Why, oh why, sugar?

If you want to see a fresh example of how past actions come haunting back at you, look no further than the current sugar price fiasco. Lets take a brief walk down the memory lane.
The Trading Corporation of Pakistan (TCP) had been delegated the task of importing 1.2 million tons of sugar earlier in 2010, to meet the shortfall in local supply. However, because of inefficiencies in sugar imports due to sundry reasons, the said imports never happened in a praise-worthy manner.
As the delays stretched, so did international sugar prices as poor global weather conditions in sugar exporting countries such as Brazil and India triggered a situation of tightened supplies. In came the floods in Pakistan, and the price rally came around stronger.
No wonder the feasibility of importing white sugar dwindled considerably. The Pakistan Sugar Mills Association (PSMA) suggested the import of raw sugar as an alternate, but before any concrete steps could be taken, raw sugar prices rocketed, rendering the Economic Coordination Committee shelve even raw sugar import plans.
Now, international white sugar prices stand very tall, having brushed a record high of $783.9 per ton on Friday, while raw sugar prices reached a 30-year high at nearly 32 cents per pound.
The latest stimulus by the US Fed is partly responsible for this as investors scrambled towards commodities such as sugar in the wake of a weakening dollar. According to Reuters, "Dealers said sugar had the additional appeal to investors of having a bullish fundamental story due to the tight supplies, low inventories and resilient demand for the sweetener."
Consequently, importing sugar is no more a feasible exercise for Pakistan. So, for the coming months, Pakistan has got only its own stocks to meet the sugar demand.
Even though the TCP auctioned around 50,000 tons of sugar in the open market earlier in October, and sold 10,000 tons of sugar last week to local suppliers, it wasn enough for the local consumption of roughly 350,000 tons per month.
The Ministry of Industries claims that currently 0.5 million tons of sugar, including domestic and imported stocks, are available, which are sufficient till the end of November. On the other hand, sugar mills do not have any stocks with them, claims the PSMA.
Two concerns arise out of this: Firstly, if stocks are sufficient until November, isn the price hike a tad premature? Secondly, and more importantly, if the mills do not have the sugar, whos controlling the said stocks, and possibly manipulating local prices?
If you
e guessing hoarders, you
e probably right. According to Iskander Khan, ex-chairman PSMA, "Even if a small shop keeper buys 5 extra sacks of sugar in anticipation of rising prices, it is hoarding."
Multiply this by the several wholesalers, retailers and other hoarders stocking up the commodity, and youll probably be clenching your fists at the state of affairs.
Add to this the tout created by the populist stance of some sections of the media, and many retailers, who may not have predicted the sudden price surge, will jack up prices of the sweetener.
Had the TCP managed the import and later offload of imported sugar more efficiently in the beginning, when even international prices were fairly reasonable, the local price rally might have been contained.
Now that the cushion of importing sugar is also not feasible, thanks to the lofty global prices, and a forecasted shortfall of around 1.3 million tons for FY11 after the floods, sugar prices are likely to remain quite stretched. Time to curb your sweet cravings for quite a while.