Sugar: better regulation and timely import needed

With sugarcane crop expected to slide to 34 million tons next year from 36 million tons in the current year, industry experts forecast next years sugar production at 3.2 million tons as against 3.8 million tons require for the whole year.
This means that plans to import 1 million tons as against the expected shortfall 0.6 million tons is prudent enough to keep a cushion against any potential downside risk in sugar production. What matters, of course, is the timing. The government needs to import the commodity before the end of third quarter of the current fiscal year and capitalize on the temporary dip in international sugar price.
If the import is delayed, however, then the whole of idea of safeguarding domestic consumer against price hike may fall short of intention as global sugar prices are seen bouncing back to 24-25 cents per lb from its current levels of 22 cents per lb by March, according to the FAO. The commodity had peaked to 27-28 cents per lb earlier this year.
As for the so-called long-term policy Federal Minister for Industries and Production Manzoor Wattoo has been talking about, little is known so far. But one area where the policymakers should be looking at specifically is the working capital financing of the millers.
Recall that when the State Bank ordered commercial banks to recover the loan from sugar millers due on March 31, 2009 - the millers claimed that it is not possible to sell out twelve months of stock in just three months time.
The argument of millers made sense at that time, because they had plenty of stock carried forward from last year, which had exceeded total consumption, while the procurement agencies were not active enough, as they were already holding the import stock of the previous year. Hence, the millers were granted a six-month extension in loan payback period with the deadline being October 31, 2009.
The move, however, backfired as the millers took advantage of the financial cushion provided by the central bank and started cutting down sugar supply in the open market creating an artificial shortage that triggered panic buying on part of the dealers and hoarders leading up to the crises everybody now knows about.
So, one lesson from the crises, in short, is to find alternative financing measures, possibly with better transparency and stringent regulatory framework within the existing system, so that hypothecation of sugar stock against loans does not lead to shortage of supply from the market.