Sugar blues

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. The governments footprint may not be as extensive in the sugar market as it is in the wheat market. Yet, the negative implications of government policies and directives on the former are too obvious to ignore. Prolonged exit from international markets coupled with dilly-dallying on procurement have been weighing heavy on the sugar market. It is very important to maintain buffer stocks to cope with natural calamities, but preoccupation with shortage fears, despite maintaining the strategic reserves of 0.5 million tons (sugar policy 2009), had shut out the local players from exporting the surplus for nearly three years. Limited exports of 0.1 million tons were allowed earlier this year on the expectations of an exportable surplus of over one million tons. As expected, the permission to export proved short-lived. The Pakistan Sugar Mills Association, the proponent of sugar exports, advised the government to cease exports on fears of shortages in the future, and procure another 0.4 million tons from local millers. The government has postponed its decision on exports till the crushing season ends in late March. This back and forth policy orientation owes, in part, to the ambiguity over production estimates. On one hand, PSMA has, reportedly, estimated the sugar production at over 4.7 million tons by the end of ongoing crushing season. On the contrary, the Ministry of Industries estimates, reportedly, suggest that sugar production was 3.8 million tons as of March 9. Its hard to say whether the two figures would reconcile later. Similarly, the countrys annual sugar requirement is also not known with certainty, and the estimates range between 3.8-4.2 million tons per annum. A detailed sector study is required to conduct historical and futuristic analysis of sugar consumption patterns. With exports banned, the only way to keep the system from choking is government procurement. Government played smart lately and procured only when the prices hit bottom. Additional procurement is on the cards, which would further balloon the outstanding Rs.400 billion commodities financing from the banks. Reportedly, TCP stocks are sufficient till November 2012, based on depletion of 50,000 tons per month. It remains to be seen what the government will announce: procurement or exports. Internatio-nally, the prices are expected to remain stable owing to abundant sugar supply. India and Thailand are actively selling while Europe and Russia are also expected to join the market soon. On Wednesday, the London white sugar futures for May settled at $648.90 per ton. The sectors woes are addressable. There is a strong case for liberalisation in the sugar market, given the positive experience from rice and cotton markets. There is a need to reset the policies at every step of the value-chain. The antidote to the prevailing situation is to let the market forces prevail.