Last update: Mon, 23 Jan 2017 09pm

BR Research: Sugar and Allied Industries


Had you invested in wheat or flour in the past year instead of gold, your investment would have grown numerous folds by now, rightly depicted by a comical illustration in a local newspaper.
Gold has always been especially golden for people in India and Pakistan. But the former, with its population of more than one billion people has a very strong influence of its gold addiction on the global gold market and also on its own national economy.
The precious metal has again gotten the needed boost from all corners of the world. After an erratic spell that lasted as long as the moot over the fiscal cliff, gold prices stabilized a tad once the last-minute deal on the fiscal cliff was reached.
The Kharif season is underway in Pakistan amid reports of water shortages negatively impacting the growth period of the season. The water shortage weighs heavy on sugar cane crop which is highly water-intensive. Other issues with the crop, including long-time duration, land degradation, use of insecticides and encroachment of cotton belts, have had people talking about sugar beet in the past.
Punjab is home to more than half of the sugar mills in Pakistan. But, for the past six years, there is a complete ban in the province on the setup of new sugar mills as well as the expansion of existing mills. In its latest policy note, the Competition Commission of Pakistan advised the Punjab Government to lift the ban that had been imposed in December 2006, in order "to allow a fair competition in the sector".
This must have come as a great respite for sugar industry which had long been shuttling back and forth the decision-making corridors to get excess stocks off their backs. A delegation of the Pakistan Sugar Mills Association - the industry body - recently met the President of Pakistan, and apparently got their wish list fulfilled. The sales pitch, again, centered on making payments to the sugar cane growers.
The road to hell is paved with good intentions: an aphorism that seems apt for governments involvement in the season-specific commodities market. Over the years, what started out in the name of food security, price stability and grower protection, effectively distorted the market of staple food commodities.