consumer as its top priority. The quantitative restriction breaches consumer rights too as it limits the consumer’s opportunity to choose goods and services at competitive prices. A probable solution to the sugar mess is creating a conducive environment for the production of such essential supplies. Providing subsidies to domestic producers can be one way out.

But year after year, the government, regardless of the political group in power, has been hiking the prices ahead of, or around, major festivals. That is a sign that the government’s decision to ban import on sugar is not to provide respite to the domestic producers. Rather, such a move  will only help the black market flourish and in turn, add to consumer woes.